MSC.Software Corporation v. Altair Engineering, Incorporated et al

Filing 600

ORDER Adopting In Part Special Master Hollaar's June 9, 2010 511 Report of Special Master. Signed by District Judge Victoria A. Roberts. (LVer)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
MSC.SOFTWARE CORPORATION,
Plaintiff,

CASE NUMBER: 07-12807
HONORABLE VICTORIA A. ROBERTS

v.
ALTAIR ENGINEERING, INC., MARC
KLINGER, ANDREA PERTOSA, STEPHAN
KOERNER, TOM RIEDEMAN, RAJIV RAMPALLI
MARK KRUEGER, and MICHAEL HOFFMAN
Defendants
and
ALTAIR ENGINEERING, INC.
Counter-Plaintiff,
v.
MSC.SOFTWARE CORPORATION
Counter-Defendant.
_________________________________/
ORDER ADOPTING IN PART SPECIAL MASTER HOLLAAR’S
JUNE 9, 2010 REPORT AND RECOMMENDATION
I.

INTRODUCTION
Before the Court are MSC’s two Objections to Special Master Hollaar’s June 9,

2010 Report and Recommendation (R & R). (Doc. # 516). The first objection relates to
Janet Netz’s Expert Report and Altair’s antitrust counterclaim; Altair voluntarily
dismissed the antitrust counterclaim and Netz is no longer an expert witness.
Accordingly, that objection is MOOT.

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The remaining objection is that Special Master Hollaar erred in holding that
James T. Schmid’s (Altair’s damages expert witness) report rebutting the damages
report of R. Bruce Den Uyl (MSC’s damages expert witness) should be redesignated as
“Highly Confidential/All Attorneys” and “Highly Confidential\Attorneys’ Eyes Only” for
both sides.
II.

BACKGROUND
On July 14, 2009, the Court entered a Second Amended Stipulated Protective

