Princeton Digital Image Corporation v. Harmonix Music Systems Inc. et al

Filing 176

MEMORANDUM ORDER re 139 Joint MOTION for Teleconference to Resolve Discovery Dispute filed by Konami Digital Entertainment Inc., Electronic Arts Inc., Harmonix Music Systems Inc. Signed by Judge Christopher J. Burke on 8/31/2016. (dlk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

PRINCETON DIGITAL IMAGE CORP.,
Plaintiff,

v.

)
)
)
)

)

KONAMI DIGITAL ENTERTAINMENT
INC., et al.,
Defendants.

Civil Action No. 12-1461-LPS-CJB

)
)
)
)
)

MEMORANDUM ORDER

1.

Before the Court in this patent infringement action is Plaintiff Princeton Digital

Image Corp. 's ("Plaintiff') motion to compel Defendant Konami Digital Entertainment Inc.
("Konami US") to produce core technical documents regarding certain accused prod~cts in this
case that are in the possession of certain of Konami US's foreign affiliates. (D.I. 139) The Court
has considered the parties' letter submissions, (D.I. 143, 149, 169, 170), as well as the parties'
arguments made during the August 25, 2016 teleconference with the Court, (D.I. 174
(hereinafter, "Tr.")).
2.

More specifically, Plaintiff is requesting that Konami US be ordered to

"supplement its core technical document production ... to include the technical documents
describing the features of each accused [video] game title, including the functional requirements,
technical specifications, test plans and other relevant technical documents" by producing records
in the possession of Konami US non-party "affiliates" Konami Holdings Corp. (the "Holding
Company") and Konami Digital Entertainment, Ltd. ("Konami Japan"). (D.I. 143 at 3-4; see
also D.I. 169 at 1-2; Tr. at 15) The Holding Company is a publicly traded company that

ultimately owns both Konami US and Konami Japan. (D.I. 151, Declaration of Nobuko Horii

Minerd (hereinafter, "Minerd Deel."), at~ 5) 1 Konami Japan developed the Dance Dance

Revolution videogames accu.sed of infringing Plaintiffs United States Patent No. 5,513,129 in
this case, (id), and the videogames are in turn distributed by Konami US in the United States,

(id. at ~ 6). 2
3.

Federal Rule of Civil Procedure 34(a) requires the production of documents that

are "in the responding party's possession, custody or control[.]" Fed. R. Civ. P. 34(a)(l). "In the
absence of control by a litigating corporation over documents in the physical possession of
another corporation, the litigating corporation has no dufy to produce." Gerling Int'! Ins. Co. v.

Comm 'r ofInternal Revenue, 839 F.2d 131, 140 (3d Cir. 1988). In the context of Rule 34(a), our
Court has found that documents are in the "control" of a litigating party ifthat party has the
'"legal right to obtain the documents required on demand"' from the non-party corporation.

Inline Connection Corp. v. AOL Time Warner Inc., No.CA 02-272-MPT, CA 02-477-MPT,
2006 WL 2864586, at *1 (D. Del. Oct. 5, 2006) (quoting Power Integrations, Inc. v. Fairchild

Semiconductor Int'!, Inc., 233 F.R.D. 143, 145 (D. Del. 2005)). The party seeking production of
documents bears the burden of establishing the opposing party's control over those documents.

Id.; Playboy Entm 't Grp., Inc. v. United States, No. CIV.A. 96-94-JJF, 1997 WL 873550, at *3
(D. Del. Dec. 11, 1997).
4.

In cases where a litigating company's sister corporation possesses the desired

Konami US is a subsidiary of Konami Corporation of America, which, in tum, is
a subsidiary of the Holding Company. (Minerd Deel. at~ 5)
2

In addition to selling a subset of the video games developed by Konami Japan,
Konami US "also sells games made by nonparty game developers, such as Blitz Games which
made some of the [accused] Karaoke Revolution [games]." (Tr. at 33; see also Minerd Deel. at~
3)
2

documents, the United States Court of Appeals for the Third Circuit has set out two pathways for
a finding of the requisite control under Rule 34(a). In Gerling Int'! Ins. Co. v. Comm 'r of

