United States District Court, N.D. California
ORDER ON VMWARE'S MOTION TO COMPEL Re: Dkt. No.
M. RYU UNITED STATES MAGISTRATE JUDGE
copyright infringement case, Defendant VMware, Inc.
("VMware") moved to compel in camera review and
production of documents withheld by Plaintiff Phoenix
Technologies Ltd. ("Phoenix") upon its assertion of
attorney-client and work product privileges. [Docket No. 79.]
On April 14, 2016, following a hearing, the court granted
VMware's motion in part, and ordered Phoenix to submit
for in camera review documents withheld solely on the basis
of the work product doctrine. [Docket No. 92 (Minute Order).]
Having reviewed the documents in camera, the court now enters
the following order on VMware's motion to compel
Phoenix's Allegations in This Lawsuit
filed this copyright infringement and breach of contract case
against VMware in March 2015. Phoenix alleges that it is a
pioneer in the computing industry, and that its BIOS (Basic
Input/Output System) programs have "played a key part in
personal computers" for over 30 years. Compl. ¶ 2.
VMware is a software company. It provides virtualization
software that allows a user to "create one or more
‘virtual machines' that run on a single physical
computer." Compl. ¶ 24. In 1998, the parties
entered into a master license agreement ("MLA") in
which Phoenix licensed its BIOS programs to VMware subject to
express limitations. The parties amended that agreement
several times, most recently in 2003 and 2005. The 2003 and
2005 amendments were "Fully Paid-Up Licenses, "
also known as perpetual or "all you can eat"
licenses. Gonzalez Decl., March 10, 2016 ¶ 11. In 2005,
VMware had two types of virtualization products-a desktop
product and server products. Phoenix concedes that the
license allows VMware to use the Phoenix BIOS in VMware's
desktop product, but claims that the license does not allow
VMware to use the BIOS in VMware's server products.
alleges that VMware has used and continues to use the
licensed programs beyond the agreed limitations. It claims
that VMware's use of the programs infringes Phoenix's
copyrights in its BIOS programs and constitutes a breach of
the license agreement. Compl. ¶¶ 3, 5, 6, 8.
VMware's Motion to Compel In Camera Review
withheld over 1, 700 documents from production on the grounds
that they constitute attorney work product and/or
attorney-client privileged communications. VMware filed a
motion arguing that Phoenix improperly asserted privilege as
to 203 of these documents.
April 14, 2016, following a hearing, the court partially
granted VMware's motion for in camera review, holding
that VMware had presented facts "sufficient to support a
reasonable, good faith belief that in camera inspection
[could] reveal evidence that information in the materials is
not privileged." In re Grand Jury
Investigation, 974 F.2d 1068, 1075 (9th Cir. 1992).
Accordingly, the court exercised its discretion to conduct an
in camera review of documents withheld by Phoenix solely on
the basis of the work product doctrine. The court ordered
Phoenix to re-review documents withheld on that basis, to
withdraw any assertion of work product protection that was
not substantially justified, and to submit for in camera
review any remaining documents for which it continued to
assert work product protection. The court denied VMware's
motion with respect to documents withheld on the basis of
attorney-client privilege, finding that the parties had not
adequately met and conferred regarding those documents.
[Docket No. 95 (Apr. 14, 2016 Hr'g Tr.) at 7.] Therefore,
the only documents currently at issue are those withheld by
Phoenix solely on the basis of work product protection.
lodged the documents for which it continues to assert work
product protection. In a cover letter to the court, it
indicated that it has withdrawn its work product claim as to
asserts that the documents at issue in this motion are
entitled to work product protection because they were created
in anticipation of this lawsuit. VMware counters that they
are business-related documents that were not prepared
exclusively for litigation, i.e., that they served a
"dual purpose." VMware argues that the documents
would have been prepared with or without the prospect of
litigation and thus are not protected work product. See
Visa U.S.A., Inc. v. First Data Corp., No. C-02-1786 JSW
(EMC), 2004 WL 1878209, at *6 (N.D. Cal. Aug. 23, 2004)
(describing dual purpose document analysis; citing In re
Grand Jury Subpoena, Mark Torf/Torf Envt'l Mgmt, 357
F.3d 900, 906-10 (9th Cir. 2003)).
Facts Relevant to VMware's Motion
to VMWare, after investment management firm Marlin Equity
purchased Phoenix, it directed Phoenix's
"Collections Task Force" ("CTF") to
collect unpaid royalties from Phoenix customers. The three
members of Phoenix's CTF are Cindy Lopez, Senior Director
of Contracts and Compliance; Brian Stein, CFO; and Brigitte
Paje, an order operations specialist. The CTF reports to
Phoenix's CEO Rich Geruson. According to Lopez, as part
of the CTF's work, Phoenix sent out letters to hundreds
of customers threatening audits if they did not verify
payment of all royalties due under their contracts. As a
result of their efforts, the CTF entered into a number of new
deals and collected millions of dollars from their customers.
Gonzalez Decl. Ex. B (Lopez Dep.) 62, 165-66, 117-20, 116,
120-21; Ex. C at 6 (May 2014 report to Marlin Equity). Stein
testified that Phoenix successfully reached a business
resolution through negotiations with all of its customers
except VMware. Gonzalez Decl., March 31, 2016 ("Supp.
Gonzalez Decl."), Ex. L (Stein Dep) at 110. This
included a business resolution with "Customer
A" for several million dollars. Gonzalez
Decl. Ex. C.
previously noted, Phoenix asserts that VMware's license
allows use of the Phoenix BIOS in VMware's desktop
product only. Phoenix contends that it was unaware that
VMware was using its BIOS in server products until October
2014, when a Phoenix engineer, Jonathon White, made the
discovery. Phoenix produced an email chain that
begins on October 9, 2014, in which White emailed Lopez and
Matthew Durbin, Vice President of Sales. The email discussed
VMware's use of the Phoenix BIOS and asked, "What
sort of agreement did we have on VMware on this? Are we
collecting royalties?" The email chain that followed
contains comments such as "maybe [VMware] got a heckuva
deal" on their 2005 perpetual license, as well as
Durbin's comment, "I smell money." After
numerous emails about the details of VMware's license,
Lopez emailed Stein, who is a fellow CTF member, stating that
this was "[a]nother potential lead for unreported
royalties." Gonzalez Decl. Ex. F (unredacted White email
chain). According to Lopez, following the White
email chain, she had further discussions with White and
Durbin about VMware's license. Lopez Decl., March 24,
2016, ¶ 2. On October 15, 2014, Durbin informed Lopez
that he had contacted VMware to discuss the matter, and
despite "several attempts to discuss the issue . . .
VMware declined to speak with [them]." Id. at
states that on November 10, 2014, she consulted Lauren Segal,
Phoenix's Interim General Counsel, about "the
dispute with VMware." According to Lopez, after that
date, and prior to Phoenix's February 2015 retention of
Cooley LLP as outside litigation counsel in this lawsuit,
Segal "provided direction and guidance relating to
Phoenix's investigation and analysis of VMware's use
of Phoenix's BIOS." Id. at ¶¶ 6,
7; Segal Decl., March 24, 2016, ¶ 9. Lopez declared that
she consistently provided information to Segal resulting from
the investigation and analysis, and coordinated communication
with other Phoenix employees at Segal's direction and
with her guidance. Lopez Decl. at ¶ 7.
states that she began providing legal advice to Phoenix
"in connection with its investigation and analyses
relating to its dispute with VMware" around November 10,
2014, and that starting on November 14, 2014, she
"continuously provided legal advice and direction to
Phoenix regarding the licensing dispute." Segal Decl. at
¶¶ 2, 3. According to Segal, she "was involved
in Phoenix's preparation of documents regarding the
dispute with VMware, and reviewed most of the documents
created by Phoenix, " although she does not identify any
specific documents on Phoenix's privilege log with which
she was involved or that she reviewed. Id. at ¶
3. Segal states that on November 14, 2014, after VMware's
"last minute cancellation" of a meeting with
Phoenix, she "made sure all future communications with
VMware would include Phoenix's legal department, "
and that she "believed it was unlikely that Phoenix and
VMware would informally resolve" their dispute.
Id. at ¶ 4.
November 14, 2014, with Segal's assistance, Lopez
prepared and sent a letter under her own signature to VMware
setting forth Phoenix's position that VMware's use of
BIOS did not comply with the terms of its license. Lopez
Decl. ¶ 8 Ex. 3. On the same date, Lopez informed Durbin
in an email that the "letter should be sent from legal .
. . since this is now a legal matter." Id. at
¶ 9, Ex. 4. VMware responded to Phoenix's November
14, 2014 letter on December 2, 2014. Lopez Decl. at ¶
10, Ex. 5. Its counsel set forth the response to
Phoenix's assertion that VMware was not in compliance
with the MLA. Counsel wrote, "[a]ssuming that there were
any merit to Phoenix's claim (which there is not), such
claim would nevertheless be barred . . . even if it could
muster a valid claim (which it cannot), Phoenix would be
legally prohibited from bringing such a claim because it
substantially delayed in raising the issue."
Id. Segal asserts that the tone of VMware's
December 2, 2014 letter and VMware's "continued
refusal to provide information that Phoenix had requested
relating to its use of Phoenix's BIOS reaffirmed her
earlier belief that this matter would not likely be resolved
informally outside of litigation." Segal Decl. ¶ 5.