Eastman Kodak Company v. Kyocera Corporation
Filing
131
DECISION & ORDER Kyocera's motion to compel 75 is granted. Kodak shall produce the withheld documents within one week of the date of this decision. Kodak's motion to disqualify 86 is denied. Signed by Hon. Marian W. Payson on 9/17/2012.(KAH)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
EASTMAN KODAK COMPANY,
DECISION & ORDER
Plaintiff,
10-CV-6334CJS
v.
KYOCERA CORPORATION,
Defendant.
PRELIMINARY STATEMENT
Kodak has brought this suit against Kyocera seeking damages arising from
Kyocera’s alleged breach of a 2002 agreement between the parties granting Kyocera a license to
use and sell Kodak’s patented digital camera technology. (Docket # 1). According to Kodak, the
patent licensing agreement (the “PLA”) required Kyocera to pay royalties to Kodak on all of the
components of its products with “digital camera functionality,” but Kyocera instead paid
royalties on only some of the components. (Id. at ¶ 25). Kodak also contends that the royalty
payments were to be based on the sales price of the digital camera products, rather than, as
Kyocera calculated the payments, the purchase price of the individual components. (Id. at ¶ 27).
Finally, Kodak contends that Kyocera failed to pay royalties on all of the digital camera products
it sold and refused to provide complete and accurate royalty payment records to Kodak’s
auditors. (Id. at ¶¶ 29, 31).
Currently pending before this Court are two motions. First, Kyocera has moved to
compel production of communications between Kodak’s attorneys and the auditing firm of
Deloitte & Touche (“Deloitte”), which Kodak maintains are protected from disclosure under the
attorney work product doctrine. (Docket # 75). Second, Kodak has moved to disqualify
Kyocera’s expert witness, Robert Wallace (“Wallace”). (Docket # 86). For the reasons
discussed below, Kyocera’s motion to compel is granted, and Kodak’s motion to disqualify is
denied. I turn first to Kyocera’s motion to compel.
I. Kyocera’s Motion to Compel
A. Factual Background
Kyocera seeks to compel production of certain withheld and redacted
communications between Kodak’s attorneys and Deloitte that Kodak has designated as attorney
work product.1 (Docket # 75). According to Kodak, all of the communications at issue occurred
after Kodak anticipated litigation with Kyocera. (Docket # 82 at 1). Kodak asserts that the
communications “reveal Kodak’s attorneys’ efforts to evaluate breach of contract claims against
Kyocera” and are related to “discussions that Kodak’s attorneys had with Deloitte to gather
information relating to a potential lawsuit against Kyocera.” (Id. at 1, 4).
Under the PLA, Kodak was permitted to hire annually a “mutually agreed upon
independent auditor . . . [to] provide Kyocera and Kodak with a report relating only to the
accuracy of the information set forth in [Kyocera’s] royalty statement.” (Docket # 114-2, Ex. 2
at § 5.3). In 2005, with Kyocera’s consent, Kodak hired Deloitte to conduct the
contractually-permitted audit. (Kodak has not provided the Court with a copy of any engagement
1
After the motion was filed, Kodak produced numerous documents that it had previously designated as
privileged. (Docket # 82 at 1, 4).
2
letter with Deloitte). Prior to the audit, Kodak sent a letter to Kyocera announcing its intent to
exercise its audit rights under the PLA. (Docket # 71-3, Ex. A). Specifically, that April 1, 2005
letter advised Kyocera that “Kodak intends to exercise its right to have an independent auditor
review and test the underlying support and methodologies used to calculate royalties due” in
accordance with Paragraph 5.3 of the PLA. (Id.). Kodak explained that the audit was part of an
inspection program that it had implemented in an effort “to develop and follow industry best
practices.” (Id.). In accordance with the terms of the PLA, Kodak sought Kyocera’s approval of
Deloitte to conduct the contractually-permitted audit. (Id.).
Deloitte conducted the audit and issued an initial report in November 2005 and a
revised report in February 2006. (Docket # 71-3 at ¶¶ 4-5). During the course of the audit, a
dispute arose over the manner in which royalties were supposed to be calculated under the terms
of the PLA. (Docket ## 75-1 at 2; 82 at 3). According to Kodak, when it learned from Kyocera
in early December 2005 that it was calculating royalty payments based on only the camera
module, Kodak notified Kyocera that it was in violation of the PLA. (Docket # 82 at 3). The
parties’ subsequent efforts to resolve the dispute were not successful. (Id.).
