UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
November 2, 2006
AIR TECH EQUIPMENT, LTD., ET AL., PLAINTIFFS,
HUMIDITY VENTILATION SYSTEMS, INC., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Roanne L. Mann, United States Magistrate Judge
MEMORANDUM AND ORDER
Currently pending before this Court is a dispute between the parties as to whether defendants Humidity Ventilation Systems, Inc., et al. ("defendants") are entitled to redact from their discovery materials information concerning the identities of their customers for alternative dehumidifiers and the prices they charged their customers for such products.*fn1 Defendants contend that the information sought is highly sensitive*fn2 and irrelevant to the claims and defenses in the case; plaintiffs counter that the redacted information is relevant to defendants' antitrust counterclaims and/or plaintiffs' defenses thereto.*fn3 For the reasons that follow, plaintiffs' motion for a compulsion order is granted in part and denied in part.
As a preliminary matter, plaintiffs argue that defendants waived their relevance objection by failing to timely object on that basis. See 4/21/06 Pl. Letter at 2. Plaintiffs' waiver argument requires little discussion; in responding to plaintiffs' document demands, defendants specifically incorporated into each of the challenged responses defendants' General Objection No. 2, which asserted that the information sought was "irrelevant." See generally 4/25/06 Def. Letter at 1-2. Therefore, defendants preserved their objection on relevance grounds.
In opposing disclosure of the identities of defendants' customers and their specific unit pricing, defendants rely on In re Vitamins Antitrust Litigation, 198 F.R.D. 296, 297 (D.D.C. 2000), and In re Pressure Sensitive Labelstock Antitrust Litigation, 226 F.R.D. 492, 494 (M.D. Pa. 2005), which denied requests for similar "downstream data" from parties prosecuting antitrust claims.*fn4 In Pressure Sensitive Labelstock, the court expressly noted that "courts generally proscribe downstream discovery" in price-fixing cases, id. at 498, inasmuch as "a price fixing conspiracy claim may not be defended on the ground that the purchaser passed on the higher cost of the product to its customers." Id. at 497 (citing Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 489 (1968)). In Vitamins Antitrust Litigation, the court likewise rejected a request for plaintiffs' downstream data, concluding that the information was, at best, only "marginally" relevant to the issues in that case. 198 F.R.D. at 301, 302. Other opinions, not cited by the parties, have reached similar results. See In re Auto. Refinishing Paint Antitrust Litig., No. MDL 1426, 2006 WL 1479819, at *7-8 (E.D. Pa. May 26, 2006) (declining to "depart from the long-held practice of proscribing discovery of downstream data" in a price-fixing case); In re Plastics Additives Antitrust Litig., No. Civ.A. 03-2038, 2004 WL 2743591, at *16 (E.D. Pa. Nov. 29, 2004) (noting that "courts have refused to require production of downstream data in antitrust price-fixing cases" and concluding that "defendants have not established the relevance of plaintiffs' downstream data to the merits of plaintiffs' claims"); but see In re Urethane Antitrust Litig., 237 F.R.D. 454, 462-64 (D. Kan. 2006) (allowing discovery of downstream sales data, as it was relevant to class certification issues).
In this case, plaintiffs concede that they bear the burden of establishing the relevance of the redacted information. See 4/21/06 Pl. Letter at 4; see also 4/21/06 Def. Letter at 1-2 (collecting cases). Plaintiffs have not overcome defendants' showing that the redacted data are irrelevant to plaintiffs' liability on, or defenses to, defendants' antitrust counterclaims. See 4/21/06 Def. Letter at 3-4; 4/25/06 Def. Letter at 3-5.*fn5 However, the issue of damages stands on a different footing. In fact, defendants' antitrust counterclaims contain express language charging that plaintiffs' antitrust violations "hampered [defendants] from growing and profiting from their business in the relevant market of alternate dehumidfiers." Second Amended Answer to Complaint, Affirmative Defenses and Counterclaims, dated January 20, 2006 ("2d Am. Ans.") ¶¶ 134, 139, 145, 151; see 4/25/06 Pl. Letter at 1-2.
When asked to explain how they intended to prove the nature and extent of their antitrust damages, defendants assured the Court, in a telephone conference, that they would not rely on information concerning their specific customers or unit pricing. See 5/8/06 Tr. at 18, 19-22, 27. They then detailed in a letter their theories of damages, none of which involved the redacted information. See 5/9/06 Def. Letter at 2-3. With respect to some of the antitrust counterclaims, defendants' analysis has satisfied the Court's concerns.*fn6 With respect to others, plaintiffs have the better argument.
In their Seventh and Eighth Counterclaims, defendants allege that plaintiffs engaged in price fixing in violation of Section 1 of the Sherman Act, see 2d Am. Ans. ¶¶ 129-39, and thereby "hampered [defendants] from growing and profiting from their business in the relevant market of alternative dehumidifiers . . . ." Id. ¶¶ 134, 139. In arguing that the redacted information is irrelevant to these allegations, defendants assert that they will prove their damages "[b]y comparing defendant Safe N Dry's total sales of Humidex products prior to Plaintiffs' wrongful conduct in violation of Section 1 of the Sherman Act against Safe N Dry's total sales subsequent to Plaintiffs' wrongful conduct . . . ." 5/9/06 Def. Letter at 2.
Defendants wrongly assume that they therefore need not disclose information that "might support an alternative explanation . . . ." 5/12/06 Pl. Letter at 1. To cite one example proffered by plaintiffs, "perhaps [defendants'] pricing practices hampered defendants' growth and profitability." Id. at 2; see 5/8/06 Tr. at 23, 25.
Particularly in light of defendants' specific allegations of injury in pleading their counterclaims, the Court concludes that plaintiffs are entitled to some information to test whether defendants' purported loss of business was attributable to factors other than plaintiffs' alleged anticompetitive conduct. Plaintiffs have made a sufficient showing to require defendants to produce (for attorneys' eyes only) the pricing information embodied in the documents produced by defendants. In contrast, plaintiffs have f ailed to establish that the identities of their competitors' customers are relevant to defendants' antitrust counterclaims.*fn7
Plaintiffs posit that "[p]erhaps defendants were unable to grow their business because they lacked a stable customer base, or because they had problems maintaining ongoing relations with their customers." 5/12/06 Pl. Letter at 2. Absent a more particularized showing from plaintiffs, defendants need not disclose the specific identities of their customers to enable plaintiffs to test these theories. Rather, in lieu of "unredacting" information identifying their customers, defendants may assign a code to each customer and include the corresponding code on each redacted document. In this way, plaintiffs will be able to assess defendants' success in attracting repeat business and thus can test whether defendants "had problems maintaining ongoing relationships with customers." Id.*fn8
For the foregoing reasons, the Court rules that plaintiffs are entitled to "downstream data" consisting of pricing information and codes corresponding to defendants' customers.*fn9
Plaintiffs' motion for a compulsion order is granted in part and denied in part. By November 13, 2006, defendants shall produce the documents demanded in a form consistent with this opinion.
ROANNE L. MANN UNITED STATES MAGISTRATE JUDGE