Internal Revenue, 839 F.2d 131 (3d Cir. 1988), the Third Circuit explained that in such
situations, control has been found only where (1) "the sister corporation was found to be the alter
ego of the litigating entity[;]" or (2) "the litigating corporation had acted with its sister in
effecting the transaction giving rise to suit and is litigating on its behalf[.]" Gerling, 839 F.2d at
141. 3 As for circumstances that would satisfy the second scenario, the Gerling Court cited to a
decision from this Court that served a representative "example" thereof, Afros S.P.A. v. Krauss-

Maffei Corp., 113 F.R.D. 127 (D. Del. 1986), and went on to observe that "[w]here the
relationship is thus such that the agent-,subsidiary can secure documents of the principal-parent to
meet its own business needs and documents helpful for use in the litigation, the courts will not
permit the agent-subsidiary to deny control for purposes of discovery by an opposing party." Id.
at 140-41 (citing cases).
5.

Iri asserting here that Konami US has control over core technical documents in the

possession of Konami Japan, 4 and should thus be required to obtain and produce them, Plaintiff

3

The Gerling Court noted that the "same" two paths exist in cases involving parent
and subsidiary corporations where the litigating corporation is the subsidiary and the parent
possesses the documents. Gerling, 839 F.2d at 140-41.
4

The Court focuses its analysis in this Memorandum Order on the relationship
between Konami Japan and Konami US, without further discussing the Holding Company. It
does so in light of Konami US's representation that the Holding Company is a holding company
only, and as such does not maintain any technical documents, (D.I. 170 at 1; Tr. at 27), and in
light of the fact that Plaintiff has not demonstrated otherwise. Although the Court's analysis
below will focus on Plaintiff's request with respect to Konami Japan, nevertheless, were the
Holding Company to have any relevant core technical documents, the Court's decision would
apply in the same way as to it.
3

relies on the second pathway set out in Gerling. (Tr. at 15-16) The Court, however, finds that
Plaintiff has not met its burden of demonstrating such control, in that the Court cannot conclude,
based on the current record, that "[Konami US] had acted with its sister [Konami Japan] in
effecting the transaction giving rise to suit and is litigating on its behalf." Gerling, 839 F.2d at
141.
6.

The Court notes up front that its decision here is not (and cannot) be based on

what might possibly be or what one might assume to be the relationship between Konami US and
Konami Japan with regard to the instant litigation. Instead, it has to be based on the current

record before the Court, and what that record actually demonstrates. And it is on that front-as
to the deficiencies in the current record with regard to the question of control-where Plaintiffs
motion fails.
7.

To that end, the Court notes Plaintiff has pointed to very little evidence with

regard to the relationship between Konami US and Konami Japan. 5 Instead, the bulk of the

5

Indeed, in describing the relationship between Konami US and Konami Japan,
Plaintiff only attaches excerpts from an "Annual Financial Report" for the fiscal year ended
March 31, 2016 for "Konami Holdings Corporation and its subsidiaries[.]" (D.I. 169, ex. B)
This document, in turn, shows that the Holding Company has a 100% ownership interest in its
subsidiaries Konami US and Konami Japan and that it "control[s]" these subsidiaries, in the
sense that it has the ability to obtain returns from its involvement with the subsidiaries and has
the ability to affect the amount of such returns. (See id. at 9, 55) However, the relevant inquiry
here is whether Konami US has control over the documents of its affiliates. Plaintiffs counsel
argues that this exhibit demonstrates that "the businesses [e.g., Konami US and Konami Japan]
are intertwined" as "[t]hey have consolidated financials, after all[.]" (Tr. at 17) The Court
cannot agree that the attached excerpts show even this much, however. According to Konami
US's counsel, the context of the entire Report "makes clear that the reason [the Holding
Company] provides consolidated financial statements is it is publicly traded, so investors have an
interest in seeing what is going on with both the holding company and its wholly owned
subsidiaries" but "[t]hat is not to say the company ... treat[s] [the subsidiaries] as
interchangeable." (Id. at 29) And nothing in the Annual Financial Report excerpts provided to
the Court shows that Konami US' s business is "intertwined" or "interchangeable" from that of
4

evidence that is in the record on this topic comes from Konami US, in the form of a Declaration
of Konami US's Director of the Legal Department, Nobuko Horii Minerd ("Minerd
Declaration"). (Minerd Deel. at if 1) The Minerd Declaration does acknowledge that Konami
Japan developed the accused Dance Dance Revolution videogames that are distributed by
Konami US in the United States. (Id at ifif 5-6) Beyond that, however, the Minerd Declaration
goes on to state the following with respect to the two entities:
"

•

With respect to Konami Japan's documents, "Konami US
does not have access to or the authority to direct Konami
Japan to tum over its documents[,]" and "Konami US also
does not have access to, or the authority to access, any
computer servers owned and maintained by Konami Japan
in Tokyo or in other locations." (Id at if 8)

•

8.

