Capsugel Belgium NV v. Bright Pharma Caps, Inc.

Filing 66

OPINION AND ORDER. Capsugel's Motion to Compel 40 is GRANTED and Defendants are ORDERED to produce the supplier identities, product names, lot numbers, supplier certificates of analysis, and product samples. Defendants move the court for a thirty-day extension of time to produce the supplier identities in the event Capsugel's Motion is granted. Mot. for Protective Order 9 37 . Given the Defendants' apparent ability to easily produce the supplier identities, Defendan ts' Motion for an Extension of Time is DENIED and Defendants are ORDERED to produce the information subject to Plaintiff's Motion to Compel within fourteen (14) days of the date of this order. Signed on 9/28/2015 by Magistrate Judge Paul Papak. (gw)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON

CAPSUGEL BELGIUM NV and
CAPSUGEL US, LLC,
3:15-cv-321-l>K
Plaintiff,
OPINION AND ORDER

V.

BRIGHT PHARMA CAPS, INC., JC
BRIGHT M LTD., JC BIO-TECH CO
LTD., and KARL CAO,
Defendants.

PAPAK, Magistrate Judge:
Plaintiff Capsugel Belgium NV filed this action against Defendant Bright Pharma Caps,
Inc. ("Bright Pharma") on February 24, 2015 (#1). On July 6, 2015, Capsugel Belgium NV filed
an Amended Complaint (#19) joining Capsugel US, LLC (collectively with Capsugel Belgium
NV, "Capsugel") as a plaintiff and JC Bright M Ltd. ("JC Bright"), JC Bio-Tech Co. Ltd. ("JC
Bio"), and Karl Cao as defendants. Capsugel' s Amended Complaint asserts claims under
Oregon and federal law for false advertising, unfair competition, and patent infringement. All of
Capsugel' s claims arise from or relate to Defendants' production, marketing, and sale of BrightPoly capsules.
The current discovery dispute arises from Capsugel' s Motion to Compel (#40)
Defendants to disclose the identities of third-parties suppliers that provide the ingredients
Defendants use to make Bright-Poly capsules (the "supplier identities"). Capsugel argues that
Defendants' inadequate discovery responses have rendered Capsugel unable to determine the
OPINION AND ORDER Page

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ingredients and processes used to make Bright-Poly capsules and that Capsugel will only be able
to fairly litigate its claims if Defendants disclose the supplier identities. Defendants oppose
Capsugel' s motion, arguing the supplier identities are only marginally relevant and constitute
highly valuable trade secrets, the disclosure of which would place Defendants at a competitive
disadvantage. In the alternative, Defendants move the court for a thirty-day extension of time to
reply to Capsugel' s discovery requests if the court grants Capsugel' s Motion to Compel.
The parties seek a ruling on this issue as soon as possible to prepare for the deposition of
Defendant Cao. See Joint Notice Re ' Supplier' Issues 1 (#52). For the reasons provided below,
Capsugel ' s Motion to Compel (#40) is granted.

FACTUALANDPROCEDURALBACKGROUND
The parties to this case are involved in the manufacture and distribution of empty pill
capsules. Plaintiff Capsugel is "the world' s leading provider of empty, two-piece hard capsules."
Am. Compl. 3. Bright Pharma is an Oregon corporation that sells Bright-Poly capsules, which
are the pullulan-based two-piece capsules at issue in this case. JC Bio and JC Bright supply
Bright-Polly capsules to Bright Pharma. Bright-Poly capsules compete with Capsugel ' s
J

pullulan-based capsules. Cao controls the content of Bright Pharma' s webpage.
Capsugel alleges that Bright-Poly capsules infringe upon Capsugel' s patents. Capsugel
further alleges that the organic line of Bright-Poly capsules contains the synthetic substance
sodium lauryl sulfate ("SLS"). Capsugel contends Defendants intentionally misrepresent the
contents of Organic Bright-Poly capsules by labeling them "organic" and by advertising them as
containing " [o]nly three ingredients . . . NOP Certified Non GMO pullulan, Purified water, [and]
Carrageenan from sea weed." See First Am. Compl.

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~~

64-65 ; Mot. to Compel6-7.

The parties agree that SLS is a synthetic ingredient that cannot be added during the
processing or handling of organic products.- Answer to Am. Compl.