Order (“Protective Order”), which governs the parties’ confidentiality designations for
discovery materials. (Doc. # 321). The Order describes three categories of protection:
“Confidential”; “Highly Confidential/All Attorneys” (referred to here as “All Attorneys”);
and “Highly Confidential/Attorneys’ Eyes Only” (referred to here as “AEO”).
This dispute centers around the proper confidentiality designation for Altair expert
witness James T. Schmid’s Expert Witness Report regarding MSC’s trade secret
misappropriation damages; it rebuts the Expert Report of MSC damages expert R.
Bruce Den Uyl. Mr. Den Uyl’s report says MSC is entitled to damages at a fifty percent
(50%) royalty rate to be applied to Altair’s MotionSolve and MotionView revenue.
Altair originally designated the report AEO. In its letter to MSC, Altair said, “Mr.
Schmid’s Report contains references to excerpts from an array of documents and
deposition testimony, many of which are subject to designations under the Second
Amended Stipulated Protective Order (Doc. 321) that are disputed by MSC or
ambiguous because the circumstances of the deposition did not fit one of the existing
categories of designation.” (Doc. # 490, Mar. 29, 2010 Letter). But, Altair offered to
change the designation to All Attorneys if MSC agreed. (Id.).
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MSC did not accept this offer; instead, it insisted that the information contained in
the report was sensitive to MSC, not Altair. (Doc. # 490, Mar. 31, 2010 Letter). It asked
that the report be re-designated as Confidential with respect to MSC only, so that
“appropriate personnel” at MSC could review it. With respect to Defendants, the
document should retain a higher level of protection because of the MSC AEO
information contained there, MSC said. MSC offered, “If Altair believes there are
portions of this report of Mr. Schmid that contain Altair AEO information, please identify
those portions and we can redact them for the time being until the issue gets resolved
and disclose the balance of the report to our client.” (Id.).
Altair declined to re-designate the report. Altair said MSC’s refusal to agree to a
re-designation from AEO to All Attorneys in favor of a Confidential designation for MSC
and an AEO or All Attorneys designation for Defendants, “seeks to impose an
asymmetry to ‘even out’ a previous asymmetry that never actually existed.” (Doc. #
490, Apr. 2, 2010 Letter). Altair did not indicate what in the report it believed to be
sensitive to Altair.
On April 15, 2010, MSC wrote the Court regarding a number of issues. One
issue was Altair’s refusal to re-designate Mr. Schmid’s rebuttal report on trade secret
damages as Confidential with respect to MSC. (Doc. # 490, April 15, 2010 Letter).
MSC stated, “MSC personnel involved in this litigation should not be precluded from
reviewing any reports which contain MSC AEO information and do not contain Altair
AEO information.” (Id.).
The Court referred the matter to Special Master Hollaar for a recommendation.
(Doc. # 489). On June 10, 2010, the Special Master submitted an R & R to the Court.
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(Doc. # 511). He noted that “MSC questions aspects of the current designations of all
five expert reports submitted by the Defendants: Linda Petzold, James McInerney,
Janet Netz, and two reports by James T. Schmidt (sic), one a response to MSC’s
claimed damages and one on damages for Altair’s counterclaim.” (Doc. # 511 at 2).
Hollaar’s R & R addresses all five report designations; however, MSC’s only objection is
to his resolution of the parties’ dispute regarding Schmid’s damages response. The
Special Master recommends that the rebuttal report be designated All Attorneys for both
sides, with the exception of a small portion, which he identified as AEO. (Id. at 3-4).
In its objection, MSC says Mr. Schmid’s damages response should be
designated Confidential for MSC because “Mr. Schmid’s rebuttal report . . . refers only
to MSC documents and data – it contains no information that reasonably could be
considered to be sensitive commercial information of Altair that would be entitled to
protection from MSC under the [Protective Order].” (Doc. # 516 at 8). MSC contends
that Hollaar’s designation “ignores the reality that the substance of Mr. Schmid’s report
is based exclusively upon MSC documents and data.” (Id.). “Maintaining Mr. Schmid’s
report as All Attorneys or AEO under the [Protective Order] as to MSC simply deprives
MSC from access to its own information (albeit in another form) to no purpose. It simply
makes no sense,” MSC complains. (Id. at 8-9).
In response, Altair says the corporate parties have always had equal access to
documents under the Protective Order, and the Court gave the individual Defendants
access to MSC expert and factual basis reports by designating those documents
Confidential for Defendants only. (Doc. # 528 at 3-4). Altair says the only way for the
individual Defendants to learn the nature of the claims against them was to re-designate
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the expert and factual basis reports as Confidential, whereas the corporate parties could
learn of the claims through an All Attorneys designation. (Id. at 4).
The least restrictive designation, Confidential, refers to “information, documents,
or things that any party providing discovery, including persons or entities who are not
parties to this lawsuit (‘Producing Party’), reasonably believes, in good faith, to contain
or constitute trade secrets or other information that is confidential or proprietary.” (Doc.
# 321 at ¶ 1). Material that is Confidential may be disclosed to the parties to the
litigation, including their officers and employees, among others. (Id. at ¶ 4).
The most restrictive designation, AEO, refers to “Confidential Information or
Material which [the designating party] further reasonably believes constitutes a trade
secret or other highly confidential research, development, or commercial information,
the disclosure of which to the other party or public would cause the producing party
competitive harm.” (Id. at ¶ 7). In addition to the restrictions placed on Confidential
Information, AEO Material may by viewed only by outside counsel, their expert
witnesses, expert consultants, and court reporters required to transcribe designated
testimony. (Id. at ¶ 11).
The intermediate designation, All Attorneys, refers to AEO Information “that is not
technical, strategic, or future product planning documents.” (Id. at ¶ 12). Materials
designated All Attorneys can be viewed by those persons who can view AEO
Information, as well as Doug Campbell (MSC’s General Counsel) and Steven Rivkin
(Altair’s General Counsel). (Id.). Importantly, neither AEO nor All Attorneys materials
can be viewed by the parties.
The Protective Order sets forth the route through which a party can challenge
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another party’s designation:
Any party may at any time move this Court for an order changing the
designated status of Confidential Information or Material or otherwise
relieving the party from any restrictions in this Protective Order. That party
shall not make such motion, however, until it requests the Producing Party
in writing to change the designated status of Confidential Information or
Material or otherwise relieve the party from any other restrictions
contained in this Protective Order, and the Producing Party refuses to
grant the party’s request. The Producing Party’s failure to respond to such
a request within five business days shall be deemed to be a refusal.
Pending resolution of the motion, the involved item shall be treated in
accordance with its designated status.
(Id. at ¶ 21).
III.