They have "different Presidents, separate Boards of
Directors, and separate employees." (Id at if 6) 6

Konami US does not have the authority to "require
employees of Konami Japan to attend depositions in the
United States or to otherwise participate in United States
discovery directed at other companies." (Id)

The one additional relevant data point that Plaintiff cites, with regard to the

Konami Japan.
6

During oral argument, Plaintiffs counsel questioned what exactly the Minerd
Declaration means when it states that the two entities have "separate [b]oards"-suggesting that
while this reference clearly indicates that the two entities have "constituted separate boards," that
does not necessarily mean that there is no overlap of board members on the two boards. (Tr. at
24-25) And while it appears that there might possibly be some connection between or overlap
among the two entities' boards, (see id at 28 (Konami US's counsel noting his "belie[f] [that]
the facts are that there may be some minimal overlap of board members as between Konami U.S.
and Konami Japan ... such that it may be the case that a current Konami U.S. board member has
been at one time a board member of another Konami entity")), the Court has nothing concrete in
the record on this score. Indeed, there is nothing in the evidentiary record before the Court at this
time relating to the two entities' boards beyond the above-referenced statement in the Minerd
Declaration.
5

control issue, is that Konami US has been able to "obtain [technical documents] in the past [from
Konami Japan], for example, when it obtained copies of the source code for the accused games
that it offered for inspection in lieu of producing documents." (D.I. 143 at 4 (citing id, ex. 4 at
1-3); see also D.I. 169 at 2) On that front, the Minerd Declaration reports only that "Konami US
has requested on occasion that Konami Japan provide high-level materials such as source code to
Konami US in connection with discovery requests in civil litigation[.]" (Minerd Deel. at if 9; see
also D.I. 149 at 4 ("Konami [US] may have, on occasion, sought selected high-level documents
from Konami Japan to evaluate litigation[.]")) From these less-than-clear statements, the Court
can infer that Konami US has asked for and obtained source code from Konami Japan relevant to
this litigation. What other "materials" Konami US has obtained from its foreign affiliate (if any)
is something that Plaintiff has not established, and remains unclear to the Court.
9.

In light of this slim record, the Court cannot conclude that Konami US "has acted

with its sister [Konami Japan] in effecting the transaction giving rise to suit[.]" Gerling, 839
F.2d at 141. Plaintiff has not offered an articulation as to what it would mean for Konami US, in
this patent litigation matter, to have "acted with" Konami Japan to "effect" the relevant
"transaction[s]." Even assuming that here, this would require an analysis of Konami Japan's
connection with Konami US' s infringing conduct at issue, the Court does not have a lot to go on.
It knows only that Konami Japan developed the accused products. Perhaps that alone would be

enough to meet this test, but Plaintiff provides no citation to caselaw suggesting that is so. And
the Court has not been provided with any other information about Konami Japan's connection to
the instant litigation. Does Konami Japan benefit financially from Konami US's U.S.-based use

6

or sale of the accused games? 7 If so, to what degree? Do Konami Japan employees have some
other role in the U.S.-based acts that give rise to the patent infringement claims here against
Konami US? There is nothing in the record as to the answers to questions like these, and the
answers to those questions might matter in this analysis. (See Tr. at 32-33 (citing Glenz v. Sharp
Elecs. Corp., Civil Action No. 08-3652(FSH)(MAS), 2010 WL 2758729, at *3 (D.N.J. July 12,
2010)); id at 34). 8
10.

