Kraft Foods Global, Inc. v. Dairilean, Inc.

Filing 36

Opinion and Order Signed by the Honorable Joan H. Lefkow on 4/25/2011:Mailed notice(mad, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

KRAFT FOODS GLOBAL, INC.,

Plaintiff,
vs.
DAIRILEAN, INC.,
Defendant.

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No. 10 C 8006
Judge Joan H. Lefkow

OPINION AND ORDER
Plaintiff Kraft Foods Global, Inc. (“Kraft”) filed a complaint against Dairilean, Inc.
(“Dairilean”) requesting a declaratory judgment of non-infringement and invalidity of United
States Patents Nos. 5,352,468 (the “’468 patent”), 6,251,459 (the “’459 patent”), and 6,465,030
(the “’030 patent”). The parties are unable to agree on the terms for a protective order that
would relate to the production of information involving trade secrets or confidential research and
development or commercial information. Kraft and Dairilean have filed motions for entry of
protective orders that make various modifications to the Interim Order that is in place in this
district. See Local Patent Rules, App. B. For the following reasons, the modification requested
in Dairilean’s motion [#32] is denied without prejudice and the modifications requested in
Kraft’s motion [#21] are granted in part and denied in part.
LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 26(c)(1)(G), the court may enter a protective
order “requiring that a trade secret or other confidential research, development, or commercial

information not be revealed or be revealed only in a specified way.” The party requesting a
protective order has the burden of demonstrating to the court that “good cause” exists for its
issuance. Jepson v. Makita Elec. Works, Ltd., 30 F.3d 854, 858 (7th Cir. 1994). Where the
protective order relates to the production of trade secrets or other confidential information, “[t]he
sole question is whether there is an unacceptable risk of or opportunity for ‘inadvertent
disclosure’ of confidential information.” Pfizer Inc. v. Apotex Inc., 744 F. Supp. 2d 758, 762
(N.D. Ill. 2010) (quoting Autotech Techs. Ltd. Psp. v. Automationdirect.com, Inc., 237 F.R.D.
405, 407 (N.D. Ill. 2006)). The court must weigh the risk of inadvertent disclosure against the
burden that would be placed on the requesting party if it does not receive the information it
seeks. Id.
DISCUSSION
I.

Dairilean’s Motion for Entry of a Modified Protective Order
Dairilean requests a modification of this district’s Interim Order to allow Bruce Schroder,

the inventor of the patents-at-issue and the founder and sole employee of Dairilean, to view
information that Kraft designates as Highly Confidential. Dairilean proposes the addition of the
following language to the end of paragraph 4(d) of the Interim Order, “Notwithstanding the
foregoing, if Defendant designates Bruce Schroder as its expert, and Mr. Schroder executes an
undertaking in the form of Appendix 1 to this Order, then Mr. Schroder may serve as
Defendant’s expert witness, and he shall have access to Highly Confidential Information in that
capacity.” Def.’s Mot. for Protective Order, Ex. 7 at ¶ 4(d). Dairilean argues that Schroder
should have access to Kraft’s Highly Confidential information, in addition to Kraft’s
Confidential information, because he will be designated as Dairilean’s expert in these

