Ubiquiti Networks, Inc. v. Kozumi USA Corp. et al

Filing 133

ORDER by Magistrate Judge Jacqueline Scott Corley granting 119 Administrative Motion to File Under Seal; denying 120 Motion for Sanctions; granting 129 Motion for Leave to File (ahm, COURT STAFF) (Filed on 2/28/2013)

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1 2 3 4 5 6 7 8 9 IN THE UNITED STATES DISTRICT COURT 10 FOR THE NORTHERN DISTRICT OF CALIFORNIA Northern District of California United States District Court 11 12 13 UBIQUITI NETWORKS, INC., Plaintiff, 14 15 Case No.: 12-cv-2582 CW (JSC) ORDER RE: PLAINTIFF’S MOTION FOR SANCTIONS (Dkt. No. 120) v. 16 17 18 KOZUMI USA CORP., et al., Defendants. 19 20 Pending before the Court is Plaintiff’s Motion for Sanctions based on Defendants’ over 21 designation of documents as “HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY” 22 and “CONFIDENTIAL.” (Dkt. No. 120). Having carefully considered the parties’ written 23 submissions and evidence, and with the benefit of oral argument on February 28, 2013, the 24 Court DENIES Plaintiff’s motion for sanctions. 25 26 BACKGROUND Ubiquiti is a publicly held company which designs, develops, and sells various kinds 27 of wireless communications devices, including receivers, transmitters, routers, and antennas. 28 (Dkt. No. 1 ¶ 1.) It generally contracts with third-party distributors and resellers to market 1 and sell its products around the world. (Id.¶¶ 23-24.) In May 2008, Ubiquiti entered into a 2 Distribution Agreement with Defendants Wu and Kozumi. (Dkt No. 91 ¶ 7.) Wu is the sole 3 shareholder and officer of Kozumi. (Id. ¶ 4.) In November 2009, Ubiquiti terminated the 4 Distribution Agreement. (Dkt. No. 1 ¶ 53.) 5 Ubiquiti subsequently filed the underlying lawsuit against Kozumi and Wu for competition, false advertising, and libel. (Dkt. No. 1.) The suit alleges that Kozumi and Wu 8 contracted a foreign manufacturer to produce counterfeit Ubiquiti products and then sold 9 these counterfeit products in Latin America under Ubiquiti’s trademarks. (Id. ¶¶ 100-96.) 10 Defendant Kozumi counterclaimed for breach of contract, breach of the covenant of good 11 Northern District of California trademark infringement, counterfeiting, computer fraud, copyright infringement, unfair 7 United States District Court 6 faith and fair dealing, restraint in trade under California and federal law, intentional 12 interference with prospective economic advantage, and violation of California Business and 13 Professions Code § 17200, and Defendant Wu counterclaimed for defamation and libel. (Dkt. 14 No. 91 ¶¶ 6-53.) On January 29, 2013, the Honorable Claudia Wilken denied Plaintiff’s 15 motion to dismiss the breach of contract claim, but granted the motion to dismiss as to the 16 other claims granting leave to amend Defendants’ claims for breach of the covenant of good 17 faith and fair dealing, intentional interference with prospective economic advantage, violation 18 of California Business and Professions Code § 17200, and defamation and libel. 19 Discovery in this case has been ongoing since October 2012 and has been fraught with 20 issues since the beginning. Although the parties entered into a Stipulated Protective Order 21 (Dkt. No. 87) based on the Northern District’s model Stipulated Protective Order, there have 22 been numerous issues with designation of documents under the Stipulated Protective order. 23 The Stipulated Protective Order allows either side to designate documents as 24 “CONFIDENTIAL” or “HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY” 25 (“AEO”). Plaintiff contends that Defendants confidentiality designations violate the 26 Stipulated Protective Order’s prohibition on “mass, indiscriminate, or routinized” 27 confidentiality designations and seek sanctions. (Dkt. No. 87 ¶ 5.1.) 28 2 LEGAL STANDARD 1 2 Federal Rule of Civil Procedure 37(c)(2) provides for sanctions based on a party’s 3 failure to comply with their obligations under Federal Rule of Civil Procedure 26. In 4 addition, district courts may impose sanctions as part of their inherent power “to manage 5 their own affairs so as to achieve the orderly and expeditious disposition of cases.” 6 Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991). Indeed, district courts can impose 7 sanctions for a “full range of litigation abuses.” Id. at 55. 8 In considering the priority of sanctions for violation of a protective order, the Ninth disobedience of a court order ... or when the losing party has acted in bad faith, vexatiously, 11 Northern District of California Circuit has held that this falls within a district court’s inherent power to sanction for “willful 10 United States District Court 9 wantonly, or for oppressive reasons.” Fink v. Gomez, 239 F.3d 989, 989 (9th Cir. 2001) 12 (internal citation omitted). “[A] willful violation of a court order does not require proof of 13 mental intent such as bad faith or an improper motive, but rather, it is enough that a party 14 acted deliberately.” Evon v. Law Offices of Sidney Mickell, 688 F.3d 1015, 1035 (9th Cir. 15 2012) (internal quotation and citation omitted). “A determination that a party was willfully 16 disobedient is different from a finding that a party acted in bad faith. Either supports the 17 imposition of sanctions.” Id. 18 DISCUSSION 19 Plaintiff contends that Defendants designated nearly their entire production of 20 documents as AEO, although this form of protection is only available for “extremely 21 sensitive” confidential material the disclosure of which creates a substantial risk of harm to 22 the designating party. Plaintiff argues that these mass, indiscriminate and routinized 23 confidentiality designations violate the Stipulated Protective Order. Plaintiff argues that this 24 amounts to a willful violation which should be sanctioned. Defendants do not dispute that 25 they designated thousands of pages of documents as AEO; instead, they contend that the 26 designations were proper because of Ubiquiti and Kozumi’s status as competitors. 