On May 23, 2008, Kodak’s outside counsel retained Deloitte for additional audit
work. (Docket # 85, Ex. 1). On June 1, 2008, Deloitte wrote to Kyocera confirming its
understanding that “Kodak and Kyocera have agreed to complete that portion of an inspection
performed by Deloitte in 2005 relating to Kyocera’s sale of camera phones and camera modules
[and] to [conduct] a selective inspection of Kyocera’s sales of camera phones and camera
modules for the period April 1, 2005 through March 31, 2008.” (Docket # 89-1, Ex. R). The
letter acknowledged Deloitte’s understanding that the parties disputed “the scope and meaning of
3
certain terms in the [PLA].” (Id. at n.1). Both Kodak’s and Kyocera’s outside counsel were
copied on the letter. (Id.).
Eight weeks later, on July 31, 2008, Deloitte sent a letter to Kodak’s counsel
acknowledging that it had been retained by counsel “in connection with Kodak’s ongoing
negotiations with [Kyocera] regarding a patent license agreement (the “Kyocera Matter”).”
(Docket # 82-1, Ex. 1). Deloitte further acknowledged its understanding that “Counsel’s
intention and the position of Counsel [is] that our work for it will be covered by the attorney
work-product privilege and other applicable privileges.” (Id.). Deloitte agreed to treat all
working papers, documents and communications as confidential information. (Id.). Finally, the
agreement specified that Deloitte would “provide assistance in reading the financial information
and other data relevant to this matter in order to assist Counsel and [Kodak] with the Kyocera
Matter.” (Id.). Kyocera was not copied on Deloitte’s letter to Kodak.
Deloitte issued its final audit report on January 27, 2009. (Docket # 71-3, Ex. E).
Kodak filed this lawsuit in June 2010. (Docket # 1). During discovery, Kodak
initially withheld as privileged hundreds of documents exchanged with Deloitte during the audit
process. (Docket # 71-2 at 2-3). Since then, Kodak has produced over 500 communications with
Deloitte that it had originally withheld, including 159 communications produced after the instant
motion was filed. (Docket # 82 at 4). According to Kodak, it has now produced all documents
concerning Kodak’s retention of Deloitte, the instructions it provided to Deloitte and the scope of
Deloitte’s work, along with Deloitte’s draft and final audit findings and conclusions from both
the 2005 and 2008 audits. (Id. at 4, 7). Kodak contends that the only documents it is
withholding are those “that resulted from Kodak’s anticipation of litigation.” (Id. at 7).
4
At this stage, Kodak continues to withhold 37 communications and has produced
redacted versions of 40 others, all of which have been provided to this Court for in camera
review. (Docket # 82-1 at ¶ 10). The communications at issue occurred after December 7, 2005,
– the date on which Kodak represents that it reasonably anticipated litigation with Kyocera (as a
result of Kyocera’s notification that its royalty payments were calculated based upon the camera
module only). (Docket # 82 at 3). According to Kodak, they consist of communications between
Kodak’s attorneys and Deloitte following the 2005 and 2008 audits (1) “relating to how Kyocera
was paying royalties” and (2) “relating to the documents that Kyocera refused to provide to
Deloitte.” (Id. at 4).
B. Discussion
The purpose of the attorney work product doctrine is “to preserve a zone of
privacy in which a lawyer can prepare and develop legal theories and strategy ‘with an eye
toward litigation,’ free from unnecessary intrusion by his adversaries.” United States v. Adlman,
134 F.3d 1194, 1196 (2d Cir. 1998) (quoting Hickman v. Taylor, 329 U.S. 495, 510-11 (1947)).
Rule 26(b)(3) provides:
Ordinarily, a party may not discover documents and tangible things
that are prepared in anticipation of litigation or for trial by or for
another party or its representative (including the other party’s
attorney, consultant, surety, indemnitor, insurer, or agent). But,
subject to Rule 26(b)(4), those materials may be discovered if:
(i) they are otherwise discoverable under Rule
26(b)(1); and
(ii) the party shows that it has substantial need for
the materials to prepare its case and cannot, without
undue hardship, obtain their substantial equivalent
by other means.
