This Sidley Update addresses the following recent developments and court decisions involving e-discovery issues:
- a decision from the U.S. District Court for the Southern District of Florida entering a protocol governing the discovery of the Defendant’s electronically stored information (ESI) over the Defendant’s proportionality objections
- an order from the U.S. District Court for the Northern District of Texas granting sanctions under Federal Rule of Civil Procedure 16(f)(1) for productions made after the discovery deadline as a result of a technical glitch in the interoperability of Defendant’s operating software and its discovery vendor
- a ruling from the U.S. District Court for the Middle District of Florida granting a motion to compel Defendants to provide further answers to interrogatories because the Defendants had inappropriately relied on Rule 33(d) by referring Plaintiff to broad categories of documents in their prior responses
- an opinion from the U.S. District Court for the Southern District of New York denying a motion to compel the Plaintiff to produce the source code for software it alleged Defendants misappropriated
In this putative class action lawsuit brought against Defendant for alleged violations of Florida’s Unfair & Deceptive Trade Practices Act, the parties disputed whether a protocol governing the production of ESI was necessary or proportional to the needs of the case. Id. at *1. When Defendant refused to enter into an ESI protocol, Plaintiffs filed a motion requesting that the court order the protocol.
In support of entering an ESI protocol, Plaintiffs argued that it would need ESI from Defendant to “prevail at the class certification stage and at trial” and “an ESI protocol that will both efficiently identify relevant custodians, data sources, and search terms to ensure relevant information is produced in a usable format.” The parties disagreed on whether Defendant should be required to disclose its custodians and data sources and negotiate search terms or whether those items should be left to discovery.
Defendant complained that it “is a small Pennsylvania-based company” and the proposed ESI protocol — which included detailed provisions about negotiating over appropriate data sources, custodians, and search terms — would be “better suited to a complex putative class action brought against a Fortune 50 company involving complicated banking and financial information.” Defendant also argued that the proposed ESI protocol would require the parties to “waste time negotiating search terms, which custodians should be searched, and which data sources Defendant should collect from.”
Magistrate Judge Elfenbein began her analysis by noting that she was “inclined to implement a thorough ESI protocol that facilitates the full and efficient disclosure of discoverable ESI” in light of the complex nature of the consumer-protection claims at issue seeking over $5 million in damages. Id. at *2. She further noted that “this is not a run-of-the-mill lawsuit nor is Defendant a mom-and-pop business” and pointed out that Defendant “is part of a larger company with a global footprint, selling goods in approximately 120 countries, meaning it likely possesses voluminous quantities of ESI connected with its business.”
Magistrate Judge Elfenbein also disagreed that a one-sided ESI protocol directed to Defendant’s ESI was inappropriate because Defendant had not identified “any information about any discovery requests propounded on Plaintiffs that involve the production of extensive ESI or otherwise substantiate the notion that Plaintiffs’ ESI will be at issue.” Accordingly, she found that “there is no need for an ESI protocol governing Plaintiffs’ document production.”
Magistrate Judge Elfenbein next rejected Defendant’s argument that it “has carte blanche to decide the manner in which it searches for and gathers discoverable ESI,” finding that “a producing party’s right to set its own protocol for producing ESI is not unconstrained, as the protocol it follows must be reasonable.” She acknowledged that “a producing party is ‘best situated to evaluate the procedures, methodologies, and technologies appropriate for preserving and producing their own electronically stored information.’ ” Id. (quoting The Sedona Principles, Third Edition: Best Practices, Recommendations & Principles for Addressing Electronic Document Production, 19 Sedona Conf. J. 1, Principle 6, 118 (2018)). But she pointed out that Defendant had not addressed how it would conduct a reasonable inquiry when searching its materials.
Magistrate Judge Elfenbein explained that “the discovery process, particularly when ESI is involved, is intended to be collaborative.” Id. at *3. She noted that the local rules and the ESI checklist for the Southern District of Florida “encourage parties to collaborate with one another at the earliest stages of the case to think about and discuss the impact of ESI on the potential discovery” and “informally discuss” the sources and collection of ESI. However, Magistrate Judge Elfenbein found that Defendant had not shared how it intended to “preserve, search for, and collect the responsive ESI in the case.”
In this regard, Magistrate Judge Elfenbein disagreed with Defendants’ contention that the ESI protocol proposed by Plaintiffs was not proportional to the needs of the case. She noted that Defendant made only “vague and unsupported assertions” that Plaintiffs’ requests would not require email collection or “search term and custodian negotiations when material responsive to these requests can be gathered through a directed ask or collection.” After reviewing the requests at issue, she concluded that Defendant would be required to search for, collect, and produce email communications and other ESI in response to several of Plaintiffs’ document requests.