~~

44-46 (#27). Capsugel

purports to have performed tests on Organic Bright-Poly capsules, the results of which revealed
the presence of SLS. Mot. to Compel 6. Bright Pharma admits that SLS is sprayed on nonorganic Bright-Poly capsules after the capsules are fabricated, but denies that Organic BrightPoly capsules contain SLS. Answer to Am. Compl.

~~

37-38, 148; Tran Decl. Ex. A at 5 (#41-

1).

On May 22, 2015, this court entered a detailed Stipulated Protective Order (#12) to
facilitate the discovery of confidential information in this case, including trade secrets. The
order provides for three levels of confidentiality: Confidential, Confidential-Attorneys' Eyes
Only, and Confidential-Outside Attorneys' Eyes Only. See Prot. Order 1.
Capsugel served Defendants with requests for production on April3 , 2015, June 2, 2015,
and August 12, 2015. See Heuser Decl. Ex. A at 11-13, 20-21 , 34-35 (#39-1). Capsugel' s first
set of requests for production sought documentation of all of the ingredients and processes used
to make Bright-Poly capsules. See, e.g. , Heuser Decl. Ex. A at 4 (#39-1). 1
In responding to Capsugel' s requests for production, Defendants produced documents
purporting to show all of the ingredients and processes used to make Bright-Poly capsules but
redacted the supplier identities from those documents. Capsugel contested those redactions and

1

Contrary to Defendants' contentions, several of these requests were sufficiently broad to encompass
the supplier identities. See Heuser Decl. Ex. A at 3, 4, 31 {#39-1) ("REQUEST FOR PRODUCTION NO. 1: All
contracts, agreements, or understandings, formal or informal, between (or including as parties) BPC and
JCB .... REQUEST FOR PRODUCTION N0.2: All contracts, agreements, or understandings, formal or
informal, between (or including as parties) BPC and JCB China . ... REQUEST FOR PRODUCTION NO. 6;
All contracts, agreements, or understandings, formal or informal, between (or including as parties) JCB
and JCB China ... . REQUEST FOR PRODUCTION NO. 86: All documents and emails related to any BrightPoly capsules (including samples) made, used, offered for sale, or sold in the United States and/or
imported or otherwise shipped or transported into the United States by or for Defendant Karl Cao.").

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several other alleged deficiencies in Defendants' discovery responses in an August 12, 2015
email to the court. The court heard telephonic oral arguments concerning those discovery
disputes on August 20, 2015. The court then entered a Minute Order (#35) construing
Capsugel's August 12 email as a formal Motion to Compel and resolving the majority of the
parties' discovery disputes. The court's Minute Order did not resolve the issue whether
Defendants are entitled to withhold the supplier identities. The court instructed the parties to
submit supplemental briefing on that issue by August 27, 2015. The parties' timely submitted
additional briefing, and the issue is now ready for resolution. 2

LEGAL STANDARDS
I.

Permissible Scope of Discovery
Parties may obtain discovery "regarding any nonprivileged matter that is relevant to any
party's claim or defense." Fed. R. Civ. Pro. 26(b)(1). Information is relevant if it has a tendency
to make any fact of consequence more or less probable that it would be without the information.
Fed. R. Evid. 401. "Relevant information need not be admissible at the trial if the discovery
appears reasonably calculated to lead to the discovery of admissible evidence." Fed. R. Civ. P.
26(b)(1).

II.

Motion to Compel
Federal Civil Procedure Rule 37(a)(3)(B) empowers a propounding party to "move for an
order compelling an an~wer, designation, production, or inspection" if:
(i) a deponent fails to answer a question asked under Rule 30 or 31;
(ii) a corporation or other entity fails to make a designation under Rule 30(b)(6) or
31(a)(4);
(iii) a party fails to answer an interrogatory submitted under Rule 33; or
2

Defendants' brief was captioned as a Motion for a Protective Order (#37). On September 14, 2015, the
parties filed a "Joint Notice Re 'Supplier' Issue Reserved at August 20, 2015 Hearing" (#52) clarifying that
both Capsugel's Motion to Compel and Defendants' Motion for a Protective Order should be construed
as formal briefing on the supplier issue and not new motions raising additional issues.

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(iv) a party fails to respond that inspection will be permitted--or fails to permit
inspection--as requested under Rule 34.
Rule 37(a)(4) provides that "an evasive or incomplete disclosure, answer, or
response must be treated as a failure to disclose, answer, or respond." Rule 26 provides
that "[f]or good cause, the court may order discovery of any matter relevant to the subject
matter involved in the action." Fed. R. Civ. Pro. 26(b)(1).

III.