5
Fed. R. Civ. P. 26(b)(3). The Second Circuit has interpreted the rule to protect any documents
that “were prepared ‘because of’ existing or expected litigation.” United States v. Adlman, 134
F.3d at 1198.
The party asserting the privilege bears the burden of establishing it. In re
Application of Minebea Co., Ltd., 143 F.R.D. 494, 499 (S.D.N.Y. 1992). Ipse dixit assertions or
unsupported conclusions are insufficient to establish the privilege. E.E.O.C. v. Johnson &
Higgins, Inc., 1998 WL 778369, *4 n.4 (S.D.N.Y. 1998) (attorney’s conclusory statement that
documents reflected the attorney’s “thoughts, impressions and strategies” was insufficient to
establish work product protection) (citing In re Grand Jury Subpoena Dated Jan. 4, 1984, 750
F.2d 223, 224-25 (2d Cir. 1984)).
Kyocera argues that the withheld and redacted documents were not created
because of litigation, but were created in the ordinary course of business. (Docket # 89 at 4-7).
In the alternative, Kyocera contends that Kodak waived any protection under the attorney work
product doctrine when its attorneys shared their thoughts and strategies with Deloitte because
Deloitte was reasonably likely to disclose those communications to Kyocera. (Id. at 7-10).
As an initial matter, the fact that some of the withheld and redacted documents
were prepared by Deloitte, a third party, does not defeat work product protection. See Safeco Ins.
Co. of Am. v. M.E.S., Inc., 2011 WL 6102014, *5-6 (E.D.N.Y. 2011) (documents created by
third-party consultants may qualify for attorney work product protection provided third party
created the documents because of litigation) (collecting cases). However, “documents that are
prepared in the ordinary course of business or that would have been created in essentially similar
form irrespective of the litigation” are not entitled to attorney work product protection. Adlman,
6
134 F.3d at 1202. See Safeco Ins. Co. of Am. v. M.E.S., Inc., 2011 WL 6102014 at *6 (critical
question is whether third party’s documents “would have been created because of anticipated
litigation or whether [they] would have been created in the ordinary course of business”). As the
Second Circuit has reasoned, “[e]ven if such documents might also help in preparation for
litigation, they do not qualify for protection because it [cannot] fairly be said that they were
created ‘because of’ actual or impending litigation.” Adlman, 134 F.3d at 1202. For that reason,
“even where an engagement letter states that an auditor is retained in anticipation of litigation,
and even where the party retaining the auditor has a reasonable good faith belief that it might end
up in litigation, the audit will not be protected where the documents would have been created in
essentially similar form irrespective of litigation.” GenOn Mid-Atlantic, LLC v. Stone &
Webster, Inc., 2011 WL 2207513, *3 (S.D.N.Y. 2011).
Kyocera relies on GenOn Mid-Atlantic, LLC v. Stone & Webster, Inc. to urge
rejection of Kodak’s invocation of the work product. In GenOn, as in this case, the parties had
executed a contract that contained a provision authorizing one party (GenOn) to audit the books
and records of the other (Stone & Webster). 2011 WL 2207513 at *2. GenOn notified Stone &
Webster of its intent to exercise its contractual audit rights and obtained its consent to GenOn’s
choice of third-party auditor. Id. GenOn did not inform Stone & Webster that the auditor had
been retained by its counsel or that its counsel was involved in directing the audit. Id. Following
the audit, litigation ensued, and GenOn resisted production of the audit records on the grounds
that the records were protected attorney work product. Id. In rejecting the work product claim,
the court concluded that the audit documents would have been created in essentially similar form
irrespective of the litigation, noting:
7
When [the auditor] approached Stone & Webster about the audit, it
acted under authority of this contractually mandated audit
procedure, and there was no representation that any portion of the
audit went above and beyond what was contemplated by the
[parties’] Agreement. Neither has GenOn argued that the audit
contains information beyond that which would have been recorded
in the ordinary course under the contractual audit provisions.
Id. at *3.
The similarities between the factual record before the court in GenOn and the
record in this case are obvious. In this case, as in GenOn, the terms of the parties’ agreement
included an audit provision. Specifically, Paragraph 5.3 of the PLA obligated Kyocera to submit
to an audit, at Kodak’s election and expense, by a “mutually agreed upon independent auditor.”