27 Defendants also argue that upon receipt of Plaintiff’s challenge to their AEO designations 28 3 1 they promptly reviewed the documents and de-designated the documents as confidential or 2 non-confidential. Plaintiff characterizes Defendants’ efforts in this regard as too little too late. 3 The Court has considered numerous challenges to Defendants’ confidentiality 4 designations under the Stipulated Protective Order. (Dkt. Nos. 101, 110, 125 & 126.) The 5 Court will not reiterate the substance of those Orders here. For purposes of this motion it is 6 helpful, however, to review the specifics of the productions and re-designations. 7 In October 2012, Defendants served their initial document production which included 8 “thousands of pages of documents with no confidentiality designation, which constituted most 9 of the production.” (Dkt. No. 123-1 ¶ 3; see also Dkt. No. 12-1 ¶ 3 (noting that 925 of the Northern District of California 3,439 pages were produced with an AEO designation).) Defendants’ second production 11 United States District Court 10 consisted of 24,676 pages all of which was designated as AEO. (Dkt. No. 120-1 ¶ 4.) In 12 November 2012, Defendants produced over 3,000 pages of documents all of which were 13 designated as AEO. (Id. at ¶¶ 5-10.) Plaintiff challenged these designations and the parties 14 filed a joint discovery letter brief whereby Plaintiff sought modification of the Stipulated 15 Protective Order to allow in-house counsel access to documents designated as AEO. (Dkt. 16 No. 100.) The Court found that such a modification was unnecessary at that time because “it 17 appears likely that Defendants have overused the AEO designation.” (Dkt. No. 101, p. 3.) 18 Defendants thereafter de-designated 220 documents and re-designated another 518 documents 19 as Confidential. The parties filed another joint discovery letter brief wherein Defendants 20 sought a determination that at least 500 documents (not submitted to the Court) were properly 21 designated as AEO. (Dkt. No. 103.) The Court denied the request without prejudice to 22 refiling and providing specific information as to each document at issue. (Dkt. No. 110.) 23 Defendants subsequently agreed to review their designations again and have since removed 24 the AEO designation from 95 percent of the documents, although many of these documents 25 were re-designated as Confidential. 26 As the Court has noted in prior Orders regarding designations under the Stipulated 27 Protective Order, both parties’ conduct in this matter has been problematic. Defendants have 28 certainly overused and abused the confidentiality designations available under the Stipulated 4 sparingly to protect only that matter which is genuinely “extremely sensitive” such that 3 disclosure would subject the party to a substantial risk of harm. However, when Plaintiff 4 raised a challenge to Defendants’ designations, Defendants (with encouragement from the 5 Court), de-designated and re-designated documents as non-confidential or Confidential. 6 Throughout this process and certainly following Defendants’ de-designations, the parties 7 meet and confer efforts have been lacking. This was discussed at length in the Court’s 8 Orders of February 25, 2013. (Dkt. Nos. 125 & 126.) Rather than attempting to work 9 together in good faith to resolve issues, Plaintiff has prematurely terminated the meet and 10 confer and insisted on Court intervention. While the Court is mindful of the frustrations 11 Northern District of California Protective Order. The AEO designation under the Stipulated Protective should be used 2 United States District Court 1 often incumbent in the discovery process, the Court also believes that these issues are best 12 resolved by the parties sitting down and meeting with each other face to face rather than 13 immediately seeking or demanding that the other party seek judicial intervention. 14 Accordingly, the Court in its discretion declines to award sanctions at this time. While 15 Defendants overused the AEO designation, this is a case between competitors and Defendants 16 had concerns regarding sharing its internal confidential documents with in-house counsel. 17 Further, Defendants did de-designate and re-designate numerous documents as non- 18 confidential or Confidential; this should have happened without prompting from Plaintiff or 19 the Court, but it did happen and the Court does not find that Plaintiff has been prejudiced by 20 virtue of any delay. However, there remain disputes between the parties regarding the now 21 large volume of documents that Defendants have designated or re-designated as Confidential 22 under the Stipulated Protective Order. 1 The Court has ordered the parties to meet and confer 23 24 25 26 27 28 1 For those documents Defendants have agreed or been ordered to de-designate or redesignate, Defendants agreed at the February 28 hearing to reproduce all the documents with the revised confidentiality designations (or lack thereof) by the close of business Tuesday, March 5, 2013. 5 1 further regarding this dispute; because counsel for both parties are local, any such meet and 2 confer shall take place in person. 2 3 CONCLUSION 4 Based on the foregoing, the Court in its discretion DENIES Plaintiff’s Motion for 5 Sanctions (Dkt. No. 120.) Plaintiff’s Administrative Motion to Seal Exhibit I to the Declaration of Jennifer Lee 6 7 Taylor is GRANTED. (Dkt. No. 119.) 8 Defendants’ Motion for Leave to File a Surreply is GRANTED. (Dkt. No. 129.) 9 This Order disposes of Docket No. 120. IT IS SO ORDERED. 10 Northern District of California United States District Court 11 12 Dated: February 28, 2013 _________________________________ JACQUELINE SCOTT CORLEY UNITED STATES MAGISTRATE JUDGE 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 To the extent there are future disputes regarding the designation of particular documents, the documents may be submitted to the Court electronically (on a CD or equivalent) rather than in paper form. 6

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