Discovery of Trade Secrets, Generally
Courts within the Ninth Circuit generally follow a three-step burden-shifting approach in
determining whether to compel disclosure of trade secrets. See, e.g., Todd v. Tempur-Sealy Int'l,

Inc., No. 13-CV-04984JST (MEJ), 2015 WL 433481 , at *2 (N.D. Cal. Feb. 2, 2015). At the first
step, the party resisting disclosure bears the burden of establishing that the information sought is
a trade secret and that disclosure may be harmful. Trevino v. ACB Am., Inc. , 232 F.R.D. 612,
617 (N.D. Cal. 2006) (citation and internal quotation marks omitted). If the resisting party
makes this showing, the burden shifts to the party seeking disclosure to show that the trade
secrets are both relevant and necessary to the proper presentation of a claim or defense. See, e.g.,

Hartley Pen Co. v. US. Dist. Court, 287 F.2d 324, 331 (9th Cir. 1961); see also Trevino , 232
F .R.D. at 617 ("The burden then shifts to the party seeking the discovery to demonstrate that the
information is relevant and necessary to prepare the case for trial." (citation and internal
quotation marks omitted)).
At the third and final step of the analysis, the court must "weigh the risk of disclosure of
the trade secret to unauthorized parties with the risk that a protective order will impede
prosecution or defense ofthe claims." Todd, 2015 WL 433481 , at *2 (citation omitted). "Once
the moving party has established relevance and necessity, the discovery is virtually always
ordered." !d. (citations and internal quotations omitted).
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ANALYSIS
The parties do not dispute that the supplier identities constitute trade secrets, the
disclosure of which could be hannful. See Prot. Order 1. The issue before the court is whether
disclosure of the supplier identities is nevertheless warranted. Therefore, the first issue the court
must resolve is whether Capsugel has shown that the supplier identities are both "relevant and
necessary to the proper presentation" of a claim or defense. Hartley Pen Co., 287 F.2d at 331.
The court must then determine whether the risk of disclosure of the trade secret to unauthorized
parties outweighs the risk that nondisclosure would impede Capsugel' s ability to litigate its
claims. See Todd, 2015 WL 433481, at *2 (citations and internal quotations omitted). For the
reasons provided below, I find that the supplier identities are both relevant and necessary and
that there is not a significant risk of disclosure to unauthorized parties. I therefore grant
Capsugel' s Motion to Compel (#40).

I.

Relevancy and Necessity
I analyze relevance with respect to each ofCapsugel's claims separately. Following the
relevancy analysis, I discuss necessity with respect to all claims.

A. False Advertising and Unfair Competition
Capsugel argues that Defendants have failed to provide adequate documentation of the
ingredients and processes used to make Bright-Poly capsules. See Mot. to Compel2. As a
result, Capsugel argues, "Complete disclosure of information about all 'ingredients' used by
Defendants, including suppliers, product names, lot numbers, supplier certificates of analysis,
. and even samples is required to fairly litigate Defendants' misrepresentations and knowledge or
state of mind regarding what is in their capsules." Mot. to Compel 7. In essence, Capsugel
contends that only by identifying the suppliers will it be able to determine how SLS came to be

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included in the organic capsules, whether Defendants knew about its inclusion, and whether
there are any other ingredients in the capsules that render Defendants' advertising misleading.
Defendants argue that Capsugel has not shown why the supplier identities are relevant or
necessary. Mot. for Protective Order 2,6 (#37). According to Defendants, "The only plausible
reason Capsugel wants the supplier information is to leverage JC Bio-Tech' s contacts for
commercial advantage, a purpose that has nothing to do with the allegations in this lawsuit."
Mot. for Protective Order 5.
I find Capsugel has shown the supplier identities are relevant to the proper presentation of
the following three aspects of its false advertising and unfair competition claims: (1 ) Capsugel' s
ability to assert a claim for false advertising and unfair competition under Oregon law, (2)
Defendants' liability for false advertising and unfair competition, and (3) the appropriate
measure of damages.

B. Patent Infringement Claims
Capsugel asserts four patent infringement claims in Counts Three through Six of its First
Amended Complaint. See First Am. Compl. 20-24. Counts Three and Four require Capsugel to
prove that the allegedly infringing capsules are made with certain ingredients. See Mot. to
Compel 8, 9. Capsugel argues that the supplier identities are relevant and necessary to its
presentation of those claims because testing of Defendants' capsules revealed the presence of
some infringing ingredients but Defendants nevertheless deny that those ingredients are in their
capsules. See Mot. to Compel 8. Therefore, Capsugel argues, "Complete disclosure of
information about all ingredients and processes used by Defendants, including ingredient
suppliers, product names, lot numbers, supplier certificates of analysis, and even samples are
required to fairly litigate Defendants' denials .... " Mot. to Compel 8.

