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IN RE JDS UNIPHASE CORPORATION SECURITIES LITIGATION

October 18, 2002

IN RE: JDS UNIPHASE CORPORATION SECURITIES LITIGATION THIS DOCUMENT RELATES TO ALL ACTIONS


The opinion of the court was delivered by: Elizabeth D. Laporte, United States Magistrate Judge

 
ORDER GRANTING IN PART LEAD PLAINTIFF'S MOTION TO LIMIT THE SCOPE OF CONFIDENTIALITY AGREEMENTS SIGNED BY FORMER JDS UNIPHASE EMPLOYEES

I. Background

As lead plaintiff in this action, Connecticut has been investigating acts of JDSU and the individual defendants relating to alleged artificial inflation of the price of JDSU securities during the putative class period of July 27, 1999 through July 26, 2001. Investigators hired by lead counsel have identified and have spoken with numerous former employees of JDSU. Many of these former employees have informed the investigators that they are willing to talk about relevant activities at JDSU during the class period, but they believe they are unable to do so because of one or more confidentiality agreements that they entered into with JDSU (or with companies later acquired by JDSU) at the time they were hired, at the time they were terminated, or both.

One such agreement is entitled "Employee Proprietary Information and Inventions Agreement." (Gottlieb Decl., Ex. A.) That agreement provides, in relevant part:

(a) Confidential Restrictions. I understand that, in the course of my work as an employee of the Company, I [have had and] may have access to Proprietary Information (as defined below) concerning the Company. I acknowledge that the Company has developed, compiled, and otherwise obtained, often at great expense, this information, which has great value to the Company's business. I agree to hold in strict confidence and in trust for the sole benefit of the Company all Proprietary Information and will not disclose any Proprietary Information, directly or indirectly, to anyone outside of the Company, or use, copy, publish, summarize, or remove from Company premises such information (or remove from the premises any other property of the Company) except (i) during my employment to the extent necessary to carry out my responsibilities as en employee of the Company or (ii) after termination of my employment, as specifically authorized in writing by a duly authorized officer of the Company. I further understand that the publication of any Proprietary Information through literature or speeches must be approved in advance in writing by a duly authorized officer of the Company.
(b) Proprietary Information Defined. I understand that the term "Proprietary Information" in this Agreement means all information and any idea in whatever form, tangible or intangible, whether disclosed to or learned or developed by me, pertaining in any manner to the business of the Company or to the Company's affiliates, consultants, or business associates, unless (i) the information is or becomes publicly known through lawful means; (ii) the information was rightfully in my possession or part of my general knowledge prior to my employment by the Company; or (iii) the information is disclosed to me without confidential or proprietary restriction by a third party who rightfully possesses the information (without confidential or proprietary restriction) and did not learn of it, directly or indirectly, from the Company. I further understand that the Company considers the following information to be included, without limitation, in the definition of Proprietary Information: (A) notebooks, schematics, techniques, employee suggestions, development tools and processes, computer printouts, computer programs, design drawings and manuals, and improvements; (B) information about costs, profits, markets, and sales; (C) plans for future development and new product concepts; and (D) all documents, books, papers, drawings, models, sketches, and other data of any kind and description, including electronic data recorded or retrieved by any means, that have been or will be given to me by the Company (or any affiliate of it), as well as written or verbal instructions or comments.

(Id. at 1.) Another such agreement is entitled "Separation Agreement and General Release." (Gottlieb Decl., Ex. B.) That agreement provides, in relevant part:

You agree to return all Company property, including, without limitation, all books, manuals, records, reports, notes, contracts, lists, blueprints, and other documents, or materials, or copies thereof, and equipment furnished to or prepared by you in the course of or incident to your employment. You also acknowledge and reaffirm your continuing obligations under the Proprietary Information Agreement you signed with the Company on original date of hire.
. . . You also agree that this Agreement is confidential and that you will not discuss it, or any of its terms, with anyone without the Company's prior consent, except your spouse and to any legal or financial advisors for legitimate business reasons, or as otherwise compelled by law. Further, you agree that you will not make or publish, either orally or in writing, any disparaging statement regarding the Company, its employees, clients, vendors, or customers, or in any way impede or interfere with the Company's customer relationships.