Magistrate Judge Elfenbein next addressed a disagreement regarding a provision in the ESI protocol for email threading. Id. at *4. Plaintiffs claimed that “email threading” would limit “the email fields for discrete searching,” while Defendant argued that “threaded emails are still searchable.” After surveying the parties’ arguments and prior decisions, Magistrate Judge Elfenbein noted that although the parties had not sufficiently explained the practice of email threading, it was clear that email threading could “potentially make the review and discovery of relevant information more difficult.” Accordingly, she declined to require Defendants to implement email threading.
Ultimately, Magistrate Judge Elfenbein found that “a robust ESI protocol appears appropriate” and would “aid the parties in identifying discoverable ESI.” Id. at *4. She also noted that “a comprehensive ESI protocol will help each party fulfill its discovery obligations without direction from the court or opposing counsel by setting forth procedures that dispel ambiguities that might otherwise give rise to discovery disputes between the Parties requiring the Court’s intervention.” Accordingly, she entered Plaintiff’s proposed ESI protocol with minor adjustments.
In this action by the Federal Trade Commission (FTC) for unfair business practices, Defendant produced discovery to the FTC three months after the discovery period closed and after the parties filed summary judgment motions. Id. at *1. Defendant explained that the late discovery was responsive to the FTC’s discovery requests but was produced after the discovery deadline because of a “technological glitch” between the Microsoft Office 365 software it used for its operations and the third-party archiving vendor Defendant used for litigation purposes.
Defendant explained that the glitch was discovered by one of Defendant’s employees while working on a different litigation when “a collection of documents from the archival system returned an unexpectedly low volume.” After an investigation into this anomaly, Defendant determined that the archival system it used “had left pockets of custodians and time periods uncaptured.” Defendant accessed a different backup system to identify any responsive documents that had been missed by the archival system and ultimately produced an additional 487 documents to the FTC.
The FTC moved for sanctions against Defendant based on the late productions, arguing that some of the documents were “central” to its claims. Id. at *2. The FTC argued that sanctions were justified because Defendant had “previously blamed a technological glitch for a delayed production and assured the FTC that it had addressed the issue” and requested an order that Defendant be prohibited from using the documents at trial.
Magistrate Judge McKay began his analysis with a survey of the relevant rules, including Rules 37(d)(1)(A)(ii), 37(c)(1), and 16(f)(1). Id. at *2. He explained that Rule 37(d)(1)(A)(i) permits sanctions when a party properly served with a request for production under Rule 34 fails to serve its answers, and Rule 37(c)(1) authorizes sanctions where a party “fails to provide information” as required by Rule 26(a) or (e). He further explained that when a disclosing party is accused of failing to timely disclose discovery, it bears the burden of proving the failure to timely disclose was substantially justified or harmless.
Magistrate Judge McKay next addressed Rule 16(f)(1)(C), which authorizes sanctions if a party or attorney “fails to obey a scheduling or other pretrial order,” with “remedies tailored to the violation.” Id. at *3. He explained that violation of a pretrial order alone “is sufficient to allow some sanction, as Rule 16(f)’s text itself makes this clear.”
Turning to the merits of the FTC’s motion, Magistrate Judge McKay first concluded that Rule 37(d)(1)(A)(ii) did not apply to Defendant’s late disclosure, because that rule addresses when a party “properly served with ... a request for inspection under Rule 34, fails to serve its answers, objections, or written response.” Magistrate Judge McKay found that Rule 37(d)(1)(A)(ii) does not apply to a “late production.”
Magistrate Judge McKay next concluded that sanctions under Rule 37(c) were not appropriate because Defendant’s late production was “substantially justified.” Id. at *4. Magistrate Judge McKay explained that “substantial justification” for a discovery failure typically is tied to a decision not to provide discovery (whereas Defendant maintained that its late disclosure was inadvertent), but this is not a requirement of Rule 37(c)(1) itself. Magistrate Judge McKay concluded that Rule 37(c)(1) allowed Defendant to defend its late disclosure by showing that its failure to produce was substantially justified.
In arguing that its late disclosure was substantially justified, Defendant claimed that it produced more than 300,000 documents during the discovery period and relied on “an archival system marketed as interoperable with the company’s Microsoft system.” Magistrate Judge McKay noted that Plaintiffs had not presented evidence indicating that Defendant was unreasonable in relying on the archival system that was designed to create a complete warehouse of the company’s electronic documents. He also found that Defendant diligently fulfilled its discovery obligations once the problem was detected. Finally, he found that a prior technical issue with Defendant’s production did not undermine Defendant’s position because that issue was unrelated to the interoperability glitch that led to the late productions. Accordingly, Magistrate Judge McKay found that Defendant’s reliance “on what was reasonably believed to be a comprehensive archival system” and its failure to timely produce the documents was “justified to a degree that could satisfy a reasonable person.”
