New Atlantic Venture Fund III, L.P. et al v. Vir2us, Inc.

Filing 15

MEMORANDUM. Signed by Judge Sue L. Robinson on 6/29/2016. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

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NEW ATLANTIC VENTURE
FUND Ill, L.P., et al.,

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Petitioners,

Misc. No. 16-95-SLR

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v.
VIR2US, INC.,
Respondent.

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VIR2US, INC.,

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Plaintiff,

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v.
INVINCEA, INC., et al.,

Civ. No. 15-162-HCM-LRL
(E.D. Va.)

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Defendants.

MEMORANDUM
At Wilmington this ~day of June, 2016, having reviewed non-party petitioners'
motion to quash three non-party subpoenas (D.I. 1), respondent's cross motion to
compel (D.I. 4), and the papers submitted in connection therewith, the court issues its
decision based on the following analysis:
1. Background. This case relates to three identical subpoenas ("the
subpoenas") issued on or about March 4, 2016 pursuant to Rule 45 of the Federal
Rules of Civil Procedure by the United States District Court for the Eastern District of
Virginia, at the request of Vir2us, Inc. ("Vir2us"), and directed to primary contacts for
New Atlantic Venture Fund Ill, L.P.; Harbert Venture Partners Ill, L.P; and Grotech

Ventures Ill, LLC (collectively, the "non-party investors"), in care of their respective
Delaware registered agents. 1 (D.I. 1, exs. A, B, C) The subpoenas request: (1)
documents to be produced at Bunsow, De Mory, Smith & Allison LLP, located in
Redwood City, California; and (2) the depositions of each non-party investor's corporate
designee at Wilcox & Fetzer in Wilmington, Delaware related to the litigation pending
before the Eastern District of Virginia 2 (the "underlying action"). 3 (Id. at 2) The nonparty investors move to quash the subpoenas or, in the alternative, for a protective
order on the grounds that the subpoenas fail to comply with Federal Rule of Civil
Procedure 26 and 45. (D.I. 1) Vir2us opposes the motion and files a cross motion to
compel. (D.I. 4)
2. In the underlying action, Vir2us filed a complaint against lnvincea Inc. and
lnvincea Labs LLC (collectively "lnvincea") on April 15, 2015 for infringing U.S. Patent
Nos. 7,392,541 and 7,536,598 (together, the "patents-in-suit"). (Id. at 2) The patentsin-suit involve "methods and apparatuses for containing malware in a separate
processing environment to prevent the malware from infecting parts of the computer
system outside of the contained environment." (Id. at 3) Vir2us alleges lnvincea
directly infringes "by making, using, and selling infringing software products," and
indirectly infringes "by facilitating, instructing, and encouraging the deployment and use
of the [above referenced software products] through technical and marketing literature,
tutorials, presentations, and product demonstrations." (Id. at 5) lnvincea denied the

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non-party investors are each Delaware corporations with principal places of
business outside of California. (D.I. 1 at 2)
2 Vir2us, Inc v. lnvincea, Inc. et al., Civ. No. 15-162-HCM-LRL (E.D. Va. 2016).
3 At this time, Vir2us has withdrawn its deposition requests. (D.I. 4 at 2) Vir2us
maintains its request for documents and its motion to compel.

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allegations and filed a counterclaim alleging that Vir2us infringes U.S. Patent No.
8,839,422. (Id.) lnvincea subsequently moved to dismiss the counterclaim. (D.I. 1 at 6)
Vir2us opposes the motion to the extent lnvincea requests each party to bear its own
costs and fees, alleging that lnvincea and its Board failed to conduct a proper pre-filing
investigation. (D.I. 4 at 6) Vir2us also alleges that lnvincea continued with its
counterclaim despite being aware that Vir2us was not infringing and that lnvincea's
patent was invalid. (Id.)
3. Vir2us and lnvincea are competitors in the software market. (D.I. 5, ex 1 ~ 10)
The non-party investors invested in the early stages of lnvincea. (D.I. 4 at 3) Principals
for the non-party investors sit on lnvincea's Board of Directors. (Id. at 12) The nonparty investors are not competitors of Vir2us or lnvincea or other named parties in the
pending litigation. (D.I. 1 at 3)
4. On September 1, 2015, lnvincea produced documents pursuant to a request
for production, but excluded board meeting minutes and documents intended for
investors or potential investors. (D.I. 4 at 7) On November 23, 2015, lnvincea assured
Vir2us that it was not withholding documents, other than those which were classified or
privileged. (Id. at 7) In March 2016, during a meet and confer with Dell, Inc. (lnvincea's
business partner and investor), Vir2us became aware of the high probability that
lnvincea had not produced all responsive documents and, more specifically, not all
PowerPoint slides presented to potential investors for securing venture capital. (Id.)
Vir2us and lnvincea dispute the relevancy of the slides. (Id.) lnvincea ultimately
produced six presentations, but Vir2us contends there are significantly more, including
the presentations which were presented to the non-party investors. (Id.) Vir2us initially