APPLICABLE LAW

The Federal Rules of Civil Procedure allow broad discovery. Rule 26(b)(1)
provides for “discovery regarding any nonprivileged matter that is relevant to any party’s
claim or defense–including the existence, description, nature, custody, condition, and
location of any documents or other tangible things and the identity and location of
persons who know of any discoverable matter.” Fed. R. Civ. P. 26(b)(1). Furthermore,
“[r]elevant information need not be admissible at the trial if the discovery appears
reasonably calculated to lead to the discovery of admissible evidence.” Id.
However, “[i]n the face of the broad scope of permissible discovery, Fed. R. Civ.
P. 26(c) provides a mechanism, available in appropriate cases, to limit the discovery or
dissemination of certain information.” Gillard v. Boulder Valley Sch. Dist. RE-2, 196
F.R.D. 382, 385 (D. Colo. 2000). Under Rule 26(c), a party may move for, and a court
may enter, a protective order that limits the discovery and/or dissemination of
information. The Rule specifies a number of ways in which the court can restrict
discovery; among them, the Court, for good cause, can enter an order “requiring that a
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trade secret or other confidential research, development, or commercial information not
be revealed or be revealed only in a specified way . . . .” Fed. R. Civ. P. 26(c)(1)(G).
Courts utilize at least three types of protective orders to limit the discovery of
confidential or proprietary information. Gillard, 196 F.R.D. at 385. First, there is the
particular protective order. Id. This is the most narrow kind of protective order; it covers
only specific, identified information. Id. In cases with more than a few sensitive
documents, such particularized orders are inefficient and burdensome because they
require the court to review and make a determination about each piece of information
for which protection is sought. Id. at 385-86.
The broadest form of protection, the umbrella protective order, designates all
discovery produced in the litigation as protected without prior review and independent
designation. Id. at 386. Umbrella protective orders are generally disfavored. Id.
Between these two extremes is the type of protective order at issue here–the
blanket protective order. See id. These place the burden on the parties to determine
what materials are entitled to protection. Id. “Normally, a blanket protective order
requires that counsel for a producing party review the information to be disclosed and
designate the information it believes, in good faith, is confidential or otherwise entitled to
protection.” Id. If the party receiving the disclosure disagrees with the producing party’s
designation, it may object. Id. If the parties cannot resolve the disagreement, the Court
will review the materials in light of the parties’ protective order. Id.
As was done here, parties in civil cases often stipulate to the entry of a blanket
protective order. Id. “Blanket protective orders serve the interests of a just, speedy,
and less expensive determination of complex disputes by alleviating the need for and
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delay occasioned by extensive and repeated judicial intervention.” Id. These protective
orders are common in large-scale litigation involving massive document exchanges.
See Parkway Gallery Furniture, Inc. v. Kittinger/Pennsylvania House Grp., Inc., 121
F.R.D. 264, 267-68 (M.D.N.C. 1988).
Although a blanket protective order allows all documents to be designated as
confidential–or in this case, at varying levels of confidentiality–a party must agree to
invoke the designation only in good faith. Id. at 268. When a party to a blanket
protective order disputes the level of protection designated by the producing party, the
burden is on the producing party to justify its designation. Foley v. Signator Investors,
Inc., No. 03-2099-KHV, 2003 WL 22844110, at * 2 (D. Kan. Nov. 25, 2003); Gillard, 196
F.R.D. at 386; Parkway Gallery Furniture, 121 F.R.D. at 268. To meet this burden, the
designating party must establish “good cause” for the level of protection selected. See
Fed. R. Civ. P. 26(c)(1).
As a district court in Kansas explained, “a stipulation cannot raise a presumption
of protection.” Adams & Assocs., LLC v. Dell, Inc., No. 1:05-CV-64 TS, 2006 WL
4523602, at *2 (D. Kan. June 12, 2006). “A stipulated protective order cannot bestow
any weight on a party’s unilateral designation of protection. Allowing mechanical
designation by a producer is a convenient and justifiable mechanism to move litigation
along, but the designating party retains the fundamental responsibility to ‘show cause’
for protection.” Id. “Once the designation has been challenged, it is the burden of the
designating party to justify the need for enforcement of the protective order in
accordance with its terms.” Id. (citation and quotation marks omitted).
Moreover, when the need for a certain level of protection is premised on the
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existence of confidential information, the designating party must make a particularized
showing that the information sought to be protected is entitled to that protection. Cf.
Standard Space Platforms Corp. v. United States, 35 Fed. Cl. 505, 507 (Cl. Ct. 1996)
(citation omitted) (discussing the standard for a party moving for a protective order
based on the alleged existence of confidential discovery material). The producer must
demonstrate that disclosure “will result in ‘a clearly defined and very serious injury to its
business.’” Id. (quoting United States v. Exxon Corp., 94 F.R.D. 250, 251 (D.D.C.
1981)). “Moreover, the requisite showings must be made with specific facts, not mere
conclusory allegations of confidentiality and/or business harm.” Id.
IV.

