Sumotext Corp. -v- Zoove, Inc., et al

Filing 440

ORDER RE 423 DEFENDANTS' ADMINISTRATIVE MOTION TO SEAL DOCUMENTS AT TRIAL by Judge Beth Labson Freeman.(mdllcS, COURT STAFF) (Filed on 2/20/2020).

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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SUMOTEXT CORP.,
Plaintiff,

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v.

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ZOOVE, INC., et al.,
Defendants.

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United States District Court
Northern District of California

Case No. 16-cv-01370-BLF
ORDER RE DEFENDANTS’
ADMINISTRATIVE MOTION TO
SEAL DOCUMENTS AT TRIAL
[Re: ECF 423]

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Presently before the Court is Defendants’ request to seal certain exhibits that the parties

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may offer at trial. ECF 423. These documents were previously designated as Attorneys’ Eyes

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Only pursuant to the Protective Order in this case, and Defendants seek to maintain that restriction

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throughout trial. ECF 423 at 2; see ECF 205. Plaintiff Sumotext Corp. (“Sumotext”) opposes

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sealing. ECF 428. Having reviewed the parties’ submissions and the applicable sealing law, the

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Court GRANTS IN PART and DENIES IN PART Defendants’ administrative motion to seal.

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I.

LEGAL STANDARD
“Historically, courts have recognized a ‘general right to inspect and copy public records

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and documents, including judicial records and documents.’” Kamakana v. City & Cnty. of

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Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006) (quoting Nixon v. Warner Commc’ns, Inc., 435

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U.S. 589, 597 & n.7 (1978)). As the Ninth Circuit has explained, this is a “common law right,”

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United States v. Doe, 870 F.3d 991, 996 (9th Cir. 2017), reflecting the American judicial system’s

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longstanding commitment to “the open courtroom,” Oliner v. Kontrabecki, 745 F.3d 1024, 1025

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(9th Cir. 2014). Accordingly, court records are generally subject to “a strong presumption in favor

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of access.” Id. (internal quotation marks omitted). In order to justify sealing such records, a

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litigant must show “compelling reasons” that “outweigh the general history of access and the

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public policies favoring disclosure.” Kamakana, 447 F.3d at 1178 (internal quotation marks

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omitted). Although a lesser showing of “good cause” suffices to seal documents not “more than

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tangentially related to the underlying cause of action,” that narrow “exception” is plainly

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inapplicable to trial exhibits. Ctr. for Auto Safety, 809 F.3d at 1099. “[T]he resolution of a

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dispute on the merits” at trial “is at the heart of the interest in ensuring the public’s understanding

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of the judicial process and of significant public events.” Kamakana, 447 F.3d at 1179 (internal

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quotation marks omitted). In order to justify sealing the exhibits at issue, then, Defendants must

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meet “the high threshold of showing that ‘compelling reasons’ support secrecy.” Id. at 1180;

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accord FTC v. DIRECTV, Inc., No. 15-CV-01129-HSG, 2017 WL 840379, at *1 (N.D. Cal. Mar.

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3, 2017).

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Compelling reasons justifying the sealing of court records generally exist “when such

United States District Court
Northern District of California

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‘court files might . . . become a vehicle for improper purposes,’” Kamakana, 447 F.3d at 1179

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(quoting Nixon, 435 U.S. at 598), such as: “to gratify private spite, promote public scandal,

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circulate libelous statements,” id.; “to release trade secrets,” id.; or “as sources of business

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information that might harm a litigant’s competitive standing,” Ctr. for Auto Safety, 809 F.3d at

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1097 (quoting Nixon, 435 U.S. at 598). On the other hand, “[t]he mere fact that the production of

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records may lead to a litigant’s embarrassment, incrimination, or exposure to further litigation will

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not, without more, compel the court to seal its records.” Kamakana, 447 F.3d at 1178–79. The

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party seeking to seal a judicial record bears the burden of “articulat[ing] compelling reasons

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supported by specific factual findings.” Id. at 1182 (internal quotation marks omitted). The court

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must then “conscientiously balance the competing interests of the public and the party who seeks

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to keep certain judicial records secret.” Ctr. for Auto Safety, 809 F.3d at 1097 (internal quotation

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marks and alterations omitted).

