Video Gaming Technologies, Inc. v. Castle Hill Studios LLC et al
Filing
330
OPINION AND ORDER by Magistrate Judge Jodi F Jayne (redacted version of Sealed Order #314); denying 285 MOTION Challenging Plaintiff's Designations Under Protective Order (Re: 314 Sealed Order, 285 MOTION Challenging Plaintiff's Designations Under Protective Order ) (a-hc, Dpty Clk)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
VIDEO GAMING TECHNOLOGIES,
INC.,
Plaintiff,
v.
CASTLE HILL STUDIOS LLC;
CASTLE HILL HOLDING LLC; and
IRONWORKS DEVELOPMENT, LLC,
Defendants.
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Case No. 17-CV-454-GKF-JFJ
OPINION AND ORDER1
Before the Court is Defendants’ Motion Challenging Plaintiff’s Designations Under the
Protective Order (“Motion”), which requests that the Court “issue an Order removing Plaintiff’s
‘Highly Confidential’ or ‘Confidential’ designations” from the challenged pretrial discovery
materials. ECF No. 285 at 14.2 For reasons explained below, the Motion is denied.
1
This is a redacted version of the Sealed Order entered May 24, 2019 (ECF No. 314). This Order
includes all of VGT’s requested redactions and corrects typographical errors. The Court finds
these redactions appropriate, because this Order discusses VGT’s confidential materials solely for
the purpose of resolving a discovery designation dispute. See Parson v. Farley, 352 F. Supp. 3d
1141, 1153-55 (N.D. Okla. 2018) (court has discretion to seal court records, considering the role
of the material at issue in the exercise of Article III judicial power, the value of such information
to those monitoring federal courts, and interests of party seeking to maintain seal). The redactions
provide an appropriate balance between permitting public access to this Order and protecting
VGT’s confidential discovery materials that may play no role in adjudication of the parties’
substantive rights.
2
Castle Hill seeks de-designation of all materials in their pretrial discovery form and has not
moved the Court to unseal any specific “judicial record.” See generally JetAway Aviation, LLC v.
Bd. of Cnty. Comm’rs of Cnty. of Montrose, Colo., 754 F.3d 824, 826 (10th Cir. 2014) (explaining
common-law right of public access to “judicial records” and applicable test where records have
informed a court’s decision-making process). See also Littlebear v. Advanced Bionics, LLC, No.
11-CV-418-GKF-PJC, 2012 WL 2979023, at *2 (N.D. Okla. July 20, 2012) (noting that “public
dissemination of discovery material is distinguishable from the general presumption of public
access to trial and court records”).
I.
Relevant Background
A.
Claims and Defenses
Plaintiff Video Gaming Technology, Inc. (“VGT”) alleges that VGT and Defendants Castle
Hill Studios, LLC, d/b/a Castle Hill Gaming, Castle Holdings, LLC, and Ironworks Development,
LLC (“Castle Hill”) are competitors who distribute Class II bingo-based player terminals. VGT
alleges Castle Hill, which was founded by former VGT employees, copied VGT’s games and
improperly used its trade secrets. VGT sued Castle Hill for (1) trademark infringement, trade dress
infringement, and unfair competition; (2) misappropriation of trade secrets; and (3)
misappropriation of confidential business information. Relevant to this Motion, Castle Hill asserts
the affirmative defenses of unclean hands and illegality. Castle Hill argues VGT should not be
permitted to recover its requested equitable remedy of disgorgement, due in part to VGT’s noncompliance with Minimum Technical Standards (“Standards”) set by the National Indian Gaming
Commission (“NIGC”). See 25 C.F.R. § 547.1, et seq. Castle Hill contends many of VGT’s games
are not eligible for “grandfathered” status under these regulations.3 VGT has moved for summary
judgment on both affirmative defenses.
B.
Stipulated Protective Order
Upon joint motion of the parties (ECF No. 53), the Court entered a Stipulated Protective
Order (“SPO”) (ECF No. 55), which is a blanket protective order in the standard form utilized by
3
The Standards, which were promulgated in 2008, permitted certain gaming systems to remain on
the gaming floor, even if non-compliant with the Standards, for a five-year period. See Minimum
Technical Standards for Class II Gaming Systems and Equipment, 82 Fed. Reg. 61172 (Dec. 27,
2017) (explaining history of “sunset provision”). This compliance deadline was delayed another
five years until November 10, 2018, and then was removed altogether prior to that deadline’s
arrival. Id. The parties refer to gaming systems permitted to remain on the floor as
“grandfathered,” although they dispute what systems qualify for “grandfathered” status. The
Court’s use of the term “grandfathered” in this Order is not intended to adopt either party’s
proposed meaning.
