Jepson, Incorporated and Ko Shin Electric and MacHinery Company, Limited v. Makita Electric Works, Limited, Makita Usa, Incorporated and Makita Corporation of America, and William A. Zeitler, Douglas J. Colton and Verner, Liipfert, Bernhard, McPherson & Hand v. Black & Decker, Incorporated
Docket: 92-3687
Court: Court of Appeals for the Seventh Circuit; August 22, 1994; Federal Appellate Court
Jepson, Inc. and Ko Shin Electric and Machinery Co. Ltd. filed a lawsuit against Makita U.S.A. Inc., Makita Corporation of America, and Makita Electric Works, Ltd. for alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and state laws. During the discovery phase, Makita issued a Notice of Deposition to Black & Decker Corporation, seeking testimony from a representative knowledgeable about various aspects of the power tool industry. In response, Black & Decker offered Joseph Galli, Jr., Vice President of Marketing for its power tools group, for deposition.
Before Galli’s deposition, Makita and Black & Decker established a Stipulated Protective Order, which classified information provided by Black & Decker as 'CONFIDENTIAL MATERIALS' if it contained trade secrets or sensitive information. The receiving party could only use this information for the litigation. Black & Decker's counsel had the authority to designate deposition testimony as CONFIDENTIAL. Should the receiving party object to any designation, they were required to notify Black & Decker in writing. If disputes over confidentiality arose, the objecting party had five days to file a motion for the court to determine the status of the contested materials.
An oversight occurred where the Stipulated Protective Order was not submitted to the district court. Subsequently, the parties involved, excluding Black & Decker, agreed to an Interim Protective Order (IPO), which defined 'Confidential Material' as any labeled documents, pleadings, or deposition transcripts produced during litigation, subject to challenge by opposing parties within specified timeframes. Recipients of such materials are prohibited from disclosing or using them outside the litigation context. The IPO was signed by Magistrate Judge Edward A. Bobrick on May 30, 1991.
During Galli's deposition on June 5, 1991, Black & Decker's attorney classified the entire context of his testimony as confidential, a designation that Makita did not contest within the required period. In May 1992, Black & Decker filed a petition with the ITC, alleging that Makita was engaging in unfair pricing practices. During an ITC Preliminary Conference, Black & Decker's President testified regarding product classifications, prompting Makita's attorney to highlight pending antitrust litigation involving depositions of Black & Decker officials. The attorney requested permission to submit these depositions to the ITC panel, noting they were protected but could be released by Black & Decker. Another Makita attorney referenced Galli's deposition and acknowledged the protective order, asserting it was binding yet waivable by Black & Decker.
Mark D. Gately, representing Black & Decker, informed Makita's counsel of a suspected violation of the Interim Protective Order (IPO) due to discussions of Galli's testimony during the ITC Preliminary Conference. He indicated that sanctions might be sought for any further violations. On June 5, 1991, Makita deposed Joseph Galli, a Black & Decker executive, under a protective order preventing disclosure without consent or court approval. Makita argued the deposition was relevant to their case and requested the ITC to obtain a copy of the transcript.
In response, Black & Decker filed a Motion for Enforcement of Protective Orders and for Sanctions, alleging Makita had violated the IPO by discussing Galli's deposition in the ITC proceeding. Makita opposed the motion and sought permission to use non-confidential parts of the deposition. The district court ruled in favor of Black & Decker, imposing a $5,000 sanction on Makita's counsel and stating that while it lacked authority to enforce the stipulated protective order, the IPO was enforceable. The court found that Makita had disclosed the deposition's existence and substance by referencing the topics covered. Makita's request to modify the IPO was denied, leading to an appeal.
The document also notes that without a protective order, parties can share discovery materials freely, although they cannot be compelled to disseminate such information. Generally, pretrial discovery should be public unless there are valid reasons to limit access. The Federal Rules of Civil Procedure allow the district court to issue protective orders to safeguard parties from undue burdens or disclosure of confidential information.
In this case, the parties involved, excluding Black & Decker, agreed to the terms of a protective order regarding the IPO, which is a common practice in litigation. However, the issuance of such orders requires an independent judicial determination of "good cause" under Fed. R. Civ. Pro. 26(c). Even with party agreement, the court must assess the necessity of sealing documents and cannot simply ratify the stipulation without verifying good cause. The excerpt emphasizes that, in this instance, the Magistrate Judge failed to independently establish that good cause existed before issuing the IPO, as the order lacked any reference to good cause and the district court made no specific findings on the matter. There was no evidence indicating the court reviewed the deposition of Galli to assess potential confidentiality. As a result, the court must evaluate whether good cause was present to restrict Makita from discussing Galli's deposition during the ITC proceeding. Furthermore, Makita wished to present Galli's deposition at the ITC Preliminary Conference to counter testimony given by Black & Decker’s President, which distinguished between consumer and professional electric power tools.
Professional power tools are specifically designed for higher durability and performance under heavy workloads compared to consumer tools, making them unsuitable substitutes for tradesmen. Marketing consumer tools as professional would damage brand reputation. While homeowners could theoretically use professional tools, they typically do not require them nor are they willing to pay higher prices. A clear distinction exists between consumer and professional power tools, as confirmed by the application of the Commission's like-product factors.
Testimony from Galli reveals that while there is a segmentation in the market between consumer and professional tools, both categories can overlap, with consumers occasionally purchasing professional-grade tools. Additionally, professional users may also buy consumer tools, demonstrating a competitive relationship between the two categories. Galli's testimony suggests a continuum in quality and pricing of electric power tools, indicating a blending of standards between consumer and professional products.
The document asserts that Galli's testimony does not contain confidential information, as it reflects common industry knowledge regarding consumer behavior in product selection. Furthermore, Black & Decker's attempts to use protective orders to shield this non-confidential information from the ITC are challenged, leading to the reversal of sanctions against Makita's counsel. Makita's motion to modify the protective order to use Galli's deposition in the ITC proceeding was also under consideration following Black & Decker's motion for enforcement.
In Wilk v. American Medical Ass'n, the court established that modifications to protective orders can only be denied if they would tangibly prejudice substantial rights of the opposing party. The case involved five chiropractors suing the AMA for antitrust violations, with a protective order preventing plaintiffs' counsel from disclosing confidential documents. New York later sought to modify this order to access the same materials for a related lawsuit but was initially denied. The appellate court reversed this decision, emphasizing that pre-trial discovery should generally be public unless compelling reasons justify withholding it, particularly when it aids related litigation.
The ruling in Wilk has been cited in subsequent cases, reinforcing a trend where courts allow modifications to protective orders to facilitate access to relevant documents for ongoing cases. Specifically, Makita sought to modify a protective order to use Galli's deposition testimony in proceedings before the International Trade Commission (ITC). The ITC has broad authority to access relevant documents and take depositions, making Galli's testimony discoverable. The district court's refusal to modify the order forced duplication of discovery, deemed wasteful.
Black & Decker, opposing the modification, failed to demonstrate any substantial rights would be prejudiced, as they did not claim the deposition was privileged. Consequently, the appellate court held that the district court erred in denying the modification and instructed that Makita's request be granted. The case was remanded for this purpose, with additional notes on the public nature of the deposition record and the ITC's duties regarding fair market evaluations.