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In addition, in this district, all parties requesting sealing must comply with Civil Local

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Rule 79–5. That rule requires, inter alia, the moving party to “establish ... that the document, or

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portions thereof, are privileged, protectable as a trade secret or otherwise entitled to protection

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under the law.” Civ. L.R. 79–5(b). The request must also “be narrowly tailored to seek sealing

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only of sealable material.” Civ. L.R. 79–5(b). Section (d) lays out the procedural requirements for

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an administrative motion to seal, namely, a “declaration establishing that the document sought to
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be filed under seal, or portions thereof, are sealable,” a proposed order that “lists in table format

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each document or portion thereof that is sought to be sealed,” and an “unredacted version of the

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document” that “indicate[s], by highlighting or other clear method, the portions of the document

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that have been omitted from the redacted version.” Civ. L.R. 79–5(d).

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II.

DISCUSSION
Defendants move to seal five documents on the parties’ joint trial exhibit list pursuant to

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Civil Local Rule 79-5. Specifically, Defendants seek to seal all five exhibits in their entirety. The

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Court addresses each exhibit in turn below.

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First, the Court DENIES Defendants’ request to seal ECF 423-2, a 2016 email between
StarStar Mobile and a customer “containing information relating to pricing paid by a **

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United States District Court
Northern District of California

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customer,” ECF 423-1 ¶ 2. It is clear that price terms may be sealable. In In re Electronic Arts,

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298 Fed. Appx. 568, 569 (2008), the Ninth Circuit held that “pricing terms, royalty rates, and

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guaranteed minimum payment terms” in a licensing agreement constituted “business information

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that might harm a litigant’s competitive strategy” and, as such, should have been sealed under the

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compelling reasons standard. The court further observed that such information “falls within the

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definition of ‘trade secrets,’” which “may consist of any formula, pattern, device or compilation of

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information which is used in one’s business, and which gives him an opportunity to obtain an

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advantage over competitors who do not know or use it.” Id. (quoting Restatement of Torts § 757,

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cmt. b). And in Apple Inc. v. Samsung Electronics Co., 727 F.3d 1214, 1223 (2013), the Federal

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Circuit held that a trial court in this district had abused its discretion in refusing to seal portions of

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documents “containing detailed product-specific financial information, including costs, sales,

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profits, and profit margins.”

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The Court nevertheless finds that Defendants have failed to establish compelling reasons

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for sealing ECF 423-2. Although Defendants characterize the email as a “pricing discussion[]

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with [a] StarStar Mobile customer[],” the email discusses only historical prices that the customer

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had previously paid for Sumotext’s services. Although such information might be relevant to

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Defendants’ pricing decisions, the email itself reveals nothing about the prices Defendants offered

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to their customers. In other words, the email contains Sumotext’s pricing information, not
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Defendants’. Sumotext, for its part, does not seek to seal the email. ECF 428 at 2-3. The Court

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also notes that the prices are historical and not current; hence, the potential for future harm is not

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obvious. See DIRECTV, Inc., 2017 WL 840379, at *2. Meanwhile, Defendants have failed to

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explain how disclosure would cause significant competitive harm to them with any specificity.

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Under these circumstances, the compelling reasons standard has not been met.

