Versata Software, Inc., et al v. Ford Motor Company

Filing 320

ORDER Sustaining in Part Versata's #305 Objections to #300 and #301 Report and Recommendation of the Special Master to Deny Versata's Motion to Compel PDOR2 Source Code. Signed by District Judge Matthew F. Leitman. (HMon)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
FORD MOTOR COMPANY,
Plaintiff,

Case No. 15-cv-10628
(consolidated with Case No. 15-11624)
Hon. Matthew F. Leitman

v.
VERSATA SOFTWARE, INC. et al.
Defendants.
_________________________________/

ORDER SUSTAINING IN PART VERSATA’S OBJECTIONS (ECF #305) TO
REPORT AND RECOMMENDATION OF THE SPECIAL
MASTER TO DENY VERSATA’S MOTION TO COMPEL
PDOR2 SOURCE CODE (ECF ## 300, 301)
In this action, Versata Software Inc. and other related Defendants (collectively,
“Versata”) allege that Ford Motor Company infringed certain patents and
misappropriated certain trade secrets when Ford developed an automotive configuration
software program called “PDO.” During discovery, Versata asked Ford to produce the
source code for computer software Ford called “PDOR2.” Ford refused. Versata
thereafter filed a motion to compel with attorney Lawrence D. Graham, the Courtappointed discovery master in this action.
Pursuant to the protocol established in the Court’s order appointing Mr. Graham
(see ECF #230), Mr. Graham issued a Report and Recommendation in which he
recommended that the Court deny Versata’s motion to compel (the “R&R”). (See ECF
## 300, 301.) On August 24, 2017, Versata filed objections to the R&R. (See ECF

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#305.) Ford filed a response (see ECF #308) and the parties filed supplemental
submissions (see ECF ## 312, 315). The Court held a telephonic hearing on Versata’s
objections on October 19, 2017.

For the reasons explained below, the Court

SUSTAINS IN PART Versata’s objections and will require Ford to produce the
PDOR2 source code at Versata’s expense.
I
For more than a decade, Ford licensed automotive software called “ACM” from
Versata. (See First Am. Counterclaim at ¶8, ECF #163 at Pg. ID 8322.) ACM provided
a rule-authoring function that assisted Ford in the configuration of its vehicles. (See id.
at ¶38, Pg. ID 8239-30.)
Versata alleges that in 2011, “Ford began an internal project to replace [ACM]
and develop software that would perform the same functions.” (Id. at ¶41, Pg. ID 833031.) Ford named this software “Product Definition and Offer” or “PDO.”1 (Id.) Versata
alleges that PDO, like ACM, is rule-authoring software that allows Ford to configure
the vehicles it manufactures:
[PDO]—like ACM—is a back-end system used to configure
vehicles from billions of possible combinations of parts,
features, and options. When a Ford dealer attempts to place
an order through Ford’s Web Based Dealer Ordering

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Ford initially named the software “Total Configuration Management” or “TCM.”
(First Am. Counterclaim at ¶41, ECF #163 at Pg. ID 8331.) Versata therefore refers
to the software throughout its First Amended Counterclaim as “TCM.” But Versata
further alleges that Ford later changed the name of the software to “PDO.” (Id.) Ford
also refers to this software as “PDOR1.” For ease of reference, the Court will refer
to this software in this Order as “PDO.”
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(“WBDO”) system—for example, an order for 250 Ford
Mustangs in different colors with sunroofs and 20 inch
wheels—[PDO] supplies the ‘rules’ that ensure
configuration results in an integrated, working vehicle
system that Ford is able to manufacture and sell. Likewise,
when a retail customer attempts to customize a Ford F-150
pickup using Ford.com, [PDO] ensures that the customer is
only able to select options that Ford could build.
(Id. at ¶38, Pg. ID 8329-30.) Versata insists that “Ford incorporated Versata’s patented
technologies and trade secrets into [PDO] and used these technologies to replace
[ACM].” (Id. at Pg. ID 8304; see also Pg. ID 8305.) Versata maintains that Ford
“willfully continues to infringe [Versata’s patents] by using [PDO].” (Id. at

¶¶ 73,

78, Pg. ID 8339-40.)
In January 2017, while Versata was conducting a discovery review of the PDO
source code, Versata “discovered that in addition to the PDO [source] code repository,
Ford also maintain[ed] on the same server a ‘PDOR2’ … code repository that Versata’s
reviewers could not access.” (Versata Objections, ECF #305 at Pg. ID 15781.) Versata
sought access to the PDOR2 source code repository, and Ford refused. Ford insisted
that PDOR2 was not an accused product in this action. (See R&R, ECF #301 at Pg. ID
15180.) Ford contended that PDOR2 did not include a rule-authoring function and that
it therefore had distinct functionality from PDO (the product that Versata did accuse),
and Ford argued that producing the PDOR2 source code would impose a significant
burden. (See id.)