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proceedings and, as the inventor of the patents-at-issue, he is the person who is best-positioned
to analyze Kraft’s allegations of non-infringement and invalidity. Dairilean asserts that if
Schroder cannot access Kraft’s Highly Confidential information it will not be able to
meaningfully participate in this case because it has limited funds to pay another outside expert
and Schroder will not be able to analyze all of the relevant documents in preparing his expert
report. Kraft opposes Dairilean’s proposed modification on numerous grounds, the most salient
being that Schroder is a competitive decisionmaker at Dairilean. Kraft states that there is a risk
that it will be harmed by the disclosure of the precise formulation and method of manufacturing
of Velveeta products and information concerning Kraft’s sales, marketing, and commercial
dealings regarding Velveeta.
Courts look to an individual’s involvement in “competitive decisionmaking” as grounds
for barring access to trade secrets or otherwise confidential information. U.S. Steel Corp. v.
United States, 730 F.2d 1465, 1468 (Fed. Cir. 1984). This phrase refers to a person’s “activities,
association, and relationship with a client that are such as to involve . . . advice and participation
in any or all . . . decisions (pricing, product, design, etc.) made in light of similar or
corresponding information about a competitor.” Id. at 1468 n.3. “[T]he standard is not regular
contact with other corporate officials who make policy, or even competitive decisions, but
advice and participation in competitive decisionmaking.” Matsushita Electric Indus. Co., Ltd. v.
United States, 929 F.2d 1577, 1580 (Fed. Cir. 1991) (internal quotations omitted). The court’s
determination that an individual is involved in competitive decisionmaking must be based upon
the facts of the particular case. U.S. Steel, 730 F.2d at 1468.
Here, the evidence shows that Dairilean’s only product is a carbonated dairy calcium-

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containing beverage named M.O.O.M., which stands for “Made Out of Milk.” Kraft does not
contend that M.O.O.M. competes with any of its products. M.O.O.M. was last sold in 2002 or
2003 and is no longer in production. Dairilean hopes to put M.O.O.M. back in production “some
day.” Schroder Supp. Decl. ¶ 3. In 2005, M.O.O.M. was marketed by Espree, Inc. (“Espree”), a
wholly-owned subsidiary of Dairilean of which Schroder was also the president. Espree
compared M.O.O.M. to products from Yoo-hoo and Hershey’s. According to Schroder, Espree
ceased doing business “some years ago” and has been dissolved by the South Dakota Secretary
of State. Id. at ¶ 7.
In the late 1990s, Schroder considered creating another Dairilean subsidiary named
Joseph Cheese, Inc. that would market a cheese product named Joe Cheese. A presentation that
was produced by Dairilean through the course of discovery describes Joe Cheese as a type of
shredded cheese that would be specially designed for the pizza industry. Pl.’s Mot. for
Protective Order, Ex. D. The presentation states that Schroder conducted trials of Joe Cheese
with a number of Kraft’s competitors, including Schwan’s Fine Foods, Pillsbury, Little Lady
Foods, Little Caesar’s Enterprises, VDK Frozen Foods, Taco Bell, and Pizza Hut. Schroder
estimates that the presentation is from “about 1997.” Schroder Supp. Decl. ¶ 8. Schroder
stopped marketing Joe Cheese in 1999 and never produced Joe Cheese as a product. Id.
Kraft argues that Schroder has likely engaged in additional competitive conduct that has
not yet come to light. In support, Kraft asserts that Dairilean has not met discovery obligations
in these proceedings and that “the documents that Dairilean is withholding would [likely]
contain further evidence of its and Mr. Schroder’s competitive activities in the dairy area.” Pl.’s
Mot. for Protective Order at 4. Dairilean responds that it is diligently searching for documents

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responsive to Kraft’s discovery requests and that no documents have been intentionally withheld.

The last patent that Schroder applied for that relates to dairy products was the ’030
patent, which he applied for in June of 2001. Schroder has four pending patent applications.
Three of the patents relate to the production of methane gas from various input materials and the
fourth relates to a photobioreactor system comprising LED lights. Schroder is not aware that any
of his pending patent applications have any relevance to Kraft’s dairy products.
The foregoing facts indicate that there is some risk that Schroder would inadvertently
disclose Kraft’s Highly Confidential information. There is no dispute that Schroder is in charge
of product development and strategic and business decisionmaking at Dairilean. Although
Dairilean does not currently compete with Kraft, Schroder was previously involved with the
development of, Joe Cheese, which would have competed with Kraft’s products. Schroder’s
future plans for Dairilean are unclear. He states that he hopes to put M.O.O.M. back into
production “some day.” He has recently expressed interest in entering into a licensing
arrangement with Kraft, on the grounds that an exemplary Velveeta product requires a license
for the ’468 patent. See Pl.’s Mot. for Protective Order, Ex. C (Letter from to Kraft from
Dairilean dated Nov. 1, 2010). The fact that Schroder’s other patent applications do not relate to
dairy products is not, without more information, relevant to the court’s assessment of Schroder’s
competitive decisionmaking at Dairilean. Thus it is possible, though perhaps not highly likely,
that Schroder would inadvertently disclose Kraft’s Highly Confidential information because of
his role at Dairilean and his demonstrated interest in working on developing other products in the
dairy field.

