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CONVOLVE, INC. v. COMPAQ COMPUTER CORP.

August 17, 2004.

CONVOLVE, INC., and MASSACHUSETTS INSTITUTE OF TECHNOLOGY, Plaintiffs,
v.
COMPAQ COMPUTER CORP. and SEAGATE TECHNOLOGY, INC., Defendants.



The opinion of the court was delivered by: JAMES FRANCIS, Magistrate Judge

MEMORANDUM AND ORDER

Convolve, Inc., and Massachusetts Institute of Technology (collectively, "Convolve") have asserted claims of patent infringement and theft of trade secrets against Compaq Computer Corp. ("Compaq") and Seagate Technology, Inc. ("Seagate"). Seagate manufactures disk drives, while Compaq produces and distributes computer systems. Pursuant to a confidentiality agreement, Convolve shared proprietary information with the defendants concerning technology that allows a computer user to choose between faster and quieter modes of operation. Convolve alleges that the defendants breached that agreement by misappropriating the technology and incorporating it into their own products.

Early in this litigation, the Honorable John S. Martin, United States District Judge, to whom the case was then assigned, appointed Pasquale A. Razzano of the law firm of Fitzpatrick, Cella, Harper & Scinto as Special Master to oversee discovery. The Special Master adjudicated numerous discovery disputes prior to recusing himself on October 14, 2003. Thereafter, the Honorable George B. Daniels, United States District Judge, to whom the case is now assigned, referred it to me for all further discovery issues.

  There are now pending nine different discovery motions. Convolve has moved: (1) to compel Compaq to produce what Convolve characterizes as procurement documents and to impose sanctions for Compaq's alleged discovery abuse; (2) to vacate the Special Master's order denying discovery of information related to Compaq's computer code, known as the F10 BIOS, which created an interface so that users could choose between quick and quiet modes of operation when a computer is first turned on; (3) to vacate the Special Master's order requiring Convolve to provide supplemental responses to Compaq's contention interrogatories; (4) to compel Seagate to produce information relating to its technology known as TOME and to impose sanctions to the extent such information has not been preserved; (5) to preclude Seagate from taking discovery beyond the discovery deadline concerning whether Convolve's proprietary information qualified as trade secrets; (6) to sanction Seagate for what Convolve contends is its abuse of the discovery process relating to Seagate's Hawk 2 technology; and (7) to compel Seagate to produce its chief executive officer for a videotaped deposition. Compaq, in turn, moves to compel Convolve to answer certain damages interrogatories. Finally, Seagate seeks an order requiring Convolve to produce financial documents in unredacted form. I held a hearing on all of these motions on June 25 and 29, 2004.

  The Special Master previously dealt with some of these issues in whole or in part. Therefore, in some instances I must determine whether it is appropriate to revisit the Special Master's decision. In others, I must construe orders issued by the Special Master that relate to but do not fully dispose of the issue at hand And, in some cases, I write on a clean slate. I will take up each of the issues in turn.

  Discussion

  A. Compaq's Procurement Documents

  Resolution of Convolve's motion seeking Compaq procurement documents requires determinations at two levels. The threshold question is whether discovery is limited to specific disk drive models that Convolve has accused as infringing its patents or incorporating its trade secrets or, alternatively, encompasses any computer system that includes an Automatic Acoustic Management ("AAM") drive — that is, a drive that can be switched between a quiet mode and a performance mode. However that question is decided, it must then be determined whether Compaq has satisfied its discovery obligations.