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Second, the Court GRANTS the request to seal ECF 423-3. This exhibit is a due diligence
report about Defendant Zoove, Inc. (“Zoove”). According to Defendants, it “contains highly

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detailed financial information concerning Zoove that would be damaging if known, even several

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years after the fact.” ECF 423-1 ¶ 3. The Court is persuaded that is the case. Due diligence

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reports are commonly prepared by companies considering an acquisition and thus typically

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United States District Court
Northern District of California

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involve detailed confidential data about the target business. Having reviewed the exhibit, the

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Court confirms that it contains, inter alia, the names of customers, see, e.g., ECF 423-3 at 1;

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itemized costs, see, e.g., id. at 2; invoice numbers and amounts, see, e.g., id. at 6; a monthly P&L

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from 2014 to 2015, see, e.g., id. at 23-26; accounts receivable, by customer, see, e.g., id. at 36-37;

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an annotated list of fixed assets, see, e.g., id. at 60-78. These are precisely the kinds of sensitive

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financial information that courts in this Circuit have found sealable under In re Electronic Arts and

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Apple v. Samsung. See, e.g., Cox v. Roadrunner Intermodal Servs., LLC, No.

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117CV01056DADBAM, 2019 WL 3202922, at *2 (E.D. Cal. July 16, 2019) (“Courts have found

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it appropriate to redact private financial information of competitive value.”); Johnstech Int’l Corp.

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v. JF Microtechnology SDN BHD, No. 14-CV-02864-JD, 2016 WL 4091388, at *3 (N.D. Cal.

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Aug. 2, 2016) (granting motion to seal “specific customer names and the percentage of business to

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those customers”); Van v. Language Line Servs., Inc., No. 14-CV-03791-LHK, 2016 WL

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3566980, at *2 (N.D. Cal. June 30, 2016) (sealing “the identities of Defendants’ clients, billing

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rates, billing amounts”); In re ConAgra Foods, Inc., No. CV1105379MMMAGRX, 2014 WL

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12577132, at *4 (C.D. Cal. July 11, 2014) (granting motion to seal “internal financial

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information,” such as a P&L for fiscal years 2008 to 2014). And although Defendants ask to seal

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the entire exhibit, the Court is satisfied that it does not include significant amounts of non-sealable

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information and that, consequently, the request is not overbroad.
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Plaintiff’s only argument in opposition of sealing is that Defendants “do not attempt to

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protect other financial spreadsheets and contracts with customers,” wherefore Plaintiff accuses

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Defendants of “cherry-pick[ing] documents.” ECF 428 at 3. But the Court will not fault

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Defendants for narrowly tailoring their request or speculate as to their motives for doing so.

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Where, as here, the Court has found that the document contains sealable business information, it

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would create perverse incentives to suggest that a narrow request undermines the need for sealing.

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The Court thus rejects this argument as to all the exhibits at issue in this motion.

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Third, the Court GRANTS the request to seal ECF 423-4, an amendment to a Reseller

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Agreement between StarStar Mobile and one of its current customers. The Court is typically
reluctant to seal entire commercial agreements, which often contain pages upon pages of

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United States District Court
Northern District of California

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boilerplate terms and publicly information about the parties. It is difficult to see any competitive

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harm resulting from disclosure of such information. At the same time, however, the Court

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believes that essential, closely-negotiated or customer-specific terms are sealable under Ninth

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Circuit law, as they could be used by competitors to undercut the litigant or by potential customers

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to demand more favorable terms in negotiations. For instance, In re Electronic Arts involved

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“pricing terms, royalty rates, and guaranteed minimum payment terms” in a licensing agreement.

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Similarly, this Court has previously sealed “product rates, exclusivity requirements, and other

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confidential terms,” Nicolosi Distrib., Inc. v. Finishmaster, Inc., No. 18-CV-03587-BLF, 2018

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WL 3932554, at *3 (N.D. Cal. Aug. 16, 2018), and “confidentiality clauses, along with lists of the

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parties’ obligations and terms of payment,” Finisar Corp. v. Nistica, Inc., No. 13-CV-03345-

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BLF(JSC), 2015 WL 3988132, at *5 (N.D. Cal. June 30, 2015).

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The Court finds that the exhibit at hand primarily contains sealable contract terms. The

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short, two-page agreement appears to be tailored to a particular—and current—customer,

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regarding an idiosyncratic situation. It essentially lays out a specific payment schedule to deal

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with a problem that arose. Although the Court could require Defendants to unredact certain

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portions of the agreement, those portions would be too insignificant to have any probative value.