2
this Court.4 The SPO permits each party to designate pretrial discovery as “confidential,” “highly
confidential,” or “highly confidential source code,”5 ECF No. 55 at ¶¶ 1, 2, and creates a process
whereby a party challenging a designation can file a motion with the Court, id. at ¶ 9. The SPO
restricts disclosure of designated materials to specific individuals, depending on the designation.
See, e.g, id. at ¶ 4(b), 5(b). The SPO further provides that discovery produced in the litigation,
whether designated as confidential or not, may not be used for purposes other than the litigation.
Id. ¶ 1(g). All designated materials under the SPO may be filed with the Court under seal, in
accordance with the Court’s General Order 08-11 and with Court permission. Id. at ¶ 2(f). Any
use of designated materials at trial is determined by the Court at the pretrial conference. Id. at ¶ 8.
C.
Challenged Designations and Parties’ Arguments
In the pending Motion, Castle Hill seeks de-designation of pretrial discovery materials
designated by VGT as “confidential” and “highly confidential” under the SPO. Specifically, the
Motion challenges: (1) designations of deposition testimony provided by Richard Williamson
(“Williamson”), both in his capacity as VGT’s Vice President of Gaming Compliance and as
VGT’s Rule 30(b)(6) corporate designee as to compliance issues, see ECF No. 284 at Ex. G (6/4/18
Depo.), Ex. H (10/2/18 Depo.); and (2) documents related to or referenced during Williamson’s
testimony, see id. at Exs. B-F (collectively, “Compliance Discovery”). All challenged materials
relate to VGT’s regulatory compliance and grandfathered systems. Regulatory compliance is not
the general subject of this litigation and is relevant only to two equitable defenses raised by Castle
Hill.
4
Blanket protective orders “have become standard practice and are routinely approved by courts,
frequently at the stipulated request of the parties.” Burke v. Glanz, No. 11-CV-720-JED-PJC, 2013
WL 211096, at *2 (N.D. Okla. Jan. 18, 2013).
5
In this Motion, Castle Hill does not seek de-designation of any “highly confidential source code.”
3
The challenged documents consist of: (1)
REDACTED
which were labeled at the time of their creation as
“highly proprietary and confidential,” ECF No. 284 at Exs. B, E; (2)
id. at Exs. C, F;6 and (3)
REDACTED
REDACTED
during Williamson’s deposition, id. at Ex. D. All documents
were labeled by VGT as “Highly Confidential” under the SPO. All challenged testimony can be
categorized as: (1) testimony inquiring about data contained on the above-listed exhibits, Nos. 35, 16-19, 20;7 (2) testimony regarding VGT’s submissions to regulatory testing labs or other
regulatory certification efforts for grandfathered games; see Nos. 8, 9, 10, 12, 15, 22, 23, 24, 25,
26; (3) numbers of three-reel mechanical games on casino floors from year to year and whether
they qualify as grandfathered, Nos. 22, 23, 24; and (4) VGT’s interpretation and application of
“grandfathered” status to its gaming systems; see Nos. 1, 12, 14.8 VGT designated most testimony
as “Highly Confidential,” Nos. 1, 3, 4, 5, 7, 14, 15, 16-19, 20, 22, 23-26, and labeled some as
“Confidential,” No. 8, 9, 10, 12.
Castle Hill argues that none of the Compliance Discovery satisfies even the “Confidential”
definition under the SPO, and that VGT is abusing the SPO to hide “illegal activity.” ECF No. 285
at 3. Castle Hill argues that the “true purpose of VGT’s designations is to prevent disclosure of its
6
VGT disputes that
See ECF No. 290 at 5 n.6.
7
These numbers coincide with Castle Hill’s chart at pages 5-7 of the Motion.
REDACTED
8
In its response, VGT withdrew any designation for Testimony Nos. 2, 11, 13, and 21, and VGT
changed No. 12 from “highly confidential” to “confidential.” The Court therefore does not address
Nos. 2, 11, 13, and 21.