When Kodak notified Kyocera in 2005 of its intent to exercise its audit rights, it, like GenOn,
invoked its contractual audit rights and sought consent to the third-party auditor.2 No evidence
has been presented that Kodak notified Kyocera in 2008 that the second audit was being
performed for any different purpose. Indeed, Deloitte’s June 1, 2008 letter to Kyocera stated that
its purpose was to “complete” its 2005 audit “relating to Kyocera’s sale of camera phones and
camera modules” and to conduct a “selective inspection” of such sales for the period April 1,
2005 through March 31, 2008. (Docket # 89-1, Ex. R). Even counsel’s 2008 retention letter
with Deloitte – which was not sent to Kyocera – never specifically mentioned the possibility of
litigation, but only acknowledged that Deloitte’s services were being requested “in connection
2
Because Kodak has not submitted a copy of its 2005 retention letter with Deloitte, the record does not
demonstrate whether Kodak or its counsel retained Deloitte, whether Deloitte agreed to keep its communications
with Kodak confidential or whether Deloitte understood that there was any purpose to the audit other than to comply
with the stated purpose of Paragraph 5.3 to determine the “accuracy of the information set forth in the royalty
statement.”
8
with Kodak’s ongoing negotiations with Kyocera Corporation regarding a patent licensing
agreement dated August 21, 2002.” (Docket # 82-1, Ex. 1).
The factual record in this case gives rise to two questions, one factual and one
legal, I need not reach: first, whether Kyocera’s consent to Deloitte’s engagement in 2008 was
conditioned on its understanding that the purpose of the 2008 audit was identical to the purpose
of the 2005 audit; and, second, if so, whether Kodak may be foreclosed from claiming work
product protection under principles of estoppel or waiver. Rather, based on my review of the
withheld and redacted documents, I conclude that they cannot “fairly be said to have been
prepared or obtained because of the prospect of litigation.” Adlman, 134 F.3d at 1202.
The challenged documents consist broadly of three categories of communications:
first, drafts of and communications concerning Deloitte’s letter to Kyocera announcing the 2008
audit (e.g., documents identified with Bates Nos. 3813240, 3813257-62, 3852607, 3852622,
18305-308); second, communications concerning the development of the 2008 audit work plan
(e.g., Bates Nos. 3849917, 3852600, 3852602-06, 3852628, 4802794-97, 4802973, 4802984,
4803367); and, third, communications about whether and, to what extent, Kyocera withheld
documents from Deloitte during the course of that audit (e.g., Bates Nos. 3805327, 3813364,
3852695, 4800549, 18221-24, 18359, 18363, 18372, 18385-90, 18465-70, 2565, 2871, 7655,
9174, 9189).3 As to the first category, the fact that Kodak sent a similar letter to Kyocera in 2005
announcing its intent to exercise its audit rights shows that written audit notice describing the
scope of the audit was part of the parties’ ordinary course of business and not prepared because
3
Contrary to Kodak’s representation that all drafts of the audit reports have been produced, two are
contained among the withheld documents. (See Bates Nos. 4701610-18, 4701625-34).
9
of litigation. Moreover, no showing has been made by Kodak that the drafts and revisions of the
2008 notice reflect input from counsel “beyond that which would have been [included] in the
ordinary course.” GenOn Mid-Atlantic, LLC, 2011 WL 2207513 at *3. As to the second
category, development of the audit work plan was plainly part of the ordinary course of an audit.
Finally, as to the third category, the PLA obligated Kyocera to submit to an audit for the purpose
of determining the accuracy of its royalty payment statements. Any suggestion that Kodak would
not have questioned Deloitte about Kyocera’s cooperation in the audit and disclosure of
documents had it not anticipated litigation strains credulity. That inquiry is part of assessing the
reliability of the audit, as evidenced by the fact that Deloitte’s 2009 audit report disclosed that
Kyocera had failed to provide certain documents. That Kodak later based a legal claim on that
information cannot shield from disclosure communications that occurred during the course of the
audit about that subject. (Docket # 71-3, Ex. E). Finally, my review of the withheld documents
identifies no documents that analyze potential legal claims against Kyocera or discuss potential
litigation. In short, I find that the withheld and redacted records would have been “created in
essentially the same form irrespective” of the prospect of litigation. GenOn Mid-Atlantic, LLC,
2011 WL 2207513 at *3.
For the reasons set forth above, Kyocera’s motion to compel is granted. Kodak
shall produce the withheld documents within one week of the date of this decision. I turn next to
Kodak’s motion to disqualify Robert Wallace as Kyocera’s expert witness.
