MercAsia USA, LTD v. Zhu et al

Filing 146

OPINION AND ORDER: The Court GRANTS MercAsia's 66 MOTION to Compel Documents and Responses to Requests for Production and GRANTS IN PART and DENIES IN PART MercAsia's 106 Second MOTION to Compel Documents and Responses to Requests for Production as specified in opinion and order. Accordingly the Court AWARDS MercAsia its reasonable expenses, including attorney's fees, incurred in bringing its motion to compel 66 and 106 . Signed by Magistrate Judge Michael G Gotsch, Sr on 3/1/2021. (nae)

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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
MERCASIA USA, LTD,
Plaintiff,

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v.
JIANQING ZHU, et al.,
Defendants.

CASE NO. 3:17-CV-718-JD-MGG

OPINION AND ORDER
Ripe before the Court in this action are two motions to compel discovery filed by
Plaintiff MercAsia USA, LTD (“MercAsia”). [DE 66, DE 106]. The undersigned issues
the following opinion and order resolving both of Plaintiff’s motions to compel.
I.

RELEVANT BACKGROUND
A.

Factual Background

Plaintiff MercAsia is the owner of U.S. Patent No. 7,882,986, titled “liquid
dispenser.” The patented device attaches to the top of a wine bottle and can, with a
push of a button, aerate and dispense wine into a glass. 1 MercAsia markets its version
of the device under the name Aervana. In this action, MercAsia asserts that a competing
device, which performs a similar function and is marketed under the name Waerator,
infringes on its patent. MercAsia sued 3BTech, Inc (“3BTech”), which sells the Waerator.

The device contains a pump that, when activated by pushing a button on top of the device, pumps air
into the bottle. The air pressure then forces the wine up a straw and out of a spout that extends to the side
of the device. Releasing the button turns off the pump and allows the pressure inside the bottle to be
released, which ceases the dispensing of the wine.

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The patent includes one independent claim, Claim 1, and a number of dependent
claims. Only Claim 1 is at issue in this action.
MercAsia sells the product described by its patent under the name Aervana in
the United States and under the name Vinaera abroad. The device is typically offered
for retail sale at a price of $100 and is marketed as “the world’s first electronic wine &
spirits aerator.” MercAsia asserts that 3BTech is marketing the Waerator to directly
compete against the Aervana. The Waerator is typically sold at a retail price of $60.
B.

Procedural Posture

The parties are currently engaged in discovery. The deadline for the parties to
review documents that have been produced passed on November 23, 2020. The
remaining discovery deadlines in this action are that (1) all depositions shall be
completed no later than February 26, 2021, and (2) all discovery, including fact and
expert discovery, shall be completed no later than April 23, 2021. [DE 132].
MercAsia began its efforts to collect relevant documents and financial
information in December 2019 by serving its first set of Requests for Production
(Numbers 1 to 13) upon 3BTech. Claiming that 3BTech produced “next to nothing,”
MercAsia filed its first Motion to Compel on March 6, 2020. [DE 66]. In the following
months, MercAsia served 3BTech with additional second, third, and fourth sets of
discovery requests. On June 24, 2020, MercAsia filed its Second Motion to Compel,
requesting that the Court enter an order compelling 3BTech to fully respond to each of
MercAsia’s subsequent sets of discovery requests.

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On January 27, 2021, after conferring to resolve several outstanding motions,
including MercAsia’s two motions to compel, the parties submitted to the Court a
Status Report. [DE 143]. The Status Report indicated that the parties had resolved two
other discovery-related motions that have since been denied as moot. [DE 145]. The
Status Report, however, confirmed that over a year after its first discovery requests
were served, MercAsia still maintains that “the actions taken by [3BTech] to honor its
discovery obligations imposed by Plaintiff’s . . . Requests for Production . . . remain
indefensibly insufficient.” [DE 143 at 1–2]. On February 1, 2021, the undersigned
conducted a telephonic motion hearing addressing MercAsia’s two remaining motions
to compel [DE 66, DE 106] and MercAsia’s Motion for Sanctions in the Form of Entry of
Default Judgment [DE 98], which was referred to the undersigned [DE 102] and will be
resolved by a separate Report and Recommendation.
As to MercAsia’s motions to compel, the parties report progress since the
motions were briefed such that not all of their original arguments remain relevant.
Accordingly, this Order is tailored to address the parties’ outstanding discovery
disputes, as confirmed in their Status Report and at the telephonic motion hearing.
II.

ANALYSIS
A.