4
flouting federal regulations.” Id. at 8. This theme is continued throughout the Motion. See, e.g.,
id. at 10 (arguing that upgrade information “does not compromise or jeopardize VGT’s
competitive business interests” and that “VGT wants to keep this information confidential because
it reveals VGT’s illegal activity”). Castle Hill has not articulated any need for greater access to
the Compliance Discovery and argues that its motives are irrelevant.
VGT argues that the designations satisfy the definitions in the SPO and has submitted a
declaration by Williamson in support of the designation. VGT also argues Castle Hill has no need
for greater access to the information to defend this case, and that the Motion is merely an “attempt
to smear VGT in the public eye” and “support its separate efforts to lobby NIGC on the same
issues [related to regulatory compliance and grandfathered games].” ECF No. 289 at 10. VGT
attaches letters to NGIC from an entity known as The Coalition for Fair Gaming (“CFG”), which
VGT contends has ties to Castle Hill’s lawyers and officials.
These letters discuss the
grandfathering issues under the regulations and urge NIGC to take certain actions in relation to
grandfathered games. See ECF No. 290 at Exs. 1, 6.
II.
Analysis
A.
Legal Standards
Under the terms of the SPO and Rule 26(c), VGT bears the burden of establishing its
designations are proper under the SPO. See ECF No. 55 at ¶ 9; Fed. R. Civ. P. 26(c)(1) (permitting
court to enter protective order on showing of good cause by party seeking protection). When a
designation is challenged, a court must “strictly scrutinize[]” the designation “according to Rule
26(c) and the protective order entered” in the case. Siegel v. Blue Giant Equip., LLC, No. 15-CV143-TCK-PJC, 2015 WL 7272216, at *2 (N.D. Okla. Nov. 17, 2015); Coll v. Stryker Corp., No.
14-CV-1089 KG/SMV, 2017 WL 3190658, at *8 (D.N.M. May 24, 2017) (once challenged,
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designating party must show designations actually qualify for protection, not merely that party had
good-faith basis for designating).
Rule 26(c)(1) provides that a “court may, for good cause shown, issue an order to protect
a party or person from annoyance, embarrassment, oppression, or undue burden or expense,
including . . . requiring that a 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) (emphasis added). Under Tenth Circuit law, a party seeking protection under Rule
26(c)(1), either to avoid disclosure or to restrict disclosure in a specified manner, must “first
establish that the information sought is a trade secret [or other confidential research, development,
or commercial information]” and then “demonstrate that its disclosure might be harmful.”
Centurion Indus., Inc. v. Warren Steurer & Assocs., 665 F.2d 323, 325 (10th Cir. 1981); Siegel,
2015 WL 7272216, at *2 (party seeking protection must show “the information sought constitutes
a trade secret, or other confidential research, development, or commercial information and then
demonstrate that its disclosure might be harmful”). In establishing the requisite harm, the party
seeking protection must make a “particular and specific demonstration of fact, as distinguished
from stereotyped and conclusory statements.” Layne Christensen Co. v. Purolite Co., 271 F.R.D.
240, 245 (D. Kan. 2010); see also Seigel, 2015 WL 7272216, at * 1 (same).
Generally, “[i]f these requirements are met, the burden shifts to the party seeking discovery
to establish that the disclosure of trade secrets [or confidential commercial information] is relevant
and necessary to the action.” Centurion Indus., Inc., 665 F.2d at 325. The court then balances the
need for the confidential information against the claim of injury resulting from disclosure, and
courts have discretion in deciding whether the need outweighs the harm of disclosure. Id. at 325326. If the Court decides that, on balance, the information must be disclosed, “the appropriate
safeguards that should attend their disclosure by means of a protective order are also a matter
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within the trial court’s discretion.” Id. In deciding these issues, courts may consider “the
background of the total situation, including consideration of such factors as the dangers of abuse,
good faith, adequacy of protective measures, and the availability of other means of proof.” Sears
v. Nissan Motor Co., Ltd., 1991 WL 80741, at *2 (10th Cir. 1991) (unpublished); Sky Harbor Air
Serv., Inc. v. Reams, No. CV 08-CV-150-D, 2009 WL 10688445, at *2 (D. Wyo. Feb. 27, 2009)
(balancing respective harms to determine form and scope of protective order).