10
II. Kodak’s Motion to Disqualify Kyocera’s Expert
A. Factual Background
Kodak moves to disqualify Robert Wallace (“Wallace”) as an expert witness for
Kyocera on the issue of damages. (Docket # 86). Prior to his retention by Kyocera in this case,
Kodak retained Wallace in 2007 as a damages expert in a patent infringement case brought
against it by the U.S. Philips Corporation (“Philips”). (Docket # 86-2 at ¶¶ 2-3). Between July
2007 and January 2008, Wallace billed Kodak in excess of 800 hours for his services in the
Philips litigation. (Id. at ¶ 5). Kyocera asserts that it hired Wallace, not because of his past work
with Kodak, but because he has also worked for Kyocera as an expert in several prior lawsuits
and has “impeccable credentials and extensive experience,” and Kyocera “is comfortable with
providing Mr. Wallace access to its sensitive financial information.” (Docket # 91-1 at ¶¶ 2-4).
In the Philips litigation, Philips claimed that Kodak had infringed one of its image
compression patents. (Docket # 86-1 at 2). Kodak retained Wallace to offer expert testimony on
damages – specifically, the amount that Kodak would have paid Philips as a reasonable royalty to
license the patent technology at issue. (Id. at 4). The parties’ retention agreement required
Wallace to maintain the confidentiality of the information Kodak provided to him. (Docket
## 86-2 at ¶ 4; 91 at 14). Kodak alleges that it provided Wallace confidential information during
the Philips litigation concerning Kodak’s patent license agreements, digital camera technology,
licensing program, business strategy and financial information. (Docket # 86-2 at ¶ 8). Although
11
Wallace was retained as a testifying expert and prepared an expert report,4 he did not testify at
any trial because the parties negotiated a pretrial resolution of the lawsuit. (Id. at ¶¶ 6-7).
In preparing his expert report in the Philips litigation, Wallace reviewed various
agreements in which Kodak licensed its technology to third parties, including the PLA at issue
here and a license agreement with Casio.5 Both the PLA and Casio agreement were
cross-licenses granting both parties to the agreement licenses to certain patented technology from
the other. (Id. at ¶ 9; Ex. 3 at 38). Wallace determined that under both agreements Kodak
received “royalty payments as the ‘net’ licensor as opposed to being the paying licensee.”
(Docket # 86-2, Ex. 3 at 38). On that basis, he concluded that the agreements “provide[d] no
relevant information” to the Philips litigation. (Id.).
As previously stated, a central issue in this case is the method by which Kyocera’s
royalty payments are calculated under the terms of the parties’ PLA. Kodak contends that
Kyocera has breached the PLA by calculating its royalty payments based on only one component
of the camera phone, the camera module, rather than on all components involved in “digital
camera functionality.” (Docket # 86-1 at 8). Kyocera maintains, by contrast, that the PLA’s
definition of “Net Sales” limits its royalty payments to the camera module. (Id.).
Kodak argues that the notes that Wallace made of his review of the PLA in the
Philips case demonstrate that he “analyzed” the central issue at the heart of this case – “the
manner in which Kyocera . . . [was] required to pay royalties to Kodak under the terms of [its]
4
The report and Wallace’s deposition testimony were designated as “attorneys’ eyes only” material under
the parties’ confidentiality agreement.
5
According to Kyocera, because the Casio agreement contains some of the same terms that are at issue in
the PLA, it is relevant to this litigation. (Docket # 86-1 at 8-9).
12
license agreement with Kodak.” (Docket # 86-2 at ¶ 9, Ex. 6). The notes consist of an equation
in which the term “net sales” is multiplied by two figures, which reflects the formula for
calculating Kyocera’s royalty payments under the agreement. (Docket # 86-1 at 1). Wallace
testified in a deposition that he made the notes “to summarize when I was looking at the
agreement[].” (Docket # 86-2, Ex. 4 at 240-41). In addition to Wallace’s notes on the PLA,
Kodak has provided Wallace’s notes on the Casio agreement, which are similar in substance to
his notes on the PLA. (Id., Ex. 5).