Turning to Rule 16(f)(1), Magistrate Judge McKay found that Defendant’s admission that it failed to produce documents until after the discovery deadline was sufficient to find a violation of the Rule. Id. at *5. He therefore considered various factors to determine whether to exercise his discretion to impose sanctions, starting with “the importance of the evidence.” Magistrate Judge McKay found that certain of the documents produced after the discovery deadline were “particularly relevant to the FTC’s claim,” but in light of the fact that the late production involved fewer than 500 documents in a production that encompassed more than 300,000, he concluded that the documents did not “significantly advance the agency’s case further than it already appears to be.”
Magistrate Judge McKay also considered the prejudice to the FTC. Magistrate Judge McKay found that the FTC was not prejudiced with respect to its summary judgment motion because the FTC was able to use the documents in connection with its reply briefing and had not “explained how the presence of a genuine issue of material fact is more or less likely to be found because the evidence was used in reply instead of in the opening brief.” But he concluded that the FTC was prejudiced in connection with its preparation for trial because it was not able to use the documents during depositions.
Magistrate Judge McKay ultimately concluded that sanctions were appropriate “[c]onsidering the degree and the type of harm incurred as a result of” Defendant’s late production. But he rejected the FTC’s proposed sanction that Defendant be precluded from explaining or otherwise responding to the documents at trial, finding this sanction “harsher than complete exclusion of the evidence.” Instead, Magistrate Judge McKay ordered that an appropriate sanction was to allow the FTC to conduct additional limited discovery on the late-produced documents, including up to three depositions limited to matters directly implicated by the late-produced documents. He further ordered that Defendant would “bear reasonable costs associated with the depositions, such as court reporter and videographer fees.”
In this action for breach of contract, Plaintiff claimed Defendants improperly responded to several of Plaintiff's interrogatories by referring to “hundreds of pages of documents, which is non-responsive, evasive, and in violation of [Rule] 33(d).” Id. at *1. In response, Defendants argued that their reference to documents produced to Plaintiff complied with Rule 33(d) and that the documents “specifically identify information requested in the Interrogatories.” Plaintiff filed a motion to compel Defendants to provide further responses to certain of its interrogatories.
Magistrate Judge Price first explained that Rule 33(d) provides that “in certain circumstances a party may answer an interrogatory by referring to that party’s business records, specifically when the burden of deriving or ascertaining the answer is substantially the same for the party serving the interrogatory as for the party served.” Id. (quoting Rule 33(d)). She further explained that when “the responding party relies on Rule 33(d) to respond to an interrogatory, the party seeking discovery must make a prima facie showing that the use of Rule 33(d) is somehow inadequate to the task of answering the discovery, whether because the information is not fully contained in the documents, is too difficult to extract, or other such reasons.”
Magistrate Judge Price next described the showing that a party relying on Rule 33(d) must make. She explained that these factors include that (1) “a review of the documents will actually reveal answers to the interrogatories”; (2) that the producing party specify for each interrogatory “the actual documents where the information will be found”; and (3) the “burden of ascertaining the answer from the documents at issue must be substantially the same for either party.” With respect to this last factor, she noted that “[w]hen one party is substantially more familiar with the documents at issue than the other, the burden will generally not be the same.” Id. (collecting cases). Finally, Magistrate Judge Price stated that “[r]eliance on Rule 33(d) is appropriate when the interrogatory requests objective facts that are obvious from the specified documents but is generally inappropriate when the interrogatory asks a party to state its contentions or to state facts supporting its allegations.”
Applying these standards to the interrogatories at issue, Magistrate Judge Price concluded that Plaintiff had made a prima facie showing that Defendants’ use of Rule 33(d) was inadequate, primarily because the information requested was “not fully contained in the documents provided.” She explained that the relevant interrogatories requested a range of information “supporting various allegations and contentions by Defendants,” including about Defendants’ claims that they were overcharged by Plaintiff and that Plaintiff breached the parties’ contract. Magistrate Judge Price noted that with respect to the relevant interrogatories, Defendants point to “351 pages of annotated invoices, and for most of them Defendants point to the 52 pages of text messages as well.” In addition, the invoices “were generated by Plaintiff and contain various annotations apparently made by someone on behalf of Defendants,” consisting “in large part of illegible handwritten notes.”
Magistrate Judge Price disagreed with Defendants that all 351 pages of invoices and all 52 pages of text messages were responsive to all of the interrogatories at issue.” In particular, she found that while the invoices and text messages provided some information, “they clearly do not provide all of the information sought by Plaintiff,” nor did they “allow Plaintiff to determine which items are alleged to be defective or nonconforming, the warranties and/or contractual obligations Defendants claim Plaintiff breached.” Magistrate Judge Price also found it “hard to believe that the same 351 invoices and the same 52 pages of text messages provide complete responses to every single Interrogatory at issue.”