Legal Standard

Federal Rule of Civil Procedure 26 permits discovery into “any nonprivileged
matter that is relevant to any party’s claim or defense.” Fed. R. Civ. P. 26(b)(1).
“Information is relevant for purposes of Rule 26 ‘if the discovery appears reasonably
calculated to lead to the discovery of admissible evidence.’” Richmond v. UPS Service
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Parts Logistics, No. IP01-1412-C-K/H, 2002 WL 745588, at *1 (S.D. Ind. Apr. 25, 2002)
(citing Fed. R. Civ. P. 26(b)(1)). “For discovery purposes, relevancy is construed broadly
to encompass ‘any matter that bears on, or that could lead to other matter[s] that could
bear on, any issue that is or may be in the case.’” Yessenow v. Hudson, 270 F.R.D. 422, 426
(N.D. Ind. 2010) (quoting Chavez v. DaimlerChrysler Corp., 2016 F.R.D. 615, 619 (S.D. Ind.
2002)). “Even when information is not directly related to the claims or defenses
identified in the pleadings, the information still may be relevant to the broader subject
matter at hand and meet the rule’s good cause standard.” Id. at 426–27 (citing Borom v.
Town of Merrillville, No. 2:07 CV 98, 2009 WL 1617085, at *1 (N.D. Ind. June 8, 2009)).
“For good cause, the court may order discovery of any matter relevant to the subject
matter involved in the action.” Adams v. Target, No. IP00-1159-C-T/G, 2001 WL 987853,
*1 (S.D. Ind. July 30, 2001); see also Shapo v. Engle, No. 98 C 7909, 2001 WL 629303, at *2
(N.D. Ill May 25, 2001) (“Discovery is a search for the truth.”).
When an opposing party fails to respond to discovery requests or has provided
evasive or incomplete responses, a party may seek an order to compel discovery. Fed.
R. Civ. P. 37(a)(2)–(3). The burden “rests on the objecting party to show why a
particular discovery request is improper.” Gregg v. Local 305 IBEW, Cause No. 1:08-CV160, 2009 WL 1325103, at *8 (N.D. Ind. May 13, 2009) (citing Kodish v. Oakbrook Terrace
Fire Prot. Dist., 235 F.R.D. 447, 449–50 (N.D. Ill. 2006)). In the court’s determination, it
considers “the totality of the circumstances, weighing the value of the material sought
against the burden of providing it, and taking into account society’s interest in

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furthering the truth-seeking function in the particular case before the court.” Berning v.
UAW Local 2209, 242 F.R.D. 510, 512 (N.D. Ind. 2007).
B.

Discussion

MercAsia claims that 3BTech’s failure to collect and produce documents from
“readily available sources” such as its own accounting team, as well as “its continued
refusal to provide easily retrievable financial information from its accounting software,”
justifies a court order mandating that 3BTech comply with its discovery obligations, as
well as an award of fees and costs associated with such motions. The Court agrees.
1.

NetSuite Sales Reports

In addition to the documents and invoices already provided to MercAsia, 3BTech
can create reports, generated from its NetSuite accounting system, that aggregate
annual total sales, gross and net, of its products. Despite 3BTech’s argument that its
invoices are the best evidence of its sales, its NetSuite reports will allow MercAsia to
reconcile 3BTech’s varying sales reports to date. For instance, 3BTech first represented
gross sales in the amount of $1,172,284 based on invoices. That sales amount, however,
directly conflicted with later discovery obtained from third-party vendors, such as
Amazon, Walmart, and HSN, whose documents represented a higher sales figure of
$1,411,352. [DE 143 at 4]. More recently, 3BTech supplemented its production with
additional invoices that support an even higher gross sales figure of $1,488,522.
Furthermore, 3BTech indicated at the hearing that generating these reports, which is not
done in the normal course of its business, will take 1-2 days at the most. Accordingly,
the probative value of the reports in clarifying 3BTech’s profits from the Accused
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Product far outweighs any burden imposed on 3BTech to produce them. Thus, 3BTech’s
NetSuite sales reports are relevant to the claims and defenses in this case, are
proportional to the needs of this case, and must be produced. See Fed. R. Civ. P.
26(b)(1).
Specifically, 3BTech must produce complete responses to all of MercAsia’s
document requests (“RFPs”), including RFP No. 7, requesting any and all financial
reports necessary to support 3BTech’s gross and net revenues. These reports must
document 3BTech’s gross sales, sales returns, net sales, cost of goods sold purchased,
marketplace charges, advertising expenses, and gross profits related to the Accused
Product for years 2017, 2018, 2019, 2020, and 2021. 3BTech is also ordered to provide
documentation supporting expenses incurred as of March 2020.
2.

