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Cytosport, Inc. v. Vital Pharmaceuticals

March 2, 2010

CYTOSPORT, INC., PLAINTIFF,
v.
VITAL PHARMACEUTICALS, INC., DEFENDANT.



The opinion of the court was delivered by: Gregory G. Hollows U. S. Magistrate Judge

ORDER

Previously pending on this court's law and motion calendar for February 25, 2010, was defendant's amended motion to modify the protective order, filed January 7, 2010. Adam Thurston appeared on behalf of defendant. Mark Bettilyon and Jed Hansen represented plaintiff. After reviewing the parties' filings and hearing oral argument, the court now issues the following order.*fn1

BACKGROUND

Cytosport, Inc. ("CS") brought this action on November 14, 2008, against Vital Pharmaceuticals, Inc. ("VPX") for trademark and trade dress infringement, dilution, unfair competition, and false advertising in regard to CS's ready to drink protein beverage, Muscle Milk, claiming that VPX copied it in the form of its product, Muscle Power.

On March 30, 2009, the parties entered into a stipulated protective order, (dkt. #43), which provided in part that documents designated as "Confidential - Attorneys' Eyes Only" would be available only to "Qualified Persons," from which category in-house counsel were specifically excluded. (Id. at ¶ 10, n. 2.)

VPX now moves to modify that order to permit in-house counsel access to materials which are marked for attorneys' eyes only ("AEO"). The parties' arguments, both in their papers and at hearing, were beneficial and instructive.*fn2

DISCUSSION

Generally, a party seeking reconsideration or modification of a court order has the burden to demonstrate the changed circumstances which warrant the modification. See E.D. Cal. LR 230(j). The same applies to the present motion to modify the protective order now in effect. Intel Corp. v. VIA Technologies, Inc., 198 F.R.D. 525 (N.D. Cal. 2000). In that case, as is the case here, Intel sought to modify the protective order to allow its in-house counsel access to confidential materials. Intel was found to have the burden of proof. Id. At 528. "Accordingly, because [Intel] seeks disclosure of information that would otherwise be confidential, Intel bears the burden of establishing a sufficient need for the information which outweighs the risk of injury to VIA, "id, citing Brown Bag Software v. Symantec Corp. 960 F.2d 1465, 1470 (9th Cir.1992).*fn3

Within the context of the proper burden, "[t]he risk of potential inadvertent disclosure by counsel must be determined by 'the facts on a counsel-by-counsel basis.'" Intel, 198 F.R.D. at 529, quoting U.S. Steel Corp. v. United States, 730 F.2d 1465, 1468 (Fed. Cir. 1984); Brown Bag Software v. Symantec Corp., 960 F.2d 1465, 1470 (9th Cir. 1992).

In support of its initial burden, VPX claims it has made a strategy change since the original protective order was agreed upon such that the role of VPX's legal counsel has changed. Unlike previous in-house counsel, current in-house counsel is taking a leading role in litigation matters. The current protective order limits in-house counsel's ability to effectively litigate this case. Consequently, VPX claims it has a due process right to counsel of its choosing. Furthermore, the original protective order was agreed to by former in-house counsel, Erica Stump, without approval by VPX President and CEO, John Owoc. VPX contends that it should not be punished for this unilateral decision by former in-house counsel.*fn4

CS argues that it has a compelling reason to maintain the current protective order, to protect commercially sensitive information protected from disclosure to rival companies. CS points out that the stipulated protective order was a culmination of a preliminary injunction affirmed by the Ninth Circuit, preventing VPX from manufacturing, marketing or selling its Muscle Power product, as well as discovery, and that it was carefully negotiated.

The parties have provided helpful cases to aid in the determination of this difficult issue. First, "where in-house counsel is involved in 'competitive decisionmaking,' the risk of disclosure may outweigh the need for confidential information." U.S. Steel Corp., 730 F.2d at1468. Competitive decisionmaking has been described as involving "counsel's activities, association, and relationship with a client that are such as to involve counsel's advice and participation in any or all of the client's decisions (pricing, product design, etc.) made in light of similar or corresponding information about a competitor." Id. at 1468, n. 3. Second, without evidence of actual prejudice, the moving party cannot show good cause. Intel Corp., 198 F.R.D. at 528-529 (no prejudice where Intel could not show ability to litigate through outside counsel was impaired). A third factor to be considered is "the risk and potential danger of disclosure." Wi-Lan, Inc. v. Acer, Inc., 2009 WL 1766143, *2 (E.D. Tex. 2009), citing Infosint S.A. v. H. Lundbeck A.S., 2007 WL 1467784, *2 (S.D. N.Y. 2007).

VPX contends that in-house counsel has no role in competitive decisionmaking, but that the sole decision maker is President/CEO John Owoc. According to VPX, in-house counsel does not attend managerial meetings, participate in management decisions, has no knowledge of technical product information, and has no role in vendor selection, product development, pricing, or product design. VPX describes in-house counsel as a law firm within the company but physically isolated in a secure wing at VPX headquarters with locked file cabinets, for which only legal staff has keys. VPX concedes, however, that in-house ...


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