Magistrate Judge Price next found that Defendants “failed to satisfy their burden to justify the use of Rule 33(d) in responding to the Interrogatories at issue.” Id. at *3. In particular, he found that “the burden of ascertaining the answers from the documents at issue” was not substantially the same for both sides because Defendants’ annotations on the invoices were “in large part undecipherable, thereby precluding Plaintiff (as well as the Court) from gleaning any information from these documents.” In addition, he found that information about the Defendants’ claims of defective/nonconforming products, breaches of warranties and contractual obligations, and incorrect charges was “in the hands of Defendants.”
As a result of these findings, Magistrate Judge Price granted Plaintiffs’ motion to compel Defendant to provide additional responses to certain of Plaintiffs’ interrogatories.
Plaintiff in this action brought claims for trade secret misappropriation, copyright infringement, and unfair competition against Defendants, alleging that they tried to unlawfully take Plaintiff’s wireless video transmission technologies and use them as their own. Id at *1. In particular, Plaintiff alleged that Defendants’ video technology sold in the United States contained unauthorized software derived from the proprietary source code Plaintiff developed for its own products. Id. at *1-2. Judge Ramos explained that Plaintiff’s software “exists first as a source code — a version of the software that is written in plain text and is editable by humans,” and the source code is then “compiled into a binary version of the software” that is placed in Plaintiff’s chipsets after being encrypted with a proprietary encryption key.
Defendants sought access to the source code for Plaintiff’s video transmission software during discovery. Id. at *3. In response, Plaintiff identified the source code version of the software that Defendants allegedly misappropriated, as well as the binary version compiled from the source code, and permitted Defendants’ expert to inspect Plaintiffs’ trade secret binary file created from the source code.
Unhappy that they had not been permitted to inspect Plaintiff’s source code, Defendants sought leave to file a contempt motion. Plaintiff objected to the request, arguing that the binary version of the software was “the only source code materials relevant to the claims and defenses” and what Plaintiff relied on in conducting its analysis that infringement occurred. Plaintiff also argued that its source code was proprietary and should not have to be produced and that Defendants claimed not to have any source code of their own, making source code comparison impossible.
Judge Ramos ultimately denied Defendants leave to file a motion for contempt and ordered the parties to meet and confer on the issue. He further ordered that Defendants could renew their motion to compel only if “based on specific requests where [P]laintiff determined that they would not turn over the materials, that the materials exist and that, for whatever reason, they have determined that it should not be turned over.”
After further discussion, Plaintiff permitted Defendants to inspect a version of its source code with certain redactions for “highly sensitive lines of code.” Id. at *4. But Defendants still complained that the source code they were allowed to inspect was overly redacted, had “no organization at all,” and did not allow Defendants to perform “an abstraction filtration test or any test on the copyright work.”
As a result, Defendants filed a motion to compel Plaintiff to produce its unredacted source code as well as the encryption keys for decompiling the binary versions of the source code. In response, Plaintiff explained that the source code was provided for inspection in the manner in which Plaintiff maintained it. Plaintiff also reiterated its argument that Plaintiff’s source code was not relevant because Defendants had no source code of their own for comparison. Id. at *4-5.
Judge Ramos began his analysis with a survey of the relevant rules, noting first that the scope of discovery is generally limited to any “nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Id. at *11 (quoting Rule 26(b)(1)).
Turning to the merits of Defendants’ motion regarding the source code and encryption keys, Judge Ramos determined that Defendants had failed to demonstrate Plaintiff’s refusal to produce the requested source code. Id. at *12. Judge Ramos noted that Defendants made various arguments about Plaintiff’s production of the source code, but the record reflected that Plaintiff produced “98 percent of its copyrighted source code … with only very limited redactions of highly sensitive lines of code.” As a result, Judge Ramos was “persuaded that Defendants have all the tools that they need to mount a defense” and found no basis for compelling the production of any additional source code.
Judge Ramos similarly declined to compel Plaintiff to produce its encryption key for decompiling the allegedly infringed binary code. He noted that Defendants had not served any formal discovery request seeking production of an encryption key, and therefore Defendants had not shown that Plaintiff “failed to produce documents” or “permit inspection” of materials requested under Rule 34. Id. (quoting Rule 37(a)(3)(B)(iv)). Judge Ramos rejected Defendants’ argument that they could not access the encrypted binary files produced by Plaintiff without such a key, because Plaintiff had produced the decrypted form of the binary code from both Plaintiff’s and Defendants’ chipsets.
Information on past notable cases and events in e-discovery can be found here.
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