STATIC MEDIA LLC v. LEADER ACCESSORIES LLC

Before Dyk, Reyna, and Taranto. Appeal from the Western District of Wisconsin.

Summary: It was an abuse of discretion to hold a party in contempt for an alleged protective order violation resulting from a third person’s use of confidential information in a co-pending litigation when the third person (1) agreed to be bound by the order, (2) was reminded of its obligations under the order, and (3) the disclosure was made pursuant to a joint defense agreement.

Static Media sued Leader for patent infringement in Wisconsin and the parties entered into a protective order during the course of the proceedings to govern the dissemination and use of confidential documents. In relevant part, the order stated that documents “shall be used solely for the propose of this proceeding.” Access to the confidential documents was limited to a select group of people, including outside individuals retained to furnish consulting, technical, or expert services provided they executed a “Written Assurance” to abide by the terms of the order. Static Media subsequently sued OJ Commerce for patent infringement in Florida, asserting the same patent as in the co-pending suit with Leader, and the two defendants entered into a joint defense agreement to consult one another with respect to issues of infringement and potential defenses. Leader’s attorney, Mr. Lee, had OJ Commerce’s attorney, Mr. Hecht, execute the Written Assurance of the order and began sharing confidential documents with Mr. Hecht. With each disclosure, Mr. Lee reminded Mr. Hecht that the documents were subject to the protective order and asked him to adhere to the order. However, Mr. Hecht subsequently used certain documents during settlement negotiations of the Florida action and disclosed his use of these confidential documents to Static. Static moved for discovery sanctions in the Wisconsin action arguing that Leader and Mr. Lee violated the protective order. The district court agreed and ordered a monetary sanction.

The Federal Circuit reversed the district court’s order, holding that there was no clear and convincing evidentiary support for the conclusion that Mr. Lee knew or should have known that Mr. Hecht would use the confidential information in the Floridan action. Noting that “Mr. Lee did exactly what was required to ensure that Mr. Hecht would abide by the protective order,” the Federal Circuit first focused on the execution of the Written Assurance by Mr. Hecht and the reminders that Mr. Lee provided with each disclosure. Thus, the fact that Mr. Hecht made an improper disclosure in the Florida action should not have been attributed to Leader and Mr. Lee. Moreover, the Federal Circuit held that Mr. Lee’s disclosure to Mr. Hecht did not violate the protective order’s restriction concerning use “solely” for the purpose of the Wisconsin action. The Federal Circuit determined that it was not objectively unreasonable to interpret the protective order as allowing use amongst individuals bound by the order while prohibiting disclosure only to third parties not bound by the order. Thus, there was a “fair ground of doubt” as to whether the protective order barred Mr. Lee’s disclosures to develop a joint defense strategy and such a contempt order was improper under the circumstances.

Judge Reyna dissented, arguing that deference to the district court was warranted and Mr. Lee knew or should have known that the disclosures to Mr. Hecht were not “solely” for use in the Wisconsin action.

Editor: Paul Stewart

Written by: Andrew Morrell, Ph.D. & Blake A. Winn