Kodak contends that disqualification is also appropriate because Wallace
discussed with Kodak employees Kodak’s “digital camera patent portfolio,” “digital camera
technology, and the components that are involved in digital camera functionality” during the
course of his work in the Philips litigation. (Id. at ¶ 10). Wallace’s report in the Philips case
states that he learned from speaking to a Kodak employee that Kodak’s digital cameras employed
between twenty-five and fifty patents and included as many as fifty distinct features. (Id., Ex. 3
at 51).
Kodak has submitted a supporting affidavit from one of its attorneys, Sean
Cunningham, Esq., describing generally the services that Wallace was retained to provide in the
Philips matter – expert testimony on the issue of damages – and the confidential information that
Kodak provided Wallace during the litigation – “information regarding Kodak’s patent license
agreements, . . . digital camera technology, . . . licensing program and business strategy, and . . .
financial information.” (Id. at ¶ 3, 8). Cunningham’s affidavit states that during the Philips
matter, Wallace also “had discussions with Kodak employees, including Ken Parulski and Steve
Sasson, regarding Kodak’s digital camera patent portfolio, Kodak’s digital camera technology,
13
and the components that are involved in digital camera functionality.” (Id. at ¶ 10). No
affidavits have been submitted from Parulski, Sasson or any other Kodak employees describing
their discussions with Wallace; nor has any affidavit from Wallace been submitted by either
party.
B. Discussion
A court may disqualify a party’s designated expert pursuant to “its inherent power
to preserve the integrity of the adversary process.” 1210 Colvin Ave., Inc. v. Tops Mkts., LLC,
2006 WL 3827429, *4 (W.D.N.Y. 2006) (citing Hempstead Video, Inc. v. Vill. of Valley Stream,
409 F.3d 127, 132 (2d Cir. 2005)); see also Eastman Kodak Co. v. Agfa-Gevaert N.V., 2003 WL
23101783, *1 (W.D.N.Y. 2003) (citing Popular, Inc. v. Popular Staffing Svcs. Corp., 239
F. Supp. 2d 150, 152 (D.P.R. 2003)). For example, disqualification may be appropriate where a
party seeks to retain as an expert an adversary’s former employee who learned confidential
information during the course of his employment, see, e.g., Pellerin v. Honeywell Int’l Inc., 2012
WL 112539, *2 (S.D. Cal. 2012); Eastman Kodak Co. v. Agfa-Gevaert N.V., 2003 WL 23101783
at *1; Greene, Tweed of Del., Inc. v. DuPont Dow Elastomers, LLC, 202 F.R.D. 426, 428 (E.D.
Pa. 2001); Space Systems/Loral v. Martin Marietta Corp., 1995 WL 686369, *2 (N.D. Cal.
1995), or where an expert switches sides during the course of litigation, see, e.g., Koch Refining
Co. v. Jennifer L. Boudreaux MV, 85 F.3d 1178, 1181 (5th Cir. 1996); Cordy v.
Sherwin-Williams Co., 156 F.R.D. 575, 582 (D.N.J. 1994). Disqualification is a drastic remedy,
however, and should be resorted to rarely. See, e.g., Bone Care Int’l, LLC v. Pentech Pharm.,
Inc., 2009 WL 249386, *1 (N.D. Ill. 2009); Hewlett Packard Co. v. EMC Corp., 330 F. Supp. 2d
14
1087, 1092 (N.D. Cal. 2004); Chamberlain Grp., Inc. v. Interlogix, Inc., 2002 WL 653893, *2
(N.D. Ill. 2002).
In determining whether disqualification is appropriate based on a prior
relationship between an expert and the party moving for disqualification, the court should
consider whether (1) the movant had a prior confidential relationship with the expert; and (2) the
movant had disclosed to the expert confidential or privileged information. 1210 Colvin Ave., Inc.