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On May 19, 2017, Versata filed a motion with Mr. Graham seeking entry of an
order that compelled “Ford to produce all manuals and technical documents (including
cases, design documents, and testing documents) related to PDOR2 and provide Versata
with access to the PDOR2 source code.” (ECF #301-2 at Pg. ID 15197.) Versata argued
that it was entitled to the PDOR2-related documents and to the PDOR2 source code
because “PDOR2 is…the second revision or iteration of PDO – the very software
accused of patent, trade secret, and copyright infringement in this case.” (Id. at Pg. ID
15195.) Versata further identified certain Ford documents that, according to Versata,
demonstrated that “PDOR2 performs rule-authoring,” just like PDO. (Id. at Pg. ID
15196, citing Pg. ID 15201.) Versata insisted that there was good reason to question
the bright-line distinction Ford had drawn between the rule-authoring PDO software
and PDOR2.
Ford responded that that PDOR2 was “not accused in this litigation and [was]
not relevant to either party’s claims or defenses.” (See ECF #301-3 at Pg. ID 15243.)
Ford explained that while PDO is a “rule-authoring application [that] replaced
[Versata’s] ACM application,” PDOR2, in contrast, is “a set of [four] separate
applications[] which provide a different set of functionality than the accused PDO[]
rule-authoring application.” (Id.) Ford stressed that PDOR2 was “neither a replacement
for, nor a new version of, the accused PDO[] application.” (Id.) Finally, Ford claimed
that producing the PDOR2 source code would “impose a significant burden on Ford”
that would require “months of work.” (Id. at Pg. ID 15245.)

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On August 14, 2017, Mr. Graham issued the R&R in which he recommended
that the Court deny Versata’s request for the PDOR2 source code and documents. (See
R&R, ECF #301.) Mr. Graham first recounted the procedural history of Vesata’s
request that the Court described above. He then turned to the question whether “PDOR2
is a revised or upgraded version of PDO, as Versata contends, or whether it is a suite of
separate applications, as Ford contends.” (Id. at Pg. ID 15184.)

Mr. Graham

acknowledged that Versata had identified some Ford documents which “strongly
suggest that PDOR2 applications work in some fashion with either PDO or data that is
created or used by PDO, but appear to blur the distinction between the two.” (Id. at Pg.
ID 15185.) But Mr. Graham ultimately concluded that while those documents may
“suggest certain functionality of the general type that is accused in this action (such as
rule authoring) is performed by PDOR2 … the supporting documents do not clearly
indicate that any of the four applications [that comprise PDOR2] provide such
functionality.” (Id.)
Next, Mr. Graham addressed whether PDOR2 was “relevant and discoverable.”
(Id.) He explained that “[t]he record demonstrates that [PDOR2] comprises a suite of
four applications and that Versata has neither accused those four applications of
infringement nor articulated how production of the source code is reasonably likely to
lead to such an accusation.” (Id. at Pg. ID 15188.) In reaching this conclusion, Mr.
Graham rejected Versata’s argument that its pleadings do accuse Ford of infringement
with respect to PDOR2:

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Here, Versata has not established relevance of the PDOR2
source code in the sort of ‘focused, particularized manner’
that would make it relevant. As Ford points out, none of
Versata’s infringement contentions directly accuse the
PDOR2 applications …. Versata argues that the pleadings
refer to PDO, and that PDO should be understood to be a
generic name for all versions of PDO, including PDOR2.
Ford counters that PDOR2 is not a new version of PDO …
and that its declaratory judgment claim related to PDO was
filed before PDOR2 had been created. Because PDOR2 did
not exist at that time, it could not have been the express
subject of the pleadings.
(Id. at Pg. ID 15187.)
Mr. Graham also addressed Ford’s contention that producing the PDOR2 source
code would be unduly burdensome. He noted that the two parties were “very far apart
on this issue, and that the correct measure of burden appears to be somewhere in the
middle.” (Id. at Pg. ID 15191.) He concluded that “the submissions establish[ed] that
there would be considerable effort required in making the PDOR2 source code
available, though the exact measure of that effort is less clear.” (Id.)
Finally, Mr. Graham addressed Versata’s request for the PDOR2 “cases, design
documents, and testing documents.” (Id. at Pg. ID 15188-89.) He determined that
Versata’s request for these documents was not properly before him because Versata had
failed to show that it conducted a “meet and confer” with Ford with respect to those
documents as the Court’s local rules require. (Id.)