Contrary to Castle Hill’s argument, the Court finds these principles provide a helpful legal
framework in analyzing whether designations are proper under an agreed protective order. See
Coll, 2017 WL 3190658, at *8 (applying Centurion and other established Tenth Circuit principles
in addressing motion to de-designate). The Court’s ultimate duty is the same – to determine
whether good cause exists to protect the information in the specific manner requested, and the
Court retains discretion to balance interests in making these case-by-case, fact-specific
determinations. See Siegel, 2015 WL 7272216, at * 1 (noting that good cause standard is highly
flexible, having been designed to accommodate all relevant interests as they arise).9
B.
Confidential Commercial Information/Harm
The Court begins with definitions in the SPO. The SPO defines “confidential information”
as “testimony or discovery material [that] is believed in good faith by that Supplying Party, and
by the Supplying Party’s counsel, to constitute, reflect or disclose trade secret or other confidential
research, development, or commercial information contemplated under Rule 26(c) of the Federal
Rules of Civil Procedure.” ECF No. 55 at ¶ 1(b). The SPO defines “highly confidential
information” as “confidential information” that “a party, and the party’s counsel, believes to be
9
Of course, if the party seeking protection cannot satisfy its initial burden, a court has no need to
reach the remaining steps. See Coll, 2017 WL 3190658, at *8 (rejecting argument that balancing
must be performed regardless of whether movant could satisfy its initial burden).
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extremely sensitive confidential and/or proprietary information, the disclosure of which, even
limited to the restrictions placed on Confidential Information in this Order, would compromise
and/or jeopardize the Supplying Party’s competitive business interests.” Id. at ¶ 1(d). These
definitions are generally consistent with Tenth Circuit law and Rule 26(c), which requires VGT to
prove the information sought is a trade secret or other confidential research, development, or
commercial information and then demonstrate that its disclosure might be harmful.
In support of its designations, Williamson submitted a declaration that REDACTED
ECF No. 290 at Ex. 16 at ¶ 2. Williamson further declares
that
REDACTED
Id. at ¶¶ 3, 4.
REDACTED
Id. at ¶ 9. As to competitive and reputational harm, Williamson
declares
REDACTED
ECF No. 290 at Ex. 16 at ¶ 3. Further,
Id. at ¶ 2.
8
REDACTED
REDACTED
REDACTED
Id. at ¶ 8.
Upon review of each exhibit and each specific portion of designated testimony, and
Williamson’s declaration, the Court finds that all categories of Compliance Discovery qualify as
“confidential commercial information” that would likely jeopardize VGT’s competitive business
interests, thereby justifying the current designations in the SPO. First, the internal presentations
REDACTED
Second, the regulatory
testing and submissions, all of which are kept confidential
REDACTED
Third, the numbers of three-reel mechanical games on casino floors from year to year, and
whether they qualify as grandfathered, will reveal proprietary information regarding VGT’s
inventory of grandfathered versus non-grandfathered games. Castle Hill argues that the number
of certain VGT games on casino floors is not confidential, because it can be determined by hand
counting and is contained in public surveys. See ECF No. 297 at Ex. 1 (71-page “Quarterly Slot
Survey”). However, the challenged materials provide more specific information regarding VGT’s
games and their composition, and VGT has shown such information is not easily or readily
ascertainable in the public domain.
Finally, VGT’s understanding and application of the
regulations to its grandfathered systems reveals VGT’s strategic decision-making regarding
grandfathered games. Although Castle Hill argues that it cannot be “confidential” that a regulated
entity makes attempts to comply with federal regulations, the challenged testimony is not so
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general. Particularly when viewed in conjunction with other testimony regarding data, specific
numbers, and dates, the testimony provides insight as to what VGT deems grandfathered games,
all of which is currently
REDACTED
not known to VGT’s competitors. The Court finds that all categories of the Compliance Discovery
qualify as “confidential commercial information” under Rule 26(c) that can be deserving of at least
some specified disclosure protections if coupled with competitive harm. See generally 8A Charles
Alan Wright & Arthur R. Miller, et al., Federal Practice and Procedure § 2043 (3d ed.)
(explaining that “[w]hile not unlimited, this is surely an open-ended series of terms that need not
be limited to ‘true’ trade secrets” and that courts have broad discretion to grant protection for many
types of information).
In some cases, this type of regulatory compliance information may simply be business data
that is not likely to be competitively harmful. The Court is mindful that “[i]nternal corporate
documents do not automatically merit protective orders” and that Rule 26(c) does not prevent
“negative publicity.” Gelb v. Am. Tel. & Tel. Co., 813 F. Supp. 1022, 1035 (S.D.N.Y. 1993).