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The sealing request is, therefore, granted.

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Fourth, the Court GRANTS the request to seal ECF 423-5. This exhibit is a spreadsheet
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entitled “**Mobile Invoicing Schedule.” The spreadsheet appears to list StarStar Mobile’s

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customers, along with detailed information about the StarStar Mobile’s contract with each

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customer. For instance, the spreadsheet displays the StarStar numbers leased, the contract

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termination date, the billing method, and monthly billing amounts for 2017 and 2018. Under the

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case law already discussed, this information is sealable financial and customer data. See, e.g.,

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Van, 2016 WL 3566980, at *2 (sealing “the identities of Defendants’ clients, billing rates, billing

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amounts”).

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Fifth, the Court GRANTS the request to seal ECF 423-6, an internal email describing a

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deal that StarStar Mobile apparently proposed to one of its reseller customers. ECF 423-1 ¶ 6.
This email lays out the key terms of a potential reseller agreement, akin to the one at ECF 423-4.

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United States District Court
Northern District of California

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Here, as there, the terms described are the essential parameters of the relationship, not incidental

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or secondary provisions. The email is therefore sealable for the same reason the agreement

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described therein would be.

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III.

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ORDER
For the foregoing reasons, the Court rules on Defendants’ administrative motion to seal as

follows:
Document

Portion to be sealed

Ruling

ECF 423-2, Bates #
ZOOVE0006571

Entire document

DENIED.

ECF 423-3

Entire document

GRANTED.

ECF 423-4, Bates #
Entire document
VHTSTARSTAR0002628

GRANTED.

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ECF 423-5

Entire document

GRANTED.

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ECF 423-6, Bates #
Entire document
VHTSTARSTAR0003810

GRANTED.

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If introduced at trial, the exhibits at ECF 423-3, 423-4, 423-5, and 423-6 will be sealed.
Defendants have not specified the extent of sealing that they seek. Accordingly, in the absence of
a specific request, the Court imposes the following protections: (1) the exhibits will not be filed on
the public docket; (2) the exhibits will not be published to the gallery; and (3) witnesses who are

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shown the exhibits will be subject to this order and advised by counsel to maintain the

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confidentiality of the information contained therein. However, (1) the exhibits will be published

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to the jury and to the counsel tables; (2) the courtroom will not be sealed; (3) witnesses will be

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permitted to testify orally about the exhibits in open court; and (4) the transcript will not be sealed.

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In addition, all copies of the exhibits filed at ECF 423—including ECF 423-2—in support

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of the administrative motion to seal will remain under seal. These documents were filed for the

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sole purpose of enabling the Court to determine whether the documents meet the standard for

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sealing at trial. The public interest in accessing these documents will only be triggered if the

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exhibits are actually offered at trial; otherwise, they will be irrelevant to the proceedings.

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Finally, the Court notes that this order concerns only the treatment of the above-listed

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Northern District of California

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exhibits at trial; it does not affect the designation of the exhibits as Attorneys Eyes Only (“AEO”).

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The Protective Order clearly states that “the confidentiality obligations imposed by [the Protective

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Order] shall remain in effect until a Designating Party agrees otherwise in writing or a court order

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otherwise directs”—“even after final disposition of this litigation.” ECF 205 at 3. The Court has

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not been presented with a ripe motion to lift or otherwise modify the Protective Order, ECF 205,

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as to these exhibits. See, e.g., Oracle USA, Inc. v. Rimini St., Inc., No. 2:10-CV-00106-LRH,

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2015 WL 3721687, at *1 (D. Nev. June 12, 2015). Indeed, Plaintiff does not appear to have

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challenged the AEO designation in accordance with the process described in the Protective Order,

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see ECF 205 at 6-7. The Protective Order thus remains binding.

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IT IS SO ORDERED.
Dated: February 20, 2020
______________________________________
BETH LABSON FREEMAN
United States District Judge

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