ANALYSIS
A.

Standard of Review

The Court has said in prior orders that Special Master Hollaar’s role is similar to
that of a Magistrate Judge and that his recommendations are governed by E.D. Mich.
LR 72.1. Fed. R. Civ. P. 53 also governs the appointment and role of special masters.
Under both rules the Court applies de novo review to objections to the R & R. 28
U.S.C. § 636(b)(1); Fed. R. Civ. P. 53(f)(3). The Court may accept, reject, modify, in
whole or in part, Special Master Hollaar’s recommendations. 28 U.S.C. § 636(b)(1).
B.

Altair does not show “good cause” why Mr. Schmid’s damages
response should be designated All Attorneys with respect to MSC.

Altair does not meet its burden to show “good cause” for maintaining the current
AEO designation, or for placing an All Attorneys designation on Mr. Schmid’s damages
response with respect to MSC.
In his R & R, Special Master Hollaar summarizes Defendant’s argument: “Altair
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indicates [it designated Mr. Schmid’s report AEO] because it ‘contains references to or
excerpts from an array of documents and deposition testimony, many of which are
subject to designations under the Protective Order.’” (Doc. # 511 at 3). However,
without analyzing the contents of the report or explaining his reasons, the Special
Master recommends that the report be redesignated as All Attorneys, except for
Attachment 4 and page 15, which he says should retain its designation as AEO
because of the information “strategic” to MSC contained there.
The problem with Altair’s argument is that at no point does it provide more than a
conclusory statement that Mr. Schmid’s damages response contains information
sensitive to Altair. MSC asked Altair to identify the information it was concerned about
and offered to redact that information from the report. Altair’s response did not address
the contents of the report, or why it should not be designated Confidential as to MSC.
Altair’s initial email to MSC makes a vague reference to “an array of documents
and deposition testimony . . . subject to designations under the [Protective Order]” it
believes are mentioned in the report. (Doc. # 490, Mar. 29, 2010 Letter). At no point,
however, does Altair identify what documents and deposition testimony it is concerned
about and why it feels those materials require AEO or All Attorneys designation for
MSC; nor does it say which designations those materials are subject to under the
Protective Order. Altair’s conclusory assertion–wholly lacking in particularized factual
support–is insufficient to carry its burden to show good cause for the designation it
seeks. See Standard Space Platforms, 35 Fed. Cl. at 507.
C.