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requested the production to be in California, but is willing to work with the non-party
investors to find a more convenient location for the documents to be produced, such as
Wilmington, Delaware. (D.I. 4 at 15)
5. Standard. Under Federal Rule of Civil Procedure 45, the court is required, on
timely motion, to quash or modify a subpoena that:
(i) fails to allow a reasonable time to comply; (ii) requires a person to
comply beyond the geographical limits specified in Rule 45(c); (iii) requires
disclosure of privileged or other protected matter, if no exception or waiver
applies; or (iv) subjects a person to an undue burden.
Fed. R. Civ. P. 45(d)(3)(A).
6. Under Rule 45, a party is permitted to request "production of documents,
electronically stored information, or tangible things at a place within 100 miles of where
the person resides, is employed, or regularly transacts business in person." Fed. R.
Civ. P. 45(c)(2)(A). Rule 45 also imposes a duty on the party issuing the subpoena to
"take reasonable steps to avoid imposing undue burden or expense on a person subject
to [it]." Fed. R. Civ. P. 45(d)(1 ). The court is directed to "enforce this duty and impose
an appropriate sanction ... on a party who fails to comply." Id.
7. Pursuant to Federal Rule of Civil Procedure 26, "[p]arties may obtain
discovery regarding any nonprivileged matter that is relevant to any party's claim or
defense and proportional to the needs of the case." Fed. R. Civ. P. 26(b)(1 ). The court
may "consider[] the importance of the issues at stake in the action, ... the parties'
relative access to relevant information, ... the parties' resources, the importance of
discovery in resolving the issues, and whether the burden or expense of the proposed
discovery outweighs its likely benefit." Id. Rule 26 permits a "court, for good cause, [to]

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issue [a protective] order to protect a party or person from annoyance, embarrassment,
oppression, or undue burden or expense." Fed. R. Civ. P. 26(c)(1 ).
8. Analysis. The non-party investors contend that the subpoenas impose an
undue burden. More specifically, the non-party investors allege that Vir2us and
lnvincea already possess the requested documents so there is no reason for the nonparty investors to be "forced to search for documents that may not exist, and ... would
be unlikely to shed any new light." (D.I. 1 at 5) Vir2us disputes this statement and
claims lnvincea failed to provide the requested information. When Vir2us requested all
presentations made to investors and/or the Board, lnvincea produced six investor
presentations and several board meeting presentations. Vir2us argues that there are
additional documents in existence, especially in light of the fact that the presentations
made to the non-party investors were not included in the initial document production.
9. The non-party investors further contend that Vir2us should request the
information from lnvincea. As explained above, Vir2us initially requested the
information from lnvincea to no avail. Based on lnvincea's redacted statements, the
additional presentations and related information may no longer be in lnvincea's
possession. 4 Vir2us alleges that the non-party investors should have received the
presentations, board minutes, and other requested documents because of their roles as
investors and board members. Since Vir2us maintains the importance and relevancy of
the documents to its case, it argues that the subpoenas at bar are its only available
option for obtaining the information.

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Redacted statements made by lnvincea to the Eastern District of Virginia court
regarding the requested information. (D.I. 11 at 5)

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10. As to the non-party investors' argument that Vir2us's requests are expansive
and overly broad, each request limits the documents and communications to specific
topics. In this regard, the non-party investors argue that the document request for all
communications related to the counterclaim is unnecessary as the counterclaim has
been withdrawn. Although the status of lnvincea's counterclaim has not yet been
resolved, 5 the court concludes that the request for "all" communications is overbroad,
and should be limited to communications directed to the non-party investors from
lnvincea. 6
11. The Third Circuit has held that the relevancy standard under Rule 26 is
broad. Pacitti v. Macy's, 193 F.3d 766, 777 (3d Cir. 1999). The court, therefore,
balances the relevance of the documents and Vir2us's need for them against the
potential harm and burden placed on the non-party investors to comply with the
subpoenas. Mannington Mills, Inc. v. Armstrong World Indus., Inc., 206 F.R.D. 525, 529
(D. Del. 2002). Vir2us has explained how the presentations and other documents will
most likely contain highly relevant information necessary to support the issues of patent
infringement and reasonable royalty damages in the pending action. (See D.I. 4 at 10,
redacted) Based on this and Vir2us's offers to accommodate the non-party investors by

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Vir2us opposed lnvincea's dismissal of the counterclaim to the extent that the parties
are responsible for their own fees. The Virginia district court has held that the issue is
under advisement. (D.I. 11 at 7)
6 Limiting all requests in this fashion also addresses the concerns the non-party
investors have regarding the protection of their trade secrets. To the extent lnvincea's
documents disclose their trade secrets, the non-party investors must produce a privilege
log that would allow the court to assess any claim of privilege. The Virginia district court
should resolve any privilege disputes.

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moving the production location and withdrawing the depositions, the scales tip in
Vir2us's favor.
12. The non-party investors' argument regarding the imposition of producing the
documents in California has been resolved. Vir2us alleges its expectation was for the
documents to be provided electronically or, in the event they were not, the parties would
decide on a location at a later date. As the non-party inventors have brought this up in
the motion to quash, Vir2us expressed in its reply that it "is amenable to the Court
modifying the Subpeonas to "change the location to "Vir2us's Delaware Counsel's office
in Wilmington, Delaware." (D.I. 4 at 15) As Vir2us points out, the non-party investors
had not objected to being deposed in Wilmington, Delaware. (Id.) Unless the parties
agree on a different place and time by August 1, 2016, the court orders the documents
to be produced at Vir2us's Delaware counsel's office in Wilmington, Delaware. 7
13. Conclusion. For the reasons stated above, the non-party investors' motion
to quash is granted in part and denied in part, and Vir2us's cross-motion to compel is
granted in part and denied in part. An appropriate order shall issue.

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The non-party investors point out that Vir2us served two subpoenas on incorrect
parties but did not challenge service.

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