Similarly, the Court has no basis to conclude that Konami US "is litigating on

7

Again, the Court might assume that the answer to this question is "yes" in light of
the fact that Konami Japan developed the games, but it would prefer not to assume or guess when
making such significant decisions-it needs a record to support a conclusion in Plaintiffs favor
here.
8

See also AFL Telecomms. LLC v. SurplusEQ. com Inc., No. CVl 1-1086 PHX
DGC, 2012 WL 2590557, at *2 (D. Ariz. July 5, 2012) (concluding that plaintiff ("APL") was
obligated to produce source code in the possession of its parent ("Fujikura") where the record
showed that "'the subsidiary was an agent of the parent in the transaction giving rise to the suit
and in litigating the suit on the parent's behalft,]'" in that, inter alia, AFL was the exclusive
licensee of Fujikura's intellectual property rights related to fusion splicers (the product at issue in
the case), and "the licensee relationship between AFL and Fujikura was created specifically so
that AFL could bring this lawsuit[,]" "AFL houses two Fujikura technicians in its office in South
Carolina to perform repairs on fusion splicers[,]" and "AFL and Fujikura have maintained a close
relationship throughout this lawsuit, with Fujikura personnel providing expertise and declarations
when needed by AFL") (quoting Gerling, 839 F.2d at 140); Camden Iron & Metal, Inc. v.
Marubeni Am. Corp., 138 F.R.D. 438, 443 (D.N.J. 1991) (also finding this test to be met, and
therefore granting the plaintiffs motion to compel the defendant ("MAC") to produce documents
in the possession of its parent company ("MC"), where the undisputed record showed that MC
and MAC acted in the transaction that led to the breach of contract lawsuit "'as one"' given that,
inter alia, MC made the "initial contact" with the plaintiff regarding the transaction and made
additional "direct contact" with the plaintiff, allowing the court to view MC as "engineering the
deal" that resulted in the instant lawsuit, and where the record further showed that "MC played a
significant role in the transaction through its continued participation in the negotiation
process[,]" the deal "was subject to MC's final approval[,]" and that there would be an
"indeterminate division of profits between MAC and MC on this deal, to be determined at a later
date, in which MAC's 'negotiator' would be a former MC employee, who was 'transferred' to
MAC for these purposes and who is expected to be 'transferred' back to MC in the future").
7

[Konami Japan's] behalf." Gerling, 839 F.2d at 141. There is no record here of, for example,
Konami Japan employees directing the course of this litigation or making important strategic
decisions in the matter for Konami US. That Konami Japan has, in at least one instance, made
.evidence (source, code) in it~ possession accessible to Konami US-simply in order to, according
to the Minerd Declaration, "protect[] its employees from time-consuming work in connection
with" this matter, (Minerd Deel. at if 9)-cannot be enough to make this showing under Rule
34(a).
11.

The caselaw (particularly that relied upon by the Third Circuit in Gerling) is in

accord. As noted above, the Gerling Court cited to a case from this District, A.fros SP.A. v.
Krauss-Maffei Corp., 113 F.R.D. 127 (D. Del. 1986), as the case best exemplifying a

circumstance where a litigating entity "was an agent of the [other corporation] in the transaction
giving rise to the suit and in litigating the suit on the [other corporation's] behalf." Gerling, 839
F .2d at 140-41.
12.

In A.fros, plaintiff Afros, S.p.A. ("Afros") alleged infringement of its patent, and

defendant Krauss-Maffei Corp. ("KMC") counterclaimed for infringement of two of its own
patents. A.fros, 113 F.R.D. at 128-29. Afros later filed a motion to compel KMC to produce
documents relating to the design and development of the products covered by KMC's patents,
which were in the possession of non-party KMAG (KM C's parent corporation and the entity that
originally developed and patented the products). Id. at 129. The A.fros Court first noted that
"[t]he control analysis for Rule 34 purposes ... [requires] that there be close coordination
between" the litigating party and the non-party possessing the documents. Id. Next, the A.fros
Court explained that the "'nature of the relationship' between the party over whom the court has

8

jurisdiction and the non-party with possession of the documents will determine whether a motion
to compel discovery should be granted" and that there were three factors "of paramount
importance" to this inquiry: "first, the corporate structure encompassing the different parties;
second, the non-party's connection to the transaction at issue; third, to what degree will the nonparty receive the benefit of any reward in the case." Id. at 130.
13.