v. Tops Mkts., LLC, 2006 WL 3827429 at *5; Eastman Kodak Co., 2003 WL 23101783 at *1;
Greene, Tweed of Del., Inc. v. DuPont Dow Elastomers, LLC, 202 F.R.D. at 428; Hewlett
Packard Co. v. EMC Corp., 330 F. Supp. 2d at 1093 (“if only one of the two factors is present,
disqualification likely is inappropriate”). Some courts have emphasized that disqualification is
appropriate only where the confidential information that was disclosed to the expert is
“substantially related” to the subject matter of the expert’s opinion in the instant case. See, e.g.,
Chamberlin Grp., Inc. v. Interlogix, Inc., 2002 WL 653893 at *3; Greene, Tweed, 202 F.R.D. at
430; Bone Care Int’l, LLC v. Pentech Pharm., Inc., 2009 WL 249386 at *2. Disqualification is
designed to protect the integrity of the judicial process by ensuring that experts do not use, even
unwittingly, confidential information that they learned from a party in the course of an earlier
engagement against that party in a later lawsuit. Pellerin v. Honeywell Int’l Inc., 2012 WL
112539 at *3 (rejecting “suggestion that [expert] can parse his knowledge of [party’s]
confidential information to only rely upon what is provided to him in the litigation”; noting “the
human brain does not compartmentalize information in that manner”).
The party seeking disqualification bears the burden of establishing “that a
confidential relationship exists and that the confidentiality has not been waived.” Eastman
15
Kodak Co., 2003 WL 23101783 at *1. See also Hewlett Packard, 330 F. Supp. 2d at 1093; Bone
Care Int’l, 2009 WL 249386 at *1. “[T]he party seeking disqualification may not meet its
burden with ‘mere conclusory or ipse dixit assertions,’” Greene, Tweed, 202 F.R.D. at 429, but
must identify “specific and unambiguous disclosures that if revealed would prejudice the party,”
Hewlett Packard, 330 F. Supp. 2d at 1094.
The record before the Court on the pending motion adequately establishes that a
confidential relationship existed between Kodak and Wallace during the Philips litigation, and
Kyocera does not contend otherwise. (See Docket # 91 at 14). Counsel for Kodak has submitted
an affidavit affirming that “Wallace agreed to maintain the confidentiality of the Kodak
information that he was provided” in the course of his expert engagement in the Philips matter.
(Docket # 86-2 at ¶ 4). This sworn assertion is sufficient.
The parties’ dispute concerns the second factor – whether Kodak shared
confidential information with Wallace that is relevant to this lawsuit. Kodak maintains that
“[d]uring his retention in the Philips litigation, Mr. Wallace was provided confidential
information regarding Kodak’s patent license agreements, confidential information regarding
Kodak’s digital camera technology, confidential information regarding Kodak’s licensing
program and business strategy, and confidential Kodak financial information.” (Docket ## 86-2
at ¶ 8; 86-1 at 5-9). Taking the latter two subjects first – Kodak’s business strategy and finances
– the record simply contains no evidence as to either (1) the nature of the specific information
provided to Wallace on those topics or (2) the relevance of any such information to this litigation.
Turning next to Kodak’s contention that during the Philips litigation Wallace was
provided confidential information concerning Kodak’s patent licenses, Kodak emphasizes that
16
Wallace’s report reveals that he considered the specific license and the royalty payment terms
that are at issue in this case. (Docket # 86-1 at 15). According to Kodak, Wallace “analyzed the
manner in which the PLA requires Kyocera to pay royalties to Kodak – the principal issue in
dispute in this case[.]” (Id. (emphasis added)). Kodak further maintains that Wallace’s notes
demonstrate that he analyzed the very term in the PLA – “Net Sales” – that Kyocera relies on to
support its royalty calculation in this case. (Id.). In Kodak’s estimation, Wallace will be
incapable of “eras[ing] from his mind the determinations he made regarding the language or
terms of the PLA while working for Kodak.” (Id.).
Kodak does not appear to argue that disqualification is warranted simply because
Wallace was provided or even reviewed the PLA during his Philips work. Indeed, if that were
sufficient, any party could impede a competitor’s future ability to retain an industry expert by
providing the expert with any document likely to be relevant to a future dispute no matter how
irrelevant it might be to the subject matter of the expert’s current engagement. Rather, Kodak
argues that Wallace did more than cursorily review the PLA; according to Kodak he analyzed its
key terms.