Zhu and ZakeIP Subpoenas

In an effort to obtain the relevant financial information withheld by 3BTech,
MercAsia issued subpoenas to Jianqing “Johnny” Zhu and ZakeIP, non-parties to this
action. In its second motion to compel, MercAsia moves the Court for an order
compelling Mr. Zhu and ZakeIP to produce documents in response to these subpoenas.
Rule 45 of the Federal Rules of Civil Procedure states that a party may serve a
subpoena to a non-party to produce designated documents. Fed. R. Civ. P.
45(a)(1)(A)(iii). “The scope of material obtainable by a Rule 45 subpoena is as broad as
permitted as under the discovery rules.” Graham v. Casey’s Gen. Stores, Inc., 206 F.R.D.
251, 253 (S.D. Ind. 2002). While nonparty discovery is broad, it is not unlimited. The
Court may quash a subpoena that “(i) fails to allow a reasonable time to comply; (ii)
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requires a person to comply beyond the geographical limits specified in 45(c); (iii)
requires disclosure of privileged or other protected matter, if no exception or waiver
applies; or (iv) subjects a person to undue burden.” Fed. R. Civ. P. 45(d)(3)(A).
Here, 3BTech contends that the Zhu and ZakeIP subpoenas pose an undue
burden. “To determine whether a subpoena is unduly burdensome, a court weighs a
number of factors including relevance, need, the breadth of the document request, the
time period covered by it, the particularity with which the documents are requested, the
burden imposed, and non-party status.” Alderson v. Ferrellgas, CAUSE NO. 3:12-cv-305TLS-CAN, 2013 WL 11325054, at *4 (N.D. Ind. Aug 22, 2013) (citing WM High Yield v.
O’Hanlon, No. IP-05-115-Misc., 2006 WL 3197152, at *4 (S.D. Ind. 2006)). The Court need
not reach any conclusion as to whether the Zhu and ZakeIP subpoenas were unduly
burdensome because 3BTech, based on this Order, will be producing the same financial
information sought from Zhu and ZakeIP. Thus, Zhu and ZakeIP—as nonparties—need
not be burdened with producing duplicative information in response to MercAsia’s
subpoenas, which should be reasonably attainable from 3BTech. As such, the Zhu and
ZakeIP subpoenas are hereby QUASHED.
3.

Electronically Stored Information (“ESI”)

MercAsia further contends that 3BTech has not produced all the electronically
stored information (“ESI”) responsive to its RFPs. Commendably, the parties agreed
upon relevant search terms in September and October 2020. 3BTech performed searches
of its email and enterprise servers using the terms agreed to by MercAsia. That search
initially identified approximately 1.9 million pages in 400,000 documents that 3BTech
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then worked to reduce to approximately 676,000 pages in 47,000 documents that were
produced to MercAsia. However, MercAsia contends that only about 3% of those pages
are responsive to its RFPs.
3BTech argues that further ESI efforts would be disproportional to the needs of
this case. According to 3BTech, only $1.5 million in sales are at issue in this reasonable
royalty case such that damages in this case rise to only about $150,000. 3BTech explains
that it has already spent $50,000 on ESI vendors plus the attorney fees involved in
facilitating and reviewing the ESI production. Yet MercAsia remains justifiably
concerned that 3BTech has withheld responsive information leaving it with an
incomplete picture as to the facts of this case.
Despite the obvious costs involved in ESI discovery, 3BTech has not
demonstrated that MercAsia’s concerns related to 3BTech’s responses to its RFPs are
unfounded. The record reflects a tortuous discovery process caused at least in part by
3BTech’s narrow view of what information is relevant and responsive to MercAsia’s
requests. Therefore, some additional effort to search for responsive ESI is warranted.
Accordingly, the parties shall meet and confer once more to narrow search terms.
3BTech shall then search all of its servers using the narrowed search terms. Given its
familiarity with its own servers, 3BTech must be forthcoming with the terms that would
best return relevant and discoverable information to ensure a complete search and to
obviate the need for future court-ordered searches.

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4.

