ORDER IMPOSING SANCTIONS AGAINST LIFESCAN PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 37 Re: Dkt. No. 336
WILLIAM H. ORRICK, District Judge.
Before the Court are the parties' responses to the Court's order to show cause why plaintiff LifeScan should not be held in contempt for violating the Protective Order in this case. The Court finds that LifeScan's violation of the protective order is sanctionable under Federal Rule of Civil Procedure 37 but does not constitute contempt. Accordingly, the Court orders LifeScan to pay the defendants' attorneys' fees in incurred in connection with LifeScan's violation of the Protective Order.
LifeScan owns various patents related to blood glucose testing, targeted at people with diabetes. LifeScan has developed and sells various products practicing its patents, including OneTouch Ultra glucose monitors and OneTouch Ultra "test strips" designed for use with the monitors. The defendants have developed and manufacture and sell a disposable test strip called the GenStrip, which is designed for use with LifeScan's OneTouch Ultra monitors. On September 9, 2011, LifeScan filed a patent infringement suit against the defendants, asserting that the Genstrip infringes on LifeScan's patents.
LifeScan learned the identity of two of the defendants' distributors through material the defendants designated "attorneys' eyes only, " pursuant to the Protective Order governing the disclosure of confidential material in this case. Dkt. No. 336. LifeScan used that information to mail the distributors letters advising them of a preliminary injunction entered against the defendants. The letters also implied that the distributors were themselves subject to the preliminary injunction, despite the absence of any evidence that the distributors were acting in concert with the defendants or were otherwise subject to Federal Rule of Civil Procedure 65(d), which provides that a preliminary injunction is binding only on the parties and those "who are in active concert or participation" with them and who receive notice of the preliminary injunction. The defendants assert that, as a result, they have been forced to buy back remaining inventory from the distributors and their commercial relationships have suffered.
On August 28, 2013, the Court ordered LifeScan to show cause why it should not be held in contempt for violating the Protective Order. The Court also ordered the defendants to provide the Court "the evidentiary basis for any monetary remedies sought." Dkt. No. 336 at 10.
LifeScan asserts that a finding of civil contempt is not warranted because there was no violation of the protective order, and even if there was, LifeScan's conduct was reasonable, in good faith and in substantial compliance with the protective order. LifeScan also asserts that if the Court adheres to the view that the protective order was violated and that a monetary sanction is appropriate, the Court should deny the motion for contempt and instead award a monetary penalty as a sanction under Rule 37. In response, the defendants note that the Court previously determined that the protective order was violated and argue that LifeScan did not substantially comply with the protective order. The defendants argue that the Court should find LifeScan in contempt and propose various remedies.
A party alleging civil contempt must establish that the accused party i) violated a court order, ii) beyond substantial compliance, iii) not based on a good faith and reasonable interpretation of the order, iv) by clear and convincing evidence. See Labor/Cmty. Strategy Ctr. v. Los Angeles Cnty. Metro. Transp. Auth., 564 F.3d 1115, 1123 (9th Cir. 2009) (citing In re Dual-Deck Video Cassette Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993). "The contempt need not be willful, and there is no good faith exception to the requirement of obedience to a court order. But a person should not be held in contempt if his action appears to be based on a good faith and reasonable interpretation of the court's order." In re Dual-Deck Video Cassette Recorder Antitrust Litig., 10 F.3d 693 at 695 (internal punctuation and quotations omitted). The Federal Circuit has stated that "[i]f there is a fair ground of doubt as to the wrongfulness of the defendant's actions said to be in contempt, the District Court should not entertain the civil contempt proceeding or find contempt." Preemption Devices, Inc. v. Minnesota Min. & Mfg. Co., 803 F.2d 1170, 1173 (Fed. Cir. 1986).
A. LifeScan violated the Protective Order
LifeScan argues in its response to the order to show cause that it did not violate the Protective Order because i) the identities of the defendants' distributors were "in the public domain" and ii) even if the identities were confidential, LifeScan's disclosure was permitted by the Protective Order because the information was disclosed in connection with prosecuting this litigation and to persons already aware of the information, given that the distributors already knew that they were the defendants' distributors.
The Court's order to show cause set forth in detail why LifeScan's conduct violated the Protective Order. See Dkt. No. 336. This was not a trivial or technical violation. As stated in that order, LifeScan concedes that it learned the identities of two of the defendants' distributors from confidential material. Id. at 2 (citing Dkt. No. 298 (Diskant Decl.) ¶ 20). The Court also previously rejected LifeScan's argument that its letters were for the purposes of this litigation. See Dkt. No. ...