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II
Versata objects to the R&R on three grounds. The Court has conducted a de
novo review of the portions of the R&R to which Versata has objected, and it will
address each objection in turn.
A
Versata first challenges Mr. Graham’s conclusion that PDOR2 is not relevant to
the claims or defenses in this action because PDOR2 is not an accused product. (See
ECF #305 at Pg. ID 15784.) According to Versata, “PDOR2 is a component of PDO”
and performs the same rule-authoring functions as PDO. (Id. at Pg. ID 15780, 1578485.) Versata therefore insists that PDOR2 is part of the “accused software.” (Id.) Ford
responds that “Versata blurs the distinction between the accused PDO[] rule-authoring
software and the separate PDOR2 suite of applications.” (ECF #308 at Pg. ID 15852.)
According to Ford, because the PDOR2 suite of applications is entirely separate from
PDO, PDOR2 cannot be considered to be an “accused product” and is not relevant to
this action.
The Court concludes that Versata has raised a sufficient question as to whether
PDOR2 is an accused product to warrant at least some discovery into PDOR2. More
specifically, Versata has submitted certain Ford documents that arguably support
Versata’s contention that PDOR2, like PDO, is rule-authoring vehicle configuration
software. One such Ford document states that PDOR2’s functionality “will be built on
top of the [PDO] Authoring Foundation” and implies that part of PDOR2 will involve

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“direct authoring of product definition.” (ECF #305-1 at Pg. ID 15818.) Another Ford
document states that the “future state vision” of PDOR2 includes creating “common
global processes for authoring all aspects of product definition.” (ECF #305-2 at Pg. ID
15200.) Finally, a slide from a Ford presentation appears to state that PDOR2 will
include “direct authoring” and will “expand authoring to include all specialty vehicles.”
(ECF #301-2 at Pg, ID 15232.) As Mr. Graham correctly concluded, these Ford
documents perhaps suggest PDOR2 performs “certain functionality of the general type
that is accused in this action (such as rule authoring)….” (R&R, ECF #301 at Pg. ID
15185.)
To be sure, Ford counters with strong evidence that PDOR2 does not perform
the same rule-authoring function as PDO. That evidence includes the sworn declaration
of Jim Beardslee, an employee in Ford’s product development department. (See ECF
#308 at Pg. ID 15165-66.) Mr. Beardslee attests that while PDO “replaced the
functionality of the [ACM software] that Ford formerly licensed from Versata,” PDOR2
is “a separate set of applications that provide[s] distinct functionality from that provided
by PDO[].” (Id. at Pg. ID 15165.) Mr. Beardslee adds that the various functions of the
PDOR2 software “[did] not replace the functionality of the PDO[] application.” (Id. at
15165-66.) He concludes that “PDO ‘R2’ is not a new release of PDO[].” (Id. at 15165.)
It is certainly possible, if not likely, that Ford will ultimately persuade the Court
that PDOR2 is sufficiently distinct from PDO such that PDOR2 cannot be considered
an accused product in this action. However, at this point in the proceedings, the Court

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cannot conclusively determine that PDOR2 is not accused, and the Court believes that
Versata has sufficiently connected PDOR2 to its claims so as to warrant at least some
basic discovery into PDOR2. The link between PDOR2 and Versata’s claims is,
admittedly, not a strong one and does not yet warrant extensive and burdensome
discovery into PDOR2. But, as described below, the Court will, at this time, permit
Versata to review the PDOR2 source code.2
B
Versata next objects to Mr. Graham’s conclusion that it would be burdensome
for Ford to produce the PDOR2 source code to Versata. (See ECF #305 at Pg. ID 1578889.) The Court shares Mr. Graham’s assessment of the burden.
Mr. Graham carefully evaluated the competing arguments both Ford and Versata
made with respect to the burden required to make the source code available, and he
concluded that “there would be a considerable effort required [by Ford] in making the
PDOR2 source code available.” (R&R, ECF #301 at Pg. ID 15191.) While Mr. Graham
could not definitively define “the exact measure of that effort” (id.), there is support in
the record for his conclusion. Specifically, Ford submitted the declaration of IT
employee Samantha Balinski, who declared that:

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Nothing in this Order should be understood to suggest that the Court is inclined to
conclude that PDOR2 is an accused product or that the Court will permit
introduction of evidence concerning PDOR2 at trial. The Court’s sole determination
here is that Versata should be permitted to review the PDOR2 source code during
discovery.
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[The] [c]urrent source code for the PDR2 applications is
maintained in an active repository that is used to support
Ford’s day-to-day business activities. Because of this,
establishing a review environment that can be inspected and
analyzed by Versata’s experts requires that Ford create a
separate repository that is isolated from the active repository
supporting Ford’s day-to-day business activities.
(ECF #316 at ¶11, Pg. ID 15945-46.)
Based on the Court’s independent review of the record, it agrees with Mr.
Graham’s assessment that “there would be considerable effort required in making the
PDOR2 source code available.” (R&R, ECF #301 at Pg. ID 15191.)

Given that

“considerable effort,” and the fact that Versata has only minimally established the
relevance of PDOR2 for discovery purposes, the Court does not believe that Ford
should bear the expense of making the PODR2 source code available to Versata to
review. Accordingly, if Versata wishes to review the PDOR2 source code, it shall pay
Ford’s reasonable costs associated with making that code available. See, e.g.,
Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 358 (1978) (“The presumption is
that the responding party must bear the expense of complying with discovery requests,
but he may invoke the district court's discretion under Rule 26(c) to grant orders
protecting him from ‘undue burden or expense’ in doing so, including orders
conditioning discovery on the requesting party's payment of the costs of discovery”);
Laethem Equipment Company v. Deere & Company, 261 F.R.D. 127, 145-46 (E.D.
Mich. 2009) (quoting Oppenheimer and requiring “the party seeking discovery to pay
for the cost of finding and producing it”). To the extent Versata objects to the

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reasonableness of the costs claimed by Ford to make the PDOR2 source code available,
those disputes shall be submitted to and resolved by Mr. Graham (pursuant to the
protocol previously established by the Court).
III
Finally, Versata objects to a portion of Mr. Graham’s R&R that is not related to
the PDOR2 source code. In this objection, Versata challenges Mr. Graham’s refusal to
recommend that the Court compel Ford to produce certain “cases, design documents,
and testing documents” related to the PDOR2 software. (ECF #305 at Pg. ID 1578990.) Mr. Graham determined that Versata’s request for these documents was not
properly before him because Versata did not meet and confer with Ford concerning the
request. (R&R, ECF #301 at Pg. ID 15188-89.)
The Court does not reach the question of the sufficiency of the meet and confer
process because, for the time being, the Court is limiting discovery related to PDOR2
to Versata’s review of the PDOR2 source code. If Versata’s review of that code reveals
further reason to believe that PDOR2 is an accused product, then the Court will consider
whether to allow Versata to conduct additional discovery regarding PDOR2.
IV
The Court believes that allowing Versata to review the PDOR2 source code on
the terms set forth above (while at the same time barring Versata from conducting any
further discovery into PDOR2 without further permission) strikes an appropriate and
reasonable balance between the parties’ competing interests for the time being.

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Accordingly, for the reasons stated above, Versata’s objections to the R&R (ECF #305)
are SUSTAINED IN PART as follows:
 Ford shall make the PDOR2 source code available for Versata’s review;
 Versata shall be responsible for all reasonable costs associated with making the
PDOR2 source code available for review; and
 Versata shall not conduct any additional discovery into PDOR2 unless and until
this Court enters a written order permitting it to do so.
IT SO ORDERED.
s/Matthew F. Leitman
MATTHEW F. LEITMAN
UNITED STATES DISTRICT JUDGE
Dated: October 25, 2017

I hereby certify that a copy of the foregoing document was served upon the
parties and/or counsel of record on October 25, 2017, by electronic means and/or
ordinary mail.
s/Holly A. Monda
Case Manager
[phone]

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