However, in this case VGT has made a particularized showing of prejudice and harm, based on
Williamson’s declaration and other evidence presented to the Court. There is no dispute VGT and
Castle Hill are direct competitors. VGT has shown that there have been disputes among various
entities in the industry regarding the meaning and continued application of the grandfathering
regulations, which is wholly collateral to this litigation and existed before this litigation. See
generally ECF No. 290 at Exs. 1, 6. These issues have competitive significance in the marketplace.
Newer market entrants, such as Castle Hill, do not have grandfathered games. Lobbying entities
such as CFG have already informed NIGC that the “grandfather period has created, and continues
to create, an unequal playing field, granting the manufacturers of older Class II machines a
competitive advantage against newer entrants to the market.”
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ECF No. 289 at Ex. 5 at 2
(November 23, 2017 letter). In another letter, CFG mentioned VGT by name and raised issues
regarding its grandfathered games. ECF No. 290 at Ex. 1 at 6 (December 11, 2017 letter). The
Court need not delve into Castle Hill’s alleged involvement with CFG, Castle Hill’s true motives
for seeking de-designation of the Compliance Discovery, or the meaning of the regulations. The
evidence submitted by VGT adequately demonstrates that the “grandfathering” issues are a timely,
competitive concern in this industry, that older and newer market entrants have varying
competitive interests related to grandfathered games, and that the Compliance Discovery would
provide Castle Hill and other competitors insight into VGT’s regulatory compliance strategies and
data regarding its grandfathered games.
Under the facts of this case, it is not overly speculative to conclude that this confidential
commercial information will be used by competitors such as Castle Hill to disparage VGT in the
industry; to accuse VGT of ongoing regulatory violations with customers or NIGC; or to engage
in or assist with further lobbying efforts to NIGC regarding grandfathering issues (armed with
specific and detailed information it did not have before this lawsuit). See Gelb, 813 F. Supp. at
1035 (sealing exhibit during pretrial phase based on “assertion that its competitors who do not now
have this information could use it to do competitive injury”). Additionally, based on Williamson’s
declaration,
REDACTED
Castle Hill argues the Compliance Discovery is not useful to competitors in any manner
and is “only interesting” because VGT is “dead wrong” regarding its grandfathered games. ECF
No. 197 at 9. But this argument assumes VGT engaged in illegal conduct and could have no
legitimate purpose for seeking protection of what it deems legitimate regulatory compliance efforts
and information. The Court will not make such assumptions for purposes of this Motion, and, as
explained in more detail below, the Court finds that VGT designated the materials in good faith.
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C.
Need/Balancing
Castle Hill already has the discovery and may use it in defense of the case. Although Castle
Hill made the requisite showing of relevance for discovery purposes, the Court is mindful that the
defenses leading to this discovery are a small piece of the overall litigation. Further, Castle Hill
has not attempted to show its need for greater access to defend the lawsuit and is silent as to its
motivations for seeking de-designation. Therefore, the competitive injury prevails, and the Court
finds good cause for maintaining the current protection in the SPO for these pretrial discovery
materials.
D.
Abuse of SPO
By repeatedly arguing VGT “abused” the SPO and designated these materials for the sole
purpose of hiding illegal conduct, Castle Hill appears to argue that VGT failed to comply with the
SPO’s “good faith” requirement. This warrants discussion by the Court. A finding of “bad faith”
assumes some type of regulatory violation occurred, which VGT disputes in this litigation. VGT
argues in support of its motion for summary judgment that no court or regulatory body has found
it in violation of the relevant regulations. See ECF No. 179 at 28. VGT also argues that, even
assuming any violation occurred, it is not the type of violation that can support an unclean hands
or illegality affirmative defense in this case. See id. at 12-26. These issues have not been resolved
by the district court, and it would be imprudent for this Court to find any “bad faith” or “illegality”
in resolving this pretrial discovery dispute. As argued by VGT, it remains to be seen whether the
defenses will survive summary judgment or play any role at trial. VGT has submitted a sworn
declaration adequately supporting its designations, and the Court finds VGT designated the
materials in good faith.
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III.
Conclusion
Defendants’ Motion Challenging Plaintiff’s Designations Under the Protective Order (ECF
No. 285) is DENIED, and all designations will retain their current designations under the SPO.
SO ORDERED this 18th day of June, 2019.
J D F J Y E MA IT A EJ D E
O I .A N , G S R T U G
U IE S A E D S R C C U T
N T D T T S IT I T O R
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