In ultimately granting Afros' motion to compel, the Court highlighted the

following facts with respect to the nature ofKMC and KMAG's "very close" relationship: (1)
KMC was KMAG's wholly owned subsidiary and was the exclusive seller ofKMAG's products
in the United States; (2) the four members comprising KM C's Board of Directors were all
KMAG employees, and two of these board members also "played prominent roles in the
management ofKMC"; (3) every one of the four documents that KMC had produced in response
to Afros' discovery request at issue "were obtained from KMAG's files,'' and the record
demonstrated that KMAG provided these documents "in the interest of assisting KMC move this
case toward trial" and "'with full cooperation"'; (4) "[k]ey decisions regarding [the] litigation,
primarily the assignment of patent rights [from KMAG to KMC] and [the] decision to
counterclaim, were made by a KMAG employee with no direct connection to KMC" and indeed,
were made without even informing key KMC decision-makers beforehand; (5) "KMAG is
responsible for the development" of the accused products, "and any question regarding
infringement will necessarily reference acts it performed"; and (6) "KMAG would receive a
direct benefit from a favorable judgment" because "KMAG's sales in the United States, through
KMC, will be enhanced because it would be rid of a competitor or, if it chose, it could license
Afros, thereby increasing the subsidiary's income through royalties." Id. at 131-32. All of these

9

facts, taken together, led the Court to conclude that "KMC has the requisite control" of the
documents in KMAG's possession. Id. at 132.
14.

Also instructive is the decision in Alimenta (US.A.), Inc. v. Anheuser-Busch Cos,

Inc., 99 F.R.D. 309 (N.D. Ga. 1983)-a case that the Gerling Court called out as one of the "few
cases involving sister corporations under common control[.]" Gerling, 839 F.2d at 141. In
Alimenta, a district court denied a motion to quash a subpoena to plaintiff that called for, inter
alia, the production of documents in the possession of plaintiffs sister corporation. Alimenta, 99
F.R.D. at 310-14. In doing so, the Alimenta Court rejected plaintiff's argument that it could
avoid production of the documents because it did not "control" them. Important to the Alimenta
Court's decision was that the defendant had made a record demonstrating that: (1) there was a
"close relationship between" the plaintiff and the non-party sister corporation; (2) the sister
corporation was "intimately involved in the transaction at issue in this suit" in that the plaintiff
had purchased certain peanuts at issue in the litigation from the sister corporation (and "sold" the
peanuts to the defendant for the same price it had "paid" for them), the peanuts had been selected
by the sister corporation's President before being shipped to the United States for re-sale to the
defendant, and the plaintiff and the sister corporation were otherwise "in regular contact during
the course of the transaction at issue" such that they had acted as "as one unit"; (3) the President
of the sister corporation had been '"intimately involved in the discovery process"' in the instant
litigation, including having participated in plaintiff's answers to interrogatories; and (4) the sister
corporation's President had been deposed in the case and had been accompanied by plaintiff's
counsel to that deposition. Id. at 310-13.
15.

As compared, for example, to the robust fact patterns in A.fros and Alimenta,
10

Plaintiffs showing here is clearly wanting. While the Court is aware that Konami Japan
developed the accused Dance Dance Revolution videogames sold by Konami US, the Court
otherwise has little information (as compared to the more detailed showings in Afros and
Alimenta) of the role Konami Japan can be said to have played in the transactions giving rise to

this suit. And though the Court is aware that Konami Japan and Konami US are subsidiaries of
the Holding Company, and that Konami US has on at least one occasion obtained materials from
Konami Japan relating to litigation (i.e., source code), the record here does not nearly compare to
the records in Afros or Alimenta in terms of a showing that the sister corporation is intimately
involved in the advancement of this litigation. To find sufficient control here, the Court would
need to engage in a healthy amount of speculation as to Konami Japan's relationship with
Konami US and as to its role in this case. Rule 34(a) does not sanction such a path. Cf Playboy
Entm 't Grp.,_ Inc., 1997 WL 873550, at *3-4 (denying the defendants' motion to compel the

plaintiff to produce documents in the possession of its parent company, where the defendants'
"sparse submissions"-which demonstrated only that plaintiff is the wholly-owned subsidiary of
the non-party company, that plaintiffs president is an executive vice president of the non-party
company, and that the non-party company's Chief Executive Officer approves significant
decisions regarding the operation of the plaintiffs business-coupled with defendants' "failure
to demonstrate that [the plaintiff] can access these documents in the ordinary course of business
upon demand," indicated an insufficiently close connection between the two companies to show
the requisite "control" under Rule 34); Pennwalt Corp. v. Plough, Inc., 85 F.R.D. 257, 263 (D.
Del. 1979) (denying the plaintiffs motion to compel the defendant to produce documents
belonging to its sister corporation where "[t]here is no evidence ... that [the two companies]
11

have identical Boards of Directors, or that their respective business operations are so intertwined
as to render meaningless their separate corporate entities") (cited in Gerling, 839 F.2d at 142). 9
16.