  The Special Master settled the threshold issue. In an order issued on May 14, 2002, the Special Master ruled as follows with respect to an interrogatory propounded by Convolve:
Plaintiffs contend that this interrogatory seeks the identity of Compaq's disk drives which support Automated Acoustic Management (AAM) because such drives may infringe Plaintiffs' patents or incorporate their trade secrets. However, it appears that Plaintiffs have not accused any drives used by Compaq (other than the U Series 5 and Barracuda ATA-IV drives) of patent infringement or of incorporating their trade secrets. Accordingly, on its face, the request, in part, appears overly broad in that it is not limited to the allegedly infringed patent claims or the specific trade secrets on Plaintiffs' Amended Trade Secret List.
However, even in the absence of an assertion of infringement or use of the alleged trade secrets, this interrogatory is related, in part, to the issue of non-infringing alternatives, damages, and the "value" of the trade secrets and patented inventions. And, merely identifying such drives does not appear unduly burdensome. Accordingly, Compaq shall identity "Compaq products", which it makes and sells, that contain disk drives that support AAM. This appears to be a more practical method of obtaining this information than a document request (Local Rule 33.3(b)). Compaq need not identify serial number range or volumes produced.
As I understand it, the products Plaintiffs want identified are available on the market for Plaintiffs to acquire and/or inspect. Since they are not currently accused, neither the products themselves nor documents related to them need be produced. In the event Plaintiffs subsequently assert an infringement claim or a claim that such products incorporate their trade secrets, the balance of the interrogatory may be posed once again with respect to such accused products.
(Letter of Pasquale A. Razzano dated May 14, 2002 (the "5/14/02 Order"), attached as Exh. 2 to Declaration of Duane-David Hough in Support of Compaq's Opposition to Convolve's Motion to Compel Further Discovery of "Procurement Documents" dated March 9, 2004 ("Hough 3/9/04 Decl."), at 3-4 (footnote omitted)).
  In the same order, the Special Master considered Convolve's request that Seagate produce requests for proposal and requests for quotation relating to AAM. He found:
These requests are overly broad in that they appear to encompass more than the accused products. While Plaintiffs assert the requests are "relevant" to their trade secret claims, . . . it is not clear why the requested documents about non accused products are relevant. It is not understood why these particular documents would enable Plaintiff "to determine any and all disk drives that incorporate Convolve's Technology" any more easily than acquiring Defendants' products and examining them.
(5/14/02 Order at 6). Nevertheless, the Special Master noted that "Seagate has agreed to search for and produce actual requests for proposals and actual requests for quotation . . . relating to `Acoustic features and AAM'", and required those documents to be produced. (5/14/02 Order at 6). The Special Master made a similar ruling with respect to Convolve's requests to Compaq. He found that these requests were "essentially identical" to those served on Seagate, and he concluded:
Until Plaintiffs have some good faith basis to believe any other drives for which they seek documents infringe their patents or incorporate their trade secrets, and identify such drives and the patent claims they infringe, or specific trade secret incorporated in them, the request is over broad.
As I understand Compaq's representation, it has agreed to produce non-privileged responsive documents relating to the two accused disk drives. In addition however, with regard to the issue of value, Compaq shall also produce actual requests for proposals and actual requests for quotations, if any, relating to "Acoustic features and AAM".
(5/14/02 Order at 7).
  Thereafter, Convolve sought to expand discovery to include an additional 12 models of Seagate disk drives. The Special Master granted this application in an Order dated October 11, 2002. (Letter of Pasquale A. Razzano dated Oct. 11, 2002 (the "10/11/02 Order"), attached as Exh. 7 to Hough 3/9/04 Decl., at 1-2, 6).*fn1 Then, in March 2003, Convolve complained to the Special Master that the defendants had failed to produce requested documents, including those related to AAM drives made by manufacturers other than Seagate and incorporated in Compaq computer systems. In an Order dated April 15, 2003, the Special Master noted that the deadline for fact discovery had passed, and he rejected the application to alter the scope of the disclosure:
If Plaintiffs intended to accuse other disk drives of other manufacturers used in Compaq's computers it had to comply with the order concerning discovery entered in this case which required that their Final Infringement Allegations state separately for each asserted claim "each accused apparatus, product, device . . . of each defendant of which plaintiffs are aware. This identification shall be as specific as possible. Each product, device and apparatus must be identified by name or model number, if known." Plaintiffs did not identify the Compaq computers which they believe contain non-Seagate hard drives in this way, apparently, because they are either unaware of them or are unable to do so. However, given my earlier rulings, if Plaintiffs wanted broader discovery they should have sought it sooner in this process — and at least at the time they served their Final Invalidity Allegations. To expand discovery now at this late date — after close of fact discovery — would create a whole new wave of scores of depositions, expert testimony, document production, discovery disputes, etc. Given the very clear and specific nature of the claims in the Amended Complaint, it is too late to seek that expansion now.
With regard to Plaintiffs' contention that it is entitled at least to "damages" discovery with respect to these other non-Seagate disk drives, since such other drives, even if they do exist, are not part of the claims in this case damages discovery as to them is irrelevant.
(Letter of Pasquale A. Razzano dated April 15, 2003 ("4/15/03 Order"), attached as Exh. 4 to Hough 3/9/04 Decl., at 9-10). The Special Master observed that to the extent that particular disk drives were not subject to Convolve's claims and were beyond the scope of discovery, they could be the subject of subsequent litigation. (4/15/03 Order at 10 n. 7).