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Capsugel further argues that Defendants' ambiguous discovery responses make the
supplier identities relevant and necessary to its presentation of its patent claims. For example,
some of Capsugel' s infringement claims require the infringing product to contain kappa
carrageenan. Mot. to Compel 9. While Defendants have publicly disclosed that their capsules
contain "carrageenan from sea weed" and "sea weed extract powder," Capsugel argues that those
disclosures are inadequate because they fail to identify the specific type of carrageenan
Defendants' capsules contain. Mot. to Compel 9. Capsugel has presented evidence that there are
at least three types of carrageenan that could be used to make Bright-Poly capsules. See Tran
Decl. Ex. Bat 2 (#41-2). In response to Capsugel's requests for admissions, Bright Pharma
stated that it lacks sufficient information to determine whether its capsules contain kappa
carrageen. See Tran Decl. Ex. A at 4. Therefore, Capsugel argues, Defendants must disclose the
supplier identities so Capsugel can determine whether Defendants' capsules contain kappa
carrageenan.
Capsugel also argues that the supplier identities are relevant and necessary to prepare and
present its claim that Defendants' infringement was willful. See Mot. to Compel 8.
Defendants argue that because Capsugel is a direct business competitor, disclosure of the
supplier identities would unfairly disadvantage Defendants. Mot. for Protective Order 2.
Defendants hypothesize that if it were required to disclose the supplier identities, Capsugel could
learn of the supplier's identities, "such as by a missent email or the like," and could "easily
leverage these contacts ... and potentially push Defendants out of the supply chain altogether."
Mot. for Protective Order 5-6. Defendants further argue that "Capsugel has failed to articulate
relevance and necessity with any reasonable particularity, and . . . [e]ven if Capsugel

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demonstrates some limited relevance and necessity of this information, the burden upon
Defendants still outweighs any benefit to Capsugel." Mot. for Protective Order 7.
I reject Defendants' argument that disclosure of the supplier identities would unfairly
disadvantage Defendants. As discussed in detail below, the Stipulated Protective Order currently
in place in this matter sufficiently accounts for that concern. I also reject Defendants' argument
that Capsugel has failed to articulate with sufficient particularity that the supplier identities are
relevant and necessary. Defendants cite two cases in support of that argument, Phillips ex rei.
Estates of Byrd v. Gen. Motors Corp., 307 F.3d 1206 (9th Cir. 2002) and Cabell v. Zorro
Productions, Inc., 294 F.R.D. 604 (W.D. Wash. 2013). Mot. for Protective Order 7. Both cases
are inapposite. Phillips merely established that in ruling on a motion for a protective order, the
trial court must expressly consider whether the movant has shown good cause, regardless of the
movant's proffered justification for the order. 307 F.3d at 1210-12.
The Cabello court held that "[w]here the relevance ofthe requested information is low,
avoiding the harm that comes with the burden of overbroad discovery constitutes good cause for
a protective order." 294 F.R.D. at 609 (citation and internal quotation marks omitted).
However, the "burden of overbroad discovery" that the court was considering in that case was
the expenditure of substantial amounts of time and money to produce a bevy of documents. See
id. This case is easily distinguishable, as the requested information is readily available to

Defendants and would not require an arduous document production.
I agree that the supplier identities are relevant to whether Bright-Poly capsules contain
infringing ingredients, and if so, whether Defendants' infringement was willful. Therefore, the
supplier identities are relevant to Capsugel' s patent infringement claims.

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C. Necessity
Bright Pharma's assertion that none of the capsules contain SLS is difficult to reconcile
with its admission that the non-organic capsules are sprayed with SLS and with the test results
showing the presence of SLS in the organic capsules. In light of Defendants' inadequate
discovery responses, Capsugel will only be able to prepare and present its claims if it acquires
the supplier identities.
Furthermore, Defendants pleaded as an affirmative defense that Organic Bright-Poly
capsules do not contain SLS. Answer to Am. Compl.