(Id. at 2.)

A third agreement is entitled "E-Tek Dynamics, Inc. Proprietary Information and Inventions Agreement." (Macika Decl., Ex. A.) That agreement provides, in relevant part:

a. Definition Employee acknowledges and agrees that Employee has obtained or may now or hereafter obtain from the Company certain of the Company's confidential information, which confidential information includes but is not limited to all of the Company's (i) past, present and future research, (ii) business, development and marketing plans, (iii) customer lists and customer relationships, (iv) prices (except where publicly disclosed by the Company) and pricing strategies, (v) secret inventions, processes, methods and specifications, (vi) compilations of information (including without limitation studies, records, reports, drawings, memoranda, drafts and any other related information), (vii) trade secrets, (viii) product development proposals, and (ix) other ideas, concepts, strategies, designs, suggestions and recommendations relating without limitation to any of the foregoing or to any product developed or proposed to be developed by the Company or by the Employee and/or others for the Company (collectively, the "Confidential Information"). Employee further acknowledges and agrees that the Company is the owner of all such Confidential Information, any copies thereof, and of all copyright, trade secret, patent, trademark and other intellectual or industrial property rights therein or associated therewith. Employee understands and agrees that the unauthorized use or disclosure of the Confidential Information and any of the Company's related intellectual and industrial property rights constitutes unfair competition, and promises not to engage in any unfair competition with the Company during Employee's employment or at anytime thereafter.
b. Term. Employee agrees that for a period of five (5) years following either the disclosure to Employee of any of the Company's Confidential Information or the termination of Employee's employment with the Company, whichever is last to occur, Employee will not disclose said information or any portion thereof to any person, firm, corporation or other entity, or make use of such information in any way without the Company's prior written consent, or reverse engineer, de-compile, or disassemble any of the Company's products without such consent.

(Id. at 1.)

II. Discussion

Connecticut argues that the Court should limit the scope of these agreements and any other confidentiality agreements between JDSU and its former employees so that they would not prohibit former JDS Uniphase employees from responding to questions posed by investigators for Lead Plaintiff and/or by Lead Counsel related to the alleged securities fraud. No proposed order has been submitted. Connecticut contends that to the extent JDSU seeks to use the agreements for purposes other than the protection of trade secrets, the agreements are unduly broad and should be deemed void as against public policy. Alternatively, Connecticut requests "that the Court: (a) grant plaintiffs permission to depose a limited number of former JDS Uniphase employees prior to the Court's decision on the motion to dismiss, or (b) grant plaintiffs an adverse inference that, despite public disclosures to the contrary, defendants were aware

A. The Reform Act's ban on discovery during the pendency of a motion to dismiss does not bar plaintiffs' motion

JDSU argues that Connecticut's motion is an impermissible attempt to evade the statutory restrictions on early discovery that are imposed by the Private Securities Litigation Reform Act of 1995 ("Reform Act").*fn1 The purpose of the Reform Act was "to restrict abuses in securities class-action litigation, including: (1) the practice of filing lawsuits against issuers of securities in response to any significant change in stock price, regardless of defendants' culpability; (2) the targeting of "deep pocket" defendants; (3) the abuse of the discovery process to coerce settlement; and (4) manipulation of clients by class action attorneys." SG Cowen Securities Corporation v. United States District Court for the Northern District of California, 189 F.3d 909, 911 (9th Cir. 1999) (quoting In re Advanta Corp. Secs. Litig., 180 F.3d 525, 530-31 (3d Cir. 1999)). The Reform Act instituted a heightened pleading standard, and "mandated a stay of discovery during the pendency of a summary judgment or dismissal motion." Id.

Under the Reform Act, "all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent ...


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