  Convolve did not seek review of the 5/14/02 Order, the 10/11/02 Order, or the 4/15/03 Order. Pursuant to these orders, Convolve is entitled to full discovery of the Seagate disk drives that it specifically accused as infringing or as incorporating its trade secrets; it may take limited discovery (for of purposes of damages and "value") of any Seagate drives that have the AAM feature, that discovery consisting of the identification of such drives and of requests for proposal and requests for quotation as to those drives; and there shall be no discovery of non-Seagate drives, even if incorporated in Compaq systems.

  The question then become whether, within these parameters, Compaq has complied with its obligations to produce procurement information. With respect to the specific accused drives, Compaq has represented that it obtained from Seagate and forwarded to Convolve data showing the quantity of each drive model purchased by Compaq and the price. (Tr. at 57-58, 86).*fn2 Furthermore, as to the accused drives, Compaq produced the qualifying documents; that is, the specifications indicating, among other things, the requirement that the drive be capable of switching between a quiet mode and a performance mode. (Tr. at 86-87). The financial information provided by Compaq was not limited, however, to that related to the accused drives. Rather, it included all Seagate drives sold to Compaq that support AAM. (Tr. at 56-57, 71-73). Furthermore, because 80% of Compaq's computer systems are assembled by contract manufacturers who may incorporate any one of a number of qualified drives in any given unit, Compaq provided financial information not just for Seagate AAM drives, but for all AAM-compliant drives. (Tr. at 57, 72-74).

  The remaining uncertainty is whether the data provided in fact overstate Compaq's revenue attributable to AAM drives. This is because Compaq has assumed for present purposes that all of the drives that it purchased for certain periods are AAM supportable, an assumption that may not be entirely accurate. (Tr. at 73-74). But Compaq will have to live with that assumption. To the extent that the recordkeeping for its production chain makes it either impossible or prohibitively expensive to disentangle AAM and non-AAM data, Compaq must bear the consequence of an adverse evidentiary presumption.*fn3 Accordingly, unless Compaq has already provided specific evidence to the contrary, it shall be presumed that all of the financial data it has produced concerning disk drives relates to AAM-supportable drives.

  At least on a gross level, then, Compaq's production appears to satisfy the Special Master's rulings. Nevertheless, Convolve argues that Compaq has improperly withheld specific documents including individual bills of materials. The bills of materials do not, however, identify the disk drive required for any given computer with sufficient specificity such that it could be determined whether the actual drive used was either an accused drive or an AAM-compliant drive. The typical bill of materials identifies the required drive only by storage capacity, spin speed, and type of controller. (Tr. at 63; Hough 3/9/04 Decl., Exh. 5, Tab C). Even the more specific form of the bill of materials identifies multiple qualified drives, any of which could be installed by the contract manufacturer in satisfaction of Compaq's requirements. (Tr. at 63; Hough 3/9/04 Decl., Exh. 5, Tab D).

  To be sure, the bills of materials are "relevant" under the broad definition of that term that applies in the context of discovery. See Fed.R. Civ. P. 26(b)(1); Melendez v. Greiner, No. 01 Civ. 7888, 2003 WL 22434101, at *1 (S.D.N.Y. Oct. 23, 2003); Zanowic v. Reno, No. 97 Civ. 5292, 2000 WL 1376251, at *2 (S.D.N.Y. Sept. 25, 2000) ("relevance, for the purposes of discovery, is an extremely broad concept"). Nevertheless, "Rule 26(b)(2) imposes general limitations on the scope of discovery in the form of a `proportionality test.'" Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 316 (S.D.N.Y. 2003). That rule provides:
The frequency or extent of use of the discovery methods otherwise permitted under these rules and by any local rule shall be limited by the court if it determines that: (i) the discovery sought is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity by discovery in the action to obtain the information sought; or (iii) the burden or expense of the proposed discovery outweighs its likely benefit, taking into account the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the litigation, and the importance of the proposed discovery in resolving the issues.
Fed.R. Civ. P. 26(b)(2). Here, requiring Compaq to disclose all of its bills of materials for every computer system that might have incorporated either an accused drive or one that, while not accused, is AAM-supportable, would require an expenditure of time and resources far out of proportion to the marginal value of the materials to this litigation. As noted above, these documents do not indicate the specific instances when a relevant drive is actually installed in a Compaq system. Moreover, even if it were possible to obtain that information by linking each bill of materials to other data in Compaq's procurement system, there has been no showing that it would go beyond the information already provided by Compaq in summary form. And, Convolve has not presented evidence that would suggest that those summaries are either incomplete or inaccurate. There is no basis, therefore, for requiring production of the bills of materials.

