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Eastman Kodak Company v. Kyocera Corporation

September 17, 2012

EASTMAN KODAK COMPANY, PLAINTIFF,
v.
KYOCERA CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Marian W. Payson United States Magistrate Judge

DECISION & ORDER

PRELIMINARY STATEMENT

Kodak has brought this suit against Kyocera seeking damages arising from Kyocera's alleged breach of a 2002 agreement between the parties granting Kyocera a license to use and sell Kodak's patented digital camera technology. (Docket # 1). According to Kodak, the patent licensing agreement (the "PLA") required Kyocera to pay royalties to Kodak on all of the components of its products with "digital camera functionality," but Kyocera instead paid royalties on only some of the components. (Id. at ¶ 25). Kodak also contends that the royalty payments were to be based on the sales price of the digital camera products, rather than, as Kyocera calculated the payments, the purchase price of the individual components. (Id. at ¶ 27). Finally, Kodak contends that Kyocera failed to pay royalties on all of the digital camera products it sold and refused to provide complete and accurate royalty payment records to Kodak's auditors. (Id. at ¶¶ 29, 31).

Currently pending before this Court are two motions. First, Kyocera has moved to compel production of communications between Kodak's attorneys and the auditing firm of Deloitte & Touche ("Deloitte"), which Kodak maintains are protected from disclosure under the attorney work product doctrine. (Docket # 75). Second, Kodak has moved to disqualify Kyocera's expert witness, Robert Wallace ("Wallace"). (Docket # 86). For the reasons discussed below, Kyocera's motion to compel is granted, and Kodak's motion to disqualify is denied. I turn first to Kyocera's motion to compel.

I. Kyocera's Motion to Compel

A. Factual Background

Kyocera seeks to compel production of certain withheld and redacted communications between Kodak's attorneys and Deloitte that Kodak has designated as attorney work product.*fn1 (Docket # 75). According to Kodak, all of the communications at issue occurred after Kodak anticipated litigation with Kyocera. (Docket # 82 at 1). Kodak asserts that the communications "reveal Kodak's attorneys' efforts to evaluate breach of contract claims against Kyocera" and are related to "discussions that Kodak's attorneys had with Deloitte to gather information relating to a potential lawsuit against Kyocera." (Id. at 1, 4).

Under the PLA, Kodak was permitted to hire annually a "mutually agreed upon independent auditor . . . [to] provide Kyocera and Kodak with a report relating only to the accuracy of the information set forth in [Kyocera's] royalty statement." (Docket # 114-2, Ex. 2 at § 5.3). In 2005, with Kyocera's consent, Kodak hired Deloitte to conduct the contractually-permitted audit. (Kodak has not provided the Court with a copy of any engagement letter with Deloitte). Prior to the audit, Kodak sent a letter to Kyocera announcing its intent to exercise its audit rights under the PLA. (Docket # 71-3, Ex. A). Specifically, that April 1, 2005 letter advised Kyocera that "Kodak intends to exercise its right to have an independent auditor review and test the underlying support and methodologies used to calculate royalties due" in accordance with Paragraph 5.3 of the PLA. (Id.). Kodak explained that the audit was part of an inspection program that it had implemented in an effort "to develop and follow industry best practices." (Id.). In accordance with the terms of the PLA, Kodak sought Kyocera's approval of Deloitte to conduct the contractually-permitted audit. (Id.).

Deloitte conducted the audit and issued an initial report in November 2005 and a revised report in February 2006. (Docket # 71-3 at ¶¶ 4-5). During the course of the audit, a dispute arose over the manner in which royalties were supposed to be calculated under the terms of the PLA. (Docket ## 75-1 at 2; 82 at 3). According to Kodak, when it learned from Kyocera in early December 2005 that it was calculating royalty payments based on only the camera module, Kodak notified Kyocera that it was in violation of the PLA. (Docket # 82 at 3). The parties' subsequent efforts to resolve the dispute were not successful. (Id.).

On May 23, 2008, Kodak's outside counsel retained Deloitte for additional audit work. (Docket # 85, Ex. 1). On June 1, 2008, Deloitte wrote to Kyocera confirming its understanding that "Kodak and Kyocera have agreed to complete that portion of an inspection performed by Deloitte in 2005 relating to Kyocera's sale of camera phones and camera modules [and] to [conduct] a selective inspection of Kyocera's sales of camera phones and camera modules for the period April 1, 2005 through March 31, 2008." (Docket # 89-1, Ex. R). The letter acknowledged Deloitte's understanding that the parties disputed "the scope and meaning of certain terms in the [PLA]." (Id. at n.1). Both Kodak's and Kyocera's outside counsel were copied on the letter. (Id.).

Eight weeks later, on July 31, 2008, Deloitte sent a letter to Kodak's counsel acknowledging that it had been retained by counsel "in connection with Kodak's ongoing negotiations with [Kyocera] regarding a patent license agreement (the "Kyocera Matter")." (Docket # 82-1, Ex. 1). Deloitte further acknowledged its understanding that "Counsel's intention and the position of Counsel [is] that our work for it will be covered by the attorney work-product privilege and other applicable privileges." (Id.). Deloitte agreed to treat all working papers, documents and communications as confidential information. (Id.). Finally, the agreement specified that Deloitte would "provide assistance in reading the financial information and other data relevant to this matter in order to assist Counsel and [Kodak] with the Kyocera Matter." (Id.). Kyocera was not copied on Deloitte's letter to Kodak.

Deloitte issued its final audit report on January 27, 2009. (Docket # 71-3, Ex. E). Kodak filed this lawsuit in June 2010. (Docket # 1). During discovery, Kodak initially withheld as privileged hundreds of documents exchanged with Deloitte during the audit process. (Docket # 71-2 at 2-3). Since then, Kodak has produced over 500 communications with Deloitte that it had originally withheld, including 159 communications produced after the instant motion was filed. (Docket # 82 at 4). According to Kodak, it has now produced all documents concerning Kodak's retention of Deloitte, the instructions it provided to Deloitte and the scope of Deloitte's work, along with Deloitte's draft and final audit findings and conclusions from both the 2005 and 2008 audits. (Id. at 4, 7). Kodak contends that the only documents it is withholding are those "that resulted from Kodak's anticipation of litigation." (Id. at 7).

At this stage, Kodak continues to withhold 37 communications and has produced redacted versions of 40 others, all of which have been provided to this Court for in camera review. (Docket # 82-1 at ¶ 10). The communications at issue occurred after December 7, 2005, -- the date on which Kodak represents that it reasonably anticipated litigation with Kyocera (as a result of Kyocera's notification that its royalty payments were calculated based upon the camera module only). (Docket # 82 at 3). According to Kodak, they consist of communications between Kodak's attorneys and Deloitte following the 2005 and 2008 audits (1) "relating to how Kyocera was paying royalties" and (2) "relating to the documents that Kyocera refused to provide to Deloitte." (Id. at 4).

B. Discussion

The purpose of the attorney work product doctrine is "to preserve a zone of privacy in which a lawyer can prepare and develop legal theories and strategy 'with an eye toward litigation,' free from unnecessary intrusion by his adversaries." United States v. Adlman, 134 F.3d 1194, 1196 (2d Cir. 1998) (quoting Hickman v. Taylor, 329 U.S. 495, 510-11 (1947)).

Rule 26(b)(3) provides:

Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent). ...


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