Kodak’s contention that Wallace in fact analyzed “the manner in which the PLA
requires Kyocera to pay royalties to Kodak” is unsupported by any affidavit from Wallace
describing his work. Moreover, no evidence exists to demonstrate or even suggest that Wallace
ever discussed the PLA or any of its terms with any Kodak employees, or otherwise obtained
information about Kodak’s interpretation of those terms. At most, his notes reveal that he read
the agreement and took notes to summarize some of its provisions. Under these circumstances –
where the record establishes only that an expert was previously provided with a document at
17
issue in a current litigation, reviewed it to learn its terms, discounted it as irrelevant to the
pending engagement and evidently never discussed it with any company representatives –
disqualification is not warranted.6 Kodak will not be prejudiced, see Hewlett Packard, 330
F. Supp. 2d at 1094, nor will Kyocera obtain an unfair advantage, see Eastman Kodak Co., 2003
WL 23101783 at *5 (“material questions” include “whether use of . . . confidential knowledge
would give him an unfair advantage in acting as patent expert for [opposing party]”), by virtue of
the simple fact that Wallace previously reviewed the PLA during his engagement in the Philips
litigation.
I turn finally to Kodak’s contention that the “same digital camera functionality
that Mr. Wallace previously analyzed for Kodak is at issue here” because “[t]o establish the
amount of royalties that Kyocera has underpaid, Kodak will offer proof of the components of
Kyocera’s camera phones other than the camera module that are involved in digital camera
functionality.” (Docket # 86-1 at 11). I agree with Kodak that disqualification might well be
justified if the record established that during the Philips engagement Wallace had analyzed the
meaning of the term “digital camera functionality” and had learned confidential information from
Kodak about the manner in which various digital camera components contribute to camera
“functionality.” The deficiency in Kodak’s argument, however, is that the record does not show
either.
Cunningham’s affidavit alleges in conclusory terms only that Kodak employees
shared with Wallace information about Kodak’s digital camera technology and “the components
6
The record is equally insufficient to justify disqualifying Wallace on the grounds that Wallace conducted
a similar review of the Casio licensing agreement and reached the same conclusion as to its irrelevance to the Philips
litigation.
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that are involved in digital camera functionality.” (Docket # 86-2 at ¶ 10). The affidavit does
not describe the information that Wallace learned or assert that information about the
components was confidential. Neither of the two employees identified as participants in those
conversations with Wallace have submitted affidavits.
Indeed, even in its supporting memoranda, Kodak does not describe the nature of
the information Wallace learned or what, if any of it, was confidential. Rather, in its reply brief,
Kodak argues that disqualification is warranted because “there is no dispute that while working
for Kodak, Mr. Wallace spoke to Kodak’s engineers about Kodak’s digital camera technology”
and because “[t]here is no dispute that while working for Kodak on the Philips case, Mr. Wallace
was required to keep the information he received confidential.” (Docket # 98 at 1). Even
assuming the accuracy of both assertions, disqualification is not justified. The existence of a
confidentiality provision does not transform non-confidential information into confidential
information.
Under the applicable standards discussed above, Kodak bears the burden of
demonstrating that disqualification is appropriate. It has not met that burden. Although
Wallace’s expert report in Philips states that he had conversations with two Kodak employees
about digital camera “features” that make cameras “both technically functional and desirable to
consumers,” the report does not state that he identified the features that contributed to
functionality rather than to consumer desirability, or that he discussed with the Kodak employees
which components contributed to “camera functionality” and, if so, how. (Docket # 86-2, Ex. 3
at 51-52). Moreover, as Kyocera has noted, many of the “features” identified in Wallace’s report
are features that Kodak had identified and touted in its own marketing materials. (See Docket
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# 91-1 at ¶ 10 and Ex. C). Thus, the record fails to demonstrate that Kodak disclosed non-public,
confidential information to Wallace about the components in Kodak’s digital cameras that
contribute to “digital camera functionality.” Greene, Tweed, 202 F.R.D. at 430 (“the fact that an
individual may have had access to public information about a product cannot be a basis to
disqualify him from being an expert”) (emphasis in original).
In sum, Kodak has failed to point to “specific and unambiguous disclosures [made
to Wallace] that if revealed would prejudice” Kodak in the instant action. Hewlett Packard, 330
F. Supp. 2d at 1094. Accordingly, I deny Kodak’s motion to disqualify Wallace as an expert
witness for Kyocera in this litigation.
CONCLUSION
For the reasons discussed above, Kyocera’s motion to compel (Docket # 75) is
GRANTED. Kodak shall produce the withheld documents within one week of the date of this
decision. Kodak’s motion to disqualify (Docket # 86) is DENIED.
IT IS SO ORDERED.
s/Marian W. Payson
MARIAN W. PAYSON
United States Magistrate Judge
Dated: Rochester, New York
September 17 , 2012
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