  Convolve also argues that, as illustrated by the deposition testimony of Donald Morton, Compaq has wrongfully withheld procurement documents consisting of requests for proposal ("RFPs") and requests for quote ("RFQs"). Indeed, Mr. Morton stated that while Compaq has only recently formalized its procurement process to require that such requests conform to a particular format, it has long utilized a less formal but functionally equivalent process. (Deposition of Donald Morton dated May 14, 2003 ("Morton Dep."), attached as Tab E to Exh. 5 to Hough 3/9/04 Decl., at 96-98, 110-13). Thus Compaq's prior representation to the Special Master that it simply did not utilize RFPs and RFQs was disingenuous. (Transcript of Hearing dated Sept. 11, 2003, attached as Exh. P to Affidavit of Kenneth A. Freeling Supporting Plaintiffs' Motion dated Jan. 3, 2004, at 131-32).

  But the fact that Compaq made an inaccurate representation to the Special Master, while troubling, does not necessarily mean that it should now be required to produce the underlying information, that is, all RFPs and RFQs for accused drives and AAM-compliant drives. Once again, by virtue of the nature of Compaq's procurement process, one would usually be unable to tell from the requested documents whether, in fact, they relate to relevant drives. Generally, RFPs and RFQs specified only the capacity and spin speed for the drives that were forecast to be required; there was no indication of any acoustic requirements. (Morton Dep. at 74-79; sample Request for Quote, attached as Tab G to Exh. 5 to Hough 3/9/04 Decl.). There was, however, at least one exception to this rule. Compaq located and produced in discovery a single RFQ that called for drives with "[s]eek profiles switchable between quiet mode and performance mode." (Request for Quiet Drive Proposal, attached as Tab I to Exh. 5 to Hough 3/9/04 Decl.). Because this document is plainly relevant and because Compaq previously provided incorrect information about its RFPs and RFQs, it is important to ensure that its search has been comprehensive. Therefore, Compaq shall submit an affidavit setting forth in detail the steps taken to identify RFPs and RFQs, including those stored in electronic databases, which refer to the capability of switching between quiet mode and performance mode.

  There remain a number of lesser disputes relating to procurement discovery that Convolve and Compaq were unable to resolve by pre-motion conference. (Letter of Kenneth A. Freeling dated July 11, 2003, attached as Tab A to Exh. 5 to Hough 3/9/04 Decl.; Letter of Robert W. Morris dated Oct. 1, 2003 ("Morris 10/1/03 Letter"), attached as Exh. 5 to Hough 3/9/04 Decl.). First, Convolve has sought Compaq's Material Requirement Plans ("MRPs"), which are its forecasts for the components that it anticipates needing for the computer units that it assembles itself. Since Compaq has represented that it has produced data for the drives that it actually acquired, the MRP's would be redundant and, indeed, less relevant, and need not be produced. The same result is warranted for Convolve's request for purchase orders and purchase change orders: these are duplicative of the summary information Compaq has already produced with respect to actual purchases.

  Next, Convolve seeks inventory reports for the drives that Compaq stocks for purposes of installing in the units it manufacturers. Compaq argues that "Convolve already has a complete identification of how many of the accused hard drives Compaq purchased from Seagate, as well as the price Compaq paid for them." (Morris 10/1/03 Letter at 6). This is a satisfactory response with one caveat. For purposes of damages, Compaq will not be heard to argue that Convolve's recovery should be reduced because some number of drives acquired by Compaq languished in its inventory and therefore resulted in no profit.

  Convolve demanded Compaq's written specifications for accused drives by part numbers. Compaq responded that it had already produced the requested documents for the U Series 5 drive and would do so for the Barracuda ATA-IV drive. (Morris 10/1/03 Letter at 9). However, in light of the fact that the number of accused drives was expanded by the Special Master's 10/11/02 Order, Compaq's production must conform to the broader scope of discovery. It shall therefore produce the requested information for all accused drives.

  Convolve further seeks the production of all invoices for accused drives. Compaq has produced a report setting forth all of its purchases of these drives on a quarterly basis. Production of the invoices themselves would be redundant and will not be required.

  Convolve next requests production of Compaq's general ledger, journal entries, and chart of accounts. This request is burdensome and overbroad. To the extent relevant, it is duplicative of information Compaq has already provided on the sale of units containing accused and AAM-compliant drives.