The Court notes that its decision in this

r~gard

does not necessarily foreclose

Plaintiff from obtaining the documents at issue. For instance, Plaintiff may be able to make a
better record in the future (via discovery from Konami US or otherwise) with respect to the
relationship between Konami US and Konami Japan, in order to attempt to support a renewed
request for Konami Japan's documents. IO

9

In addition to relying on the A.fros case in support of its request-which the Court
has already distinguished from the state of the record presently before it-Plaintiff also
emphasizes the United States Court of Federal Claims' decision in Cormack v. United States,
117 Fed. Cl. 392 (Ct. Fed. Cl. 2014). (D.I. 143 at 4; D.I. 169 at 2) Although there are
similarities between the situation in Cormack and this case, Cormack is also distinguishable in a
few ways. For one thing, the record before the Cormack Court showed that the litigating party
and its sister corporation "jointly worked [together] to develop the key technologies" at issue as
demonstrated by, inter alia, a related technology transfer and license agreement entered into by
the companies, and by e-mail communications ofrecord. Cormack, 117 Fed. Cl. at 403-04. The
Court concluded that this close "collaboration equips [the litigating party] both with access to
[the non-party's] documents and with the requisite power to obtain them." Id. at 404. While it is
undisputed here that Konami Japan developed the accused videogames, the record before the
Court does not demonstrate the type of close collaboration between Konami US and Konami
Japan that compelled the Court to find sufficient control in Cormack. Secondly, the Court notes
that while Cormack cites to the Third Circuit's decision in Gerling, Cormack is not authority of
the Third Circuit. It is unclear to the Court whether the Third Circuit would have found
sufficient "control" were it presented with the facts at issue in Cormack.
Of course, there are also other ways that Plaintiff could have tried to obtain these
records at the case's outset from Konami Japan. For example, Plaintiff could have (but did not)
seek discovery from Konami Japan pursuant to the processes of the Hague Convention. And
Plaintiff could have named Konami Japan as a party in this case, had there been a basis to do so.
(See, e.g., Tr. at 30-31 (Konami US's counsel noting that Plaintiff has been aware ofKonami
Japan's role as the developer of the Dance Dance Revolution games since as early as 2013, and it
therefore has "had ample opportunity to either name Konami Japan as a defendant, if [it] thought
there was a basis for doing so, or to serve discovery using the procedures outlined in the Hague
[Convention] to obtain documents from Konami Japan and [it] chose not to do so"); see also Tr.
at 26)
IO

12

17.

For the reasons set out above, Plaintiff has not carried its burden here, and,

therefore, Plaintiffs motion to compel is DENIED. 11

Dated: August 31, 2016

Christopher J. Burke
UNITED STATES MAGISTRATE JUDGE

11

The Court notes that it does not agree with Konami US' s alternate position that
the motion to compel should also be denied because Konami US has already made the source
code and games themselves available to Plaintiff, and so "[a]ny technical information from
Konami Japan would necessarily be inferior to the source code." (D.I. 149 at 4; see also D.I. 170
at 2 ("And Plaintiff has no overwhelming need for Japanese documents in any event-[Konami
US] has made source code available for more than a year, and [Plaintiff] has declined to review
it.")) This Court's "Default Standard for Discovery, Including Discovery of Electronically
Stored Information ('ESI')" states that a plaintiff is entitled to core technical documents
"including but not limited to operation manuals, product literature, schematics, and
specifications." Default Standard for Discovery, Including Discovery of Electronically Stored
Information ("ESI"), at~ 4(b) (emphasis added). The Court is aware of no rule that states that if
a defendant has produced source code, Plaintiff is not entitled to any other "core technical
documents."
13