~

148. Capsugel will not be able to

adequately contest that defense if it is unable to confirm the results of its testing showing that the
organic capsules contain SLS. Therefore, discovery ofthe supplier identities is necessary. See
Bare Escentuals Beauty, Inc. v. Costco Wholesale Corp., No. 07CV90, 2007 WL 4357672, at *3

(S.D. Cal. Dec. 11, 2007) (holding that Magistrate properly determined that disclosure of
Defendant' s supplier' s identity was necessary where such disclosure would help Plaintiff assess
Defendant's affrrmati ve defense).
II.

Balancing the Risk of Disclosure to Unauthorized Parties Against the Interest in
Effective Presentation of Claims and Defenses
The next issue is whether the risk of disclosure of Defendants' trade secrets to
unauthorized parties outweighs the risk that nondisclosure would impede the proper presentation
ofthe claims and defenses in this case. See Todd, 2015 WL 433481 , at *2 (setting forth the
applicable legal framework for discovery of trade secrets). I find that it does not.
As stated above, a Stipulated Protective Order (#12) has been entered in this case. That
order provides three levels of protection, including a "Confidential-Outside Attorneys' Eyes
Only" level. Prot. Order 1. Capsugel argues that the Stipulated Protective Order provides
sufficient protection against disclosure of the supplier identities to unauthorized parties. See
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Mot. to Compel4. Defendants do not directly respond to Capsugel' s argument on this point, but
instead contend that the protections afforded by the Stipulated Protective Order are irrelevant to
whether it must disclose the supplier identities because Capsugel has failed to carry its burden of
establishing that the information is relevant and necessary. See Mot. for Protective Order 8.
The Stipulated Protective Order provides sufficient protection against disclosure to
unauthorized parties. At least one court within the Ninth Circuit has found that a protective
order less restrictive than the one in place in this matter is sufficient to tip the balance of interests
in favor of ordering disclosure of confidential supplier identities. See Bare Escentuals Beauty,
2007 WL 4357672, at *4 (fmding sufficient an Attorneys' Eyes Only protective order).
Furthermore, several well-reasoned opinions from trial courts outside the Ninth Circuit
provide persuasive authority for the proposition that the Stipulated Protective Order in this case
provides sufficient protection against disclosure to unauthorized parties. See, e.g. , Taiy o Int'l,
Inc. v. Phyto Tech Corp. , 275 F.R.D. 497, 501 (D. Minn. 2011) ("Where the parties have agreed
to a protective order, particularly one with ' Attorneys' Eyes Only' designation, even a very
sensitive trade secret will be sufficiently protected and should be produced if relevant." (citations
omitted)); Coca-Cola Bottling Co. of Shreveport v. Coca-Cola Co. , 107 F.R.D. 288, 298-99 (D.
Del. 1985) ("The potential harm that would come from public disclosure of the formulae for old
Coke, new Coke, diet Coke, and caffeine free Coke is great, but virtually all of that harm can be
eliminated with stringent protective orders and other safeguards." (citation omitted)); see also
Apple, Inc. v. Samsung Elecs. Co., No. C 11-1846 LHK PSG, 2012 WL 5878392, *2 (N.D. Cal.
Nov. 21 , 2012); Bd. ofTrustees of Leland Stanford Junior Univ. v. Tyco Int'l Ltd. , 253 F.R.D.
521 , 523 (C.D. Cal. 2008).

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, Defendants do not argue that an Outside Attorneys' Eyes Only protective order is
insufficient to protect against the risk of disclosure to unauthorized parties. Instead, Defendants
rely entirely on their argument that Capsugel has not carried its burden of showing that the
supplier identities are relevant and necessary. See Mot. for Protective Order 8. However, as
detailed above, I have already rejected that argument. Consequently, I find that the risk of
disclosure to unauthorized parties does not outweigh the risk that nondisclosure would impede
the proper presentation of the claims and defenses in this case.
CONCLUSION
For the reasons provided above, Capsugel's Motion to Compel (#40) is GRANTED and
Defendants are ORDERED to produce the supplier identities, product names, lot numbers,
supplier certificates of analysis, and product samples.
Defendants move the court for a thirty-day extension oftime to produce the supplier
identities in the event Capsugel's Motion is granted. Mot. for Protective Order 9 (#37). Given
the Defendants' apparent ability to easily produce the supplier identities, Defendants' Motion for
an Extension of Time is DENIED and Defendants are ORDERED to produce the information
subject to Plaintiffs Motion to Compel within fourteen (14) days ofthe date ofthis order.

Dated this 28th day of September, 2015.

Honorable Paul Pap
United States Magistrate Judge

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