Rule 37 Fees and Expenses

When a motion to compel is resolved, the court is left to determine whether
either party’s reasonable expenses incurred in making the motion, including attorney’s
fees, should be awarded. Fed. R. Civ. P. 37(a)(5)(A)-(B) (“If the motion is granted . . . the
court must, after giving an opportunity to be heard, require the party . . . whose conduct
necessitated the motion, the party or attorney advising that conduct, or both to pay the
movant’s reasonable expenses incurred in making the motion, including attorney’s
fees.”). MercAsia explicitly requests such an award in both of its motions to compel.
Rule 37 functions as a fee-shifting rule, and courts “shall require sanctions based
upon the costs of seeking a motion to compel.” Yessenow, 270 F.R.D. at 429 (citing
Stookey v. Teller Training Distrib., Inc., 9 F.3d 631, 637 (7th Cir. 1993)). “Fee shifting when
the judge must rule on discovery disputes encourages their voluntary resolution and
curtails the ability of litigants to use legal processes to heap detriments on adversaries
(or third parties) without regard to the merits of the claims.” Rickels v. City of South Bend,
Ind., 33 F.3d 785, 787 (7th Cir. 1994). “Sanctions under Rule 37(a)(4)(A) are appropriate
unless the party’s nondisclosure was ‘substantially justified.’” Yessenow, 270 F.R.D. at
429; see also Fed. R. Civ. P. 37(a)(5)(A) (“[T]he court must not order this payment if . . .
the opposing party’s nondisclosure . . . was substantially justified; or other
circumstances make an award of expenses unjust.”).
After giving 3BTech an opportunity to be heard, both by way of briefing and
during the telephonic motion hearing held on February 1, 2021, the Court concludes
that fee shifting is appropriate here. 3BTech’s reasoning for failing to meet its discovery
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obligations is based on its own interpretation of Rule 26(b)’s proportionality
requirement. During discovery, 3BTech produced a “complete” set of invoices related to
the Accused Product. Only after being directly contradicted by third-party reports
obtained by Amazon, Wal-Mart, and HSN, did 3BTech conclude that the invoices
previously produced were materially incomplete and needed to be supplemented with
additional invoices. Here, using a report from its NetSuite accounting system, 3BTech
had the opportunity to corroborate these sales figures with a report that would take
only one-to-two days to create. Yet, 3BTech failed to do so.
The record in this case is replete with instances where 3BTech unilaterally
interpreted the RFPs it received from MercAsia, and, after deeming the information
requested to be undiscoverable, chose not to respond. MercAsia served 3BTech with its
first set of RFPs in December 2019. Over a year later, MercAsia still seeks the
information it requested. This conduct caused MercAsia to incur unnecessary expenses
by way of filing and briefing motions in an effort to obtain this information. Therefore,
neither 3BTech’s briefing of MercAsia’s request for Rule 37 fees in its motions nor its
argument before this Court on February 1, 2021, demonstrates that its delayed and
incomplete discovery responses were substantially justified. Moreover, 3BTech has not
suggested that extenuating circumstances exist that would make a Rule 37 award of
expenses unjust as to these motions to compel.
Without substantial justification for its deficient discovery responses or evidence
of extenuating circumstances, the Court is persuaded that an award of expenses is
warranted under Fed. R. Civ. P. 37(a)(5)(A) for MercAsia’s first and second motion to
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compel. Accordingly, the Court AWARDS MercAsia its reasonable expenses, including
attorney’s fees, incurred in bringing its motions to compel dated March 6, 2020 [DE 66],
and June 24, 2020 [DE 106].
III.

CONCLUSION
For the reasons stated above, the Court GRANTS MercAsia’s Motion to Compel

Documents and Responses to Requests for Production [DE 66] as to the issues not
already resolved by the parties. Similarly, the Court GRANTS IN PART and DENIES
IN PART MercAsia’s Second Motion to Compel Documents and Responses to Requests
for Production [DE 106] as specified below. Consistent with the terms of this Opinion
and Order,
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the Zhu and ZakeIP subpoenas are QUASHED;

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3BTech is ORDERED to produce the relevant NetSuite reports as described
above on or before March 15, 2021;

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the parties are ORDERED to meet and confer to generate additional search
terms no later than March 15, 2021;

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3BTech is ORDERED to search its servers using the parties’ new search terms
and produce complete, relevant responses to MercAsia’s RFPs no later than
April 16, 2021; and

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MercAsia is ORDERED to file a statement of expenses, including attorney fees,
related to its motions to compel [DE 66, DE 106] by March 15, 2021. 3BTech may
file any objection to the reasonableness of MercAsia’s statement of expenses on
or before March 29, 2021.
SO, ORDERED this 1st day of March 2021.
s/Michael G. Gotsch, Sr.
Michael G. Gotsch, Sr.
United States Magistrate Judge
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