Case Name: NORTHBROOK DIGITAL, LLC, Plaintiff, v. VENDIO SERVICES, INC., Defendant
Court: United States District Court for the District of Minnesota
Jurisdiction: United States
Decision Date: 2008-06-09
Citations: 625 F. Supp. 2d 728
Docket Number: No. 07-CV-2250 (PJS/JJG)
Parties: NORTHBROOK DIGITAL, LLC, Plaintiff, v. VENDIO SERVICES, INC., Defendant.
Judges: 
Reporter: Federal Supplement 2d
Volume: 625
Pages: 728–768

Head Matter:
NORTHBROOK DIGITAL, LLC, Plaintiff, v. VENDIO SERVICES, INC., Defendant.
No. 07-CV-2250 (PJS/JJG).
United States District Court, D. Minnesota.
June 9, 2008.
James K. Nichols and Peter M. Lancaster, Dorsey & Whitney LLP; Mark A. Wolfe, Northbrook Digital LLC, for plaintiff.
Felicia J. Boyd, Lee M. Pulju, and Elizabeth Cowan Wright, Faegre & Benson LLP; Daniel Johnson, Jr. and Rita E. Tautkus, Morgan, Lewis & Bockius LLP; Theodore F. Shiells, Carr LLP, for defendant.

Opinion:
MEMORANDUM OPINION AND ORDER
PATRICK J. SCHILTZ, District Judge.
Plaintiff Northbrook Digital, LLC ("Northbrook") brings suit for patent infringement against defendant Vendió Services, Inc. ('Vendió"). Northbrook is a one-man operation run by Mark A. Wolfe. Wolfe wears many hats: He is the named inventor of the patents in suit; he is an attorney licensed to practice before the United States Patent and Trademark Office ("PTO") and prosecutes his own patents (including the patents in suit and related continuation patents); he is the owner of Northbrook and a handful of other small entities; he plans to testify both as an expert witness and as a fact witness at trial; and he has entered an appearance as litigation counsel on behalf of Northbrook.
Vendió is a small company that makes software related to internet sales and advertising. Vendio's software product, Dealio, is a "toolbar" that integrates with web browsers such as Microsoft's Internet Explorer and Mozilla's Firefox. Dealio offers end users quick access to sales ("deals") offered by online merchants. Dealio is free for end users; Vendió makes its money from online merchants, who pay Vendió commissions related to ads distributed and sales made through the Dealio software.
Three motions are now pending before the Court: (I) Vendio's motion to dismiss for lack of personal jurisdiction and improper venue or, in the alternative, to transfer [Docket