  Convolve next requests the monthly research and development reports contained in Compaq's Hyperion Database. While certain research data are plainly relevant, these reports deal generally with budget and headcount and do not relate to specific projects. (Hough 3/9/04 Decl., Exh. 5, Tab J). Therefore, they need not be produced. Finally, Compaq has agreed to exchange updated profit and loss information with Convolve, and the parties shall stipulate to the date and manner of this production.

  The last issues arising from Convolve's demand for procurement documents are its request for direct access to Compaq's hard drives, servers, and databases and its application for an award of sanctions. Neither form of relief is warranted. Had Convolve demonstrated widespread destruction or withholding of relevant information by Compaq, then sanctions, together with an order circumventing the normal process of discovery and allowing Convolve to access the data directly, might be appropriate. But, as discussed above, Compaq's responses have for the most part conformed to the Special Master's rulings on the scope of discovery. The only significant exception was Compaq's failure to produce RFPs and RFQs and its erroneous representation that such documents did not exist. But that misstep is a far cry from the systematic abuse that served as the basis for sanctions in the cases cited by Convolve. See, e.g., Metropolitan Opera Association, Inc. v. Local 100, Hotel Employees & Restaurant Employees International Union, 212 F.R.D. 178, 181, 231 (S.D.N.Y. 2003) (entering judgment for plaintiff where defendants' lawyers "completely abdicated their responsibilities under the discovery rules and as officers of the court" and defendants "lied and, through omission and commission, failed to search for and produce documents and, indeed, destroyed evidence — all to the ultimate prejudice of the truth-seeking process"). The case most comparable to this is Michlin v. Canon, Inc., 208 F.R.D. 172, 173 (E.D. Mich. 2002), where counsel only belatedly produced a document after having denied its existence. That case was more egregious, however, since there the document at issue had been authored by one of the trial counsel and turned up in that counsel's file. Id. Yet even there, the court did not impose sanctions, but merely required full disclosure of relevant information. Id. at 174. That is the appropriate remedy here, too, as has been set forth above.

  B. F10 BIOS

  In its next motion, Convolve seeks discovery of information relating to Compaq's F10 BIOS. "BIOS" is an acronym for "Basic Input/Output System" which is the software that provides for communication before a computer's operating system, such as Windows, is activated. "F10" is simply a key on the computer keyboard. "F10 BIOS" refers to the feature of some Compaq computers that allowed the user to press F10 when the computer was first turned on and the BIOS was operating in order to trigger the option of choosing between a quiet mode or performance mode.

  Convolve contends that the F10 BIOS is an accused instrumentality because it is the means by which Compaq engineered into its computer systems the technology that infringed Convolve's patents and was developed as a result of the theft of Convolve's trade secrets. In response, Compaq argues that the F10 BIOS merely acts as a switch and is no more integral to the technology at issue here than the lightswitch on a lamp is central to the technology of a three-way bulb.

  The parties nevertheless agree that this issue was decided by the Special Master in an order dated October 9, 2003. (Letter of Pasquale A. Razzano dated Oct. 9, 2003, attached as Exh. 1 to Declaration of Duane-David Hough in Support of Compaq's Opposition to Convolve's Motion to Vacate the Special Master's Order Concerning "Accused Instrumentalities" (F10 BIOS), dated March 5, 2004). This is reflected in the title of Convolve's motion: "Plaintiffs' Motion to Vacate the Special Master's Clearly Erroneous Ruling Condoning Compaq's Obstruction of Discovery Relevant to Accused Instrumentalities." And, at the hearing, all counsel acknowledged that the issues related to the F10 BIOS had been determined and were now subject to review. (Tr. at 102-03, 114).

  That review is appropriately conducted by Judge Daniels. The function of a special master and the role of a magistrate judge are to a large extent parallel. Each may be appointed by the district judge to address pretrial matters. See Fed.R. Civ. P. 53(a)(1)(C) (special masters); 28 U.S.C. § 636(b)(1)(A) (magistrate judges); Fed.R. Civ. P. 72(a) (magistrate judges). Each may issue orders on non-dispositive matters that are then subject to review by the district judge. See Fed.R. Civ. P. 53(g) (special masters); 28 U.S.C. § 636(b)(1) (magistrate judges); Fed.R. Civ. P. 72(a) (magistrate judges). It would be both anomalous and inefficient for me to consider the appeal from the order of the Special Master here, ...


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