Altair’s “asymmetry” argument does not warrant overruling MSC’s
objection to the R & R.
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Altair places much emphasis on what it refers to as the “asymmetry” of the dual
designation MSC proposes, that is, an All Attorneys and AEO designation for Mr.
Schmid’s report as it relates to Defendants, and a Confidential designation with respect
to MSC. However, MSC correctly notes that this Court placed a similar dual designation
on discovery MSC provided to the individual Defendants in the interest of due process,
so that the individual Defendants would be apprised of, and able to help prepare their
defense of, the claims against them. (See Doc. #s 276, 289).
MSC explores the genesis of this Court’s dual-designation order in an email to
Professor Hollaar. (Doc. # 528-4; Ex. 3). It argues that its corporate officers and
employees have the same due process rights as the individual Defendants and that
because MSC, as a corporation, has no independent consciousness, its officers are the
ones in the position to prosecute the trade secret case and defend against the
countercomplaint. (Doc. # 542 at 5). At least one other court has recognized that a
protective order which denies an officer of a competitor corporation access to
documents produced during discovery may result in the denial of due process. See
Standard Space Platforms, 35 Fed. Cl. at 509 (“[O]n this record, defendant has failed to
show good cause why plaintiff’s president should be precluded from participating in the
preparation and prosecution of its case. Indeed, to deny plaintiff the right to have its
own president assist in its litigation . . . could well border on a denial of due process.”).
The Protective Order does not specifically mention dual designation, but that
does not preclude the scheme when justified by the circumstances. Nowhere does the
Protective Order indicate that dual designation is never appropriate. Altair’s suggestion
that MSC’s request is not properly before the Court is therefore incorrect. Altair says
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MSC should have filed a motion for relief from the Protective Order. However, it is
MSC’s position that its request is pursuant to the Protective Order and that it, therefore,
need not seek relief from that Order. Indeed, MSC makes a sound argument pursuant
to the express terms of the Order: material is entitled to the AEO designation only if it
“constitutes a trade secret or other highly confidential research, development, or
commercial information, the disclosure of which to the other party or public would cause
the producing party competitive harm . . .” (Doc. # 321 at ¶ 7); material is entitled to the
All Attorneys designation only if it is AEO information “that is not technical, strategic, or
future product planning documents . . . .” (Id. at ¶ 12). MSC contends Altair makes
neither showing.
The relevant inquiry is not whether the Protective Order explicitly permits dual
designation, but whether the designating party meets its burden to show good cause for
a particular designation in the face of an objection. Altair does not even attempt to
demonstrate that information contained in the report constitutes an Altair trade secret or
highly confidential research, development, or commercial information, the disclosure of
which would cause Altair competitive harm. Thus, Altair does not meet its burden; the
inquiry ends there.
V.

CONCLUSION
Special Master Hollaar recommended that the “damages response report of Mr.

Schmid be Redesignated as ‘Highly confidentrial/All Attorneys’ except for Attachment 4
and page 15, which should retain their designation as ‘Highly Confidential/Attorneys’
Eyes Only.” (Doc. # 511 at 4).
The Court DECLINES TO ADOPT the part of the recommendation that concerns
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MSC.
The Court ADOPTS Special Master Hollaar’s recommendation that the Court
designate the majority of the report All Attorneys for Defendants, and Attachment 4 and
page 15 AEO for Defendants. Those designations will apply to Altair and the individual
Defendants. For MSC, the entire report is only Confidential.
MSC’s objection # 1 is MOOT; the antitrust counterclaim has been dismissed and
Janet Netz was a witness only with respect to that claim.
IT IS ORDERED.

S/Victoria A. Roberts
Victoria A. Roberts
United States District Judge
Dated: May 17, 2012
The undersigned certifies that a copy of this
document was served on the attorneys of
record by electronic means or U.S. Mail on
May 17, 2012.
S/Linda Vertriest
Deputy Clerk

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