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The court’s assessment of the possible harm to Dairilean is hampered by the fact that the
scope of the documents that would be designated by Kraft as Highly Confidential has not been
clearly stated by either party. Moreover, the parties’ proposed protective order creates a twotiered confidentiality designation but the precise difference between the “Confidential”
designation and the “Highly Confidential” designation is not apparent from the text of the order.
Kraft agrees, however, that Schroder will be able to review all of its Confidential information
pursuant to the terms of the order. Kraft further represents that Schroder will be able to serve as
Dairilean’s technical expert without reviewing Kraft’s Highly Confidential information.
Although Dairilean contends that Schroder will need to review all of Kraft’s Highly Confidential
information, it is possible that at least a subset of that information, specifically documents that
relate to sales and marketing, will not be necessary for the preparation of Schroder’s expert
report.
Nevertheless, Dairilean has demonstrated that its defense of this case will be significantly
hindered if Schroder is not able to prepare a comprehensive expert report. Given the
uncertainties of the risk posed to Kraft, if specific Highly Confidential documents are necessary
for the preparation of Schroder’s expert report, then the balance of harms would likely weigh in
favor of allowing Schroder to review the documents. Dairilean’s motion will be denied without
prejudice to its right to file a motion requesting permission for Schroder to review specific
categories of Kraft’s Highly Confidential documents that may be necessary for preparing his
anticipated expert testimony and report.

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II.

Kraft’s Motion for a Modified Protective Order
A.

Prosecution Bar

Kraft proposes to add a prosecution bar to the Interim Order that would bar any outside
counsel who reviews Highly Confidential information produced by another party from
“draft[ing], prosecut[ing], or otherwise assist[ing] in the preparation or prosecution of any patent
claims related to the creation of a cheese, a cheese or dairy food, or a cheese or dairy product.”
Pl.’s Mot. for Protective Order, Ex. A at ¶ 6. The prosecution bar will expire one year after the
earlier of entry of judgment or settlement of these proceedings. Id. Kraft argues that a
prosecution bar is necessary because there is a risk that Dairilean’s outside counsel will use
Kraft’s Highly Confidential information to shape patent prosecution of claims for its own clients
or to re-write the claims of the patents-at-issue to overcome potentially invalidating prior art or
to specifically target Kraft’s products. Dairilean objects to the prosecution bar on the grounds
that Kraft has not established that its attorneys are involved in any competitive decisionmaking
that would affect Kraft. In the alternative, Dairilean requests that any prosecution bar exclude
reexamination proceedings.
When a party seeks a patent prosecution bar, it must first show that there is a risk of
inadvertent disclosure of confidential information, measured by the “competitive
decisionmaking” test articulated in U.S. Steel. In re Deutsche Bank Trust Co. of Americas,
605 F.3d 1373, 1379 (Fed. Cir. 2010). The court must then balance the risk of disclosure against
the resulting harm to the party that opposes the restriction. Id. This determination is factspecific, and the Federal Circuit has rejected the notion that “every patent prosecution attorney is
necessarily involved in competitive decisionmaking” that would justify the imposition of a

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patent prosecution bar. Id.; accord Pfizer, 744 F. Supp. 2d at 764–66. Accordingly, “a party
seeking imposition of a patent prosecution bar must show that the information designated to
trigger the bar, the scope of activities prohibited by the bar, the duration of the bar, and the
subject matter covered by the bar reasonably reflect the risk presented by the disclosure of
proprietary competitive information.” Deutsche Bank, 605 F.3d at 1381.
Kraft has not cited any evidence to demonstrate that Dairilean’s outside counsel is
involved in competitive decisionmaking with respect to Dairilean or any of its other clients who
might compete with Kraft. Cf. Methode Electronics, Inc. v. Delphi Automotive Systems L.L.C.,
No. 09-13078, 2009 WL 3875980, at *4 (E.D. Mich. Nov. 17, 2009) (entering protective order
with a prosecution bar where defendant had “offered evidence of competitive decision-making
by Mr. Wolfe, one of the lawyers representing [the plaintiff] in this case”). Essentially, Kraft
requests a prosecution bar because Dairilean’s litigation counsel also prosecutes patents. This
type of prosecution bar was squarely rejected by the Federal Circuit in Deutsche Bank. 605 F.2d
at 1381; see also Matsushita Electric, 929 F.2d at 1580. Kraft’s proposed patent prosecution
bar will be stricken from the protective order.
B.

In-House Counsel

Kraft argues that its in-house counsel should be allowed to review Dairilean’s Highly
Confidential information. Dairilean responds, in essence, that it would be unfair to allow Kraft’s
in-house counsel to review its Highly Confidential information unless Bruce Schroder can also
review Kraft’s Highly Confidential information.
Irrespective of the court’s ruling on Dairilean’s motion for a protective order, Dairilean’s
argument is not persuasive. Courts have rejected a per se rule barring the disclosure of

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confidential information to in-house counsel or other parties. See U.S. Steel, 730 F.2d at 1468.
Instead, courts look to whether in-house counsel is involved in competitive decisionmaking that
would create a risk of inadvertent disclosure. Id. Dairilean has not cited any evidence to
support the conclusion that Kraft’s in-house counsel is involved in competitive decisionmaking
at Kraft. Rather, Dairilean states generally that Kraft has six in-house patent attorneys, at least
two of whom are involved in this litigation, and that Kraft appears to have hundreds of assigned
patents relating to cheese food products. Kraft’s proposed modification to allow in-house
counsel to review Highly Confidential information will be accepted.
C.

Counsel’s Evaluation of Confidential or Highly Confidential Information

Kraft’s proposed order states, in relevant part, that “[c]ounsel for a party may give advice
and opinions to his or her client regarding this litigation based on his or her evaluation of
designated Confidential or Highly Confidential information received from the producing party –
provided that such rendering of advice and opinions shall not reveal the content of such
Confidential or Highly Confidential information.” Dairilean objects to this provision on the
grounds that it is unnecessary. The court can discern no harm to Dairilean that would result from
the inclusion of this provision in the protective order. Kraft’s proposed modification regarding
counsel’s evaluation of Confidential or Highly Confidential Information will be accepted.
D.

Notice of Unauthorized Disclosures

Kraft’s proposed order requires notice of any unauthorized disclosures of Confidential or
Highly Confidential information to the producing party. Dairilean agrees that the producing
party should be notified of a breach in the event of an unauthorized disclosure. The modification
will be accepted.

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E.

Inadvertent Disclosures

Kraft proposes a modification that provides that a privilege is not waived by inadvertent
disclosures and that outlines procedures to be followed in the event of inadvertent disclosure of
privileged material. The modification states that the producing party shall “immediately” notify
the receiving party of the production and that within five days of receiving such notification the
receiving party shall return or confirm destruction of all privileged materials. Dairilean objects
on the grounds that the modification is unnecessary because Federal Rule of Civil Procedure
26(b)(5)(B) already requires that a party take reasonable steps to rectify any error that results
from inadvertent disclosures. The court agrees that the procedures set forth in Kraft’s proposed
order are not necessary and go beyond what is required by Rule 26(b)(5)(B). The proposed
modification will be stricken.
F.

Third Parties or Subpoenaed Non-Parties

Kraft’s proposed order allows subpoenaed non-parties to designate information as
Confidential or Highly Confidential under the protective order. Kraft argues that, without this
provision, discovery may be delayed as third parties petition the court to protect confidential
information. “Generally, ‘pretrial discovery must take place in the public unless compelling
reasons exist for denying the public access to the proceeding.” Wiggins v. Burge, 173 F.R.D.
226, 228 (N.D. Ill. 1997) (quoting Am. Tel. & Tel. Co. v. Grady, 594 F.2d 594, 596 (7th Cir.
1978)). In order to justify the entry of a protective order, a party must demonstrate good cause
for the issuance of the order. Id. The risk that Kraft identifies is too speculative to justify the
entry of a protective order that relates to unknown non-parties. The modification regarding the
production of documents or things by non-parties will be stricken.

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G.

Compliance with Third Party Compulsory Disclosure

Finally, Kraft’s proposed order provides that if a receiving party is subpoenaed or served
with a document demand in another action or proceeding, and the subpoena or document demand
seeks information designated as Confidential or Highly Confidential by the producing party, the
receiving party shall give written notice to counsel of record for the producing party. The
provision further states that compulsory disclosure of information subject to the protective order
will not be deemed a waiver of confidentiality. In addition, the receiving party “shall not
disclose the documents, things, or information while any intervention by the producing party in
opposing to the subpoena or other demand is pending.” Pl.’s Mot. for Protective Order, Ex. A at
¶ 10.
Dairilean objects on the grounds that the meaning of the proposed modification is unclear
and that the modification is unnecessary. Dairilean argues that the court presiding over the other
action or proceeding will be best positioned to determine what information should be produced.
The situation envisioned by Kraft’s modification is, at this point, hypothetical. Issues
relating to third party compulsory disclosure are likely to be fact-specific and will be determined
as they arise. The procedural posture of this case differs from Sloan Valve Co. v. Zurn Indus.,
No. 10 C 204, 2011 WL 841252 (N.D. Ill. Mar. 8, 2011), which Kraft cites. In Sloan, the Patent
and Trademark Office had requested documents subject to a protective order in the course of its
reexamination of the patent-at-issue and the plaintiff was faced with conflicting obligations.
Here, no third party discovery requests are anticipated or have been made.
Nevertheless, Dairilean’s objections appear to focus on the production procedure outlined
in Kraft’s modification, rather than the notice requirement. Dairilean does not object to the

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requirement of notice in the event of inadvertent disclosures, and is not likely to be harmed by
the requirement that a receiving party provide notice prior to production of information that is
subject to the protective order. Kraft’s proposed paragraph 10 shall be included as follows:
“Compulsory Disclosure to Non-Parties: If any receiving party is subpoenaed in another action
or proceeding or served with a document demand, and such subpoena or document demand seeks
documents, things, or information designated as Confidential or Highly Confidential by a
producing party, the receiving party shall give written notice to all counsel of record for the
producing party prior to production of such documents, things, or information. The receiving
party shall exercise good faith in promptly notifying the producing party of the subpoena or
other demand by the third party.”
CONCLUSION
For the reasons stated above, Dairilean’s motion for entry of a protective order [#23] is
denied without prejudice to its right to later request permission for Bruce Schroder to review
specific categories of Kraft’s Highly Confidential documents in his capacity as Dairilean’s
expert witness. Kraft’s motion for entry of a protective order [#21] is granted in part and denied
in part. The parties should submit a copy of a protective order that complies with the court’s
ruling by May 2, 2011.
Dated: April 25, 2011

Enter:____________________________________
JOAN HUMPHREY LEFKOW
United States District Judge

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