Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-04301/USCOURTS-cand-5_06-cv-04301-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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*E-filed 11/29/06* 

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

SOFTWAREWORKS GROUP, INC.,

Plaintiff,

 v.

IHOSTING, INC., et al.,

Defendants. /

IHOSTING, INC., et al.,

Counterclaimants,

 v.

SOFTWAREWORKS GROUP, INC.,

Counterdefendant. /

No. C06-04301 HRL

ORDER DENYING DEFENDANTS’

MOTION FOR PROTECTIVE ORDER

[Re: Docket No. 27]

Defendants move for a protective order concerning access to discovery information. 

Having reviewed the papers filed by the parties, the Court considers this matter suitable for

decision without oral argument. For the reasons expressed below, the Court denies the motion.

I. BACKGROUND

This case involves a contract deal gone wrong in the spring of this year. Defendants

bought the assets and customers of plaintiff, an internet host company, but the ensuing

“migration” of plaintiff’s customers from California to defendants in New Jersey did not go 

Case 5:06-cv-04301-HRL Document 42 Filed 11/29/06 Page 1 of 5
United States District Court

For the Northern District of California

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1

 Plaintiff filed an ex parte application for continuance of this motion that was denied

by the Court. Subsequently, plaintiff filed its opposition a week late. The Court disapproves

of plaintiff’s casual disregard of its obligation to make timely filings and warns against

another occurrence. Nevertheless, in accord with its policy of preferring substance over

procedure, the Court will consider plaintiff’s opposition.

2

smoothly. Plaintiff sued defendants for breach of contract and other claims. Defendants

counterclaimed for similar claims.

Currently the parties disagree over the scope of a protective order to apply to

information to be disclosed in discovery. Each party has submitted proposed protective orders

to the other party and they have met and conferred but have been unable to reach an agreement. 

Specifically, they disagree on whether John Mills, Softwareworks Group, Inc.’s (SWG)

president and in-house counsel, should have access to defendants’ confidential commercial

information. Consequently, defendants filed this motion for protective order.

Defendants argue that John Mills’s status as a competitive decision-maker precludes him

from access to their highly confidential commercial information. Plaintiff argues that it is

necessary for Mills to review the documents in order to adequately prepare plaintiff’s case.1

II. LEGAL STANDARD

Upon a showing of “good cause,” Fed. R. Civ. P. 26(c) authorizes courts to “protect a

party or person from annoyance, embarrassment, oppression, or undue burden or expense” in

discovery by ordering “that a trade secret or other confidential research, development, or

commercial information not be revealed or be revealed only in a designated way . . ..” See FED.

R. CIV. P. 26(c)(7). The party seeking a protective order has the burden of showing that the

protection is warranted under Fed. R. Civ. P. 26(c).

When determining whether in-house counsel should be permitted to access confidential

information of a competitor, the court must strike a balance between a party’s interest in

safeguarding its confidential information and the opposing party’s right to broad discovery

under Fed. R. Civ. P. 26(b)(1). See Brown Bag Software v. Symantec Corp., 960 F.2d 1465,

1470 (9th Cir. 1992). In balancing these interests, the court considers the risk that counsel will

inadvertently disclose confidential information to the client, as well as the potential impairment

to the opposing party’s case if the requested access to the information is denied. See id.

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3

Access to confidential information cannot be denied, however, solely because of

counsel’s in-house status. U.S. Steel Corp. v. United States, 730 F.2d 1465, 1468 (Fed. Cir.

1984); see also Brown Bag, 960 F.2d at 1470. Whether an unacceptable opportunity for

inadvertent disclosure exists must be determined by examination of the specific facts of each

case on a counsel-by-counsel basis. Id. Nonetheless, a request for access might properly be

denied “where in-house counsel are involved in ‘competitive decisionmaking,’” a term that the

Federal Circuit has defined as “shorthand for a 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.” U.S. Steel Corp., 730 F.2d at 1468 n.3.

III. DISCUSSION

Defendants are concerned about information related to other business contacts and

customers that were not involved with the acquisition of SWG. Specifically, defendants are

worried about their customer and vendor lists. 

Defendants argue that Mills is the competitive decision-maker of SWG and thus, should

not have access to defendants’ “Attorneys’ Eyes Only” documents. In many circumstances, inhouse attorneys are properly characterized as competitive decision-makers. See Brown Bag,

960 F.2d at 1471 (holding there was no abuse of discretion when a magistrate judge precluded

in-house counsel from reviewing documents when the in-house counsel was responsible for

advising his employer on many legal issues, including contracts, marketing, and employment). 

But SWG represents that it has no more business operations and no current source of income. 

(Mills Decl. In Supp. of Pl.’s Mem. in Opp’n to Defs.’ Alternative Mot. to Dismiss or Transfer

Venue ¶ 29; see also Pl.’s Statement of Opp’n to Defs.’ Pending Mot., at 2). Apparently, Mills

is no longer responsible for advising on issues related to contracts, marketing, and employment. 

Thus, Brown Bag’s competitive-decision-making rationale to deny access is not present here. 

Defendants allege that Mills has in the past made derogatory comments to defendants’

customers. Plaintiff denies any such behavior by Mills. However, neither side has offered any

proof. Therefore, the Court finds this line of argument to be speculative and unconvincing. 

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For the Northern District of California

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2 Since the defendants do not object to producing the documents, the court assumes

that defendants have acknowledged the documents’ relevance and potential benefit to

plaintiff.

4

Even if, arguendo, Mills had made such comments in the past, there is no reason to assume he

would now disobey a court order about misuse of information provided by the defendants in

discovery.

Using the balancing test from Brown Bag, the court must weigh SWG’s need for inhouse counsel to review the documents against the risk of Mills using the information to tarnish

defendants’ reputations. There is no evidence to support defendants’ allegations of improper

prior behavior by Mills. Moreover, SWG is no longer in competition with defendants. The

court concludes that the risk of unauthorized use by Mills of the information that concerns

defendants is negligible (assuming an appropriate protective order) but that the detriment to

plaintiff if the information is denied to Mills could be substantial.2

 

IV. ORDER

Based on the foregoing, it is ordered that defendants’ motion for protective order

precluding access by John Mills to “Attorneys’ Eyes Only” information is DENIED.

The parties are directed to attempt to agree on a stipulated protective order. If they

cannot, each may submit a proposed version to the Court for its selection.

IT IS SO ORDERED. 

Dated: 11/29/06

 /s/ Howard R. Lloyd 

HOWARD R. LLOYD

UNITED STATES MAGISTRATE JUDGE

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For the Northern District of California

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Notice will be electronically mailed to:

Lael D. Andara landara@ropers.com, aslanlair@ropers.com; mmcpherson@ropers.com;

lkoozmin@ropers.com 

Robert P. Andris randris@ropers.com, lkoozmin@ropers.com; mmcpherson@ropers.com 

Robert Lloyd Maines maines@robertmaineslaw.com, jmills@OMM.com 

Counsel are responsible for distributing copies of this document to co-counsel who have

not registered for e-filing under the court’s CM/ECF program.

Case 5:06-cv-04301-HRL Document 42 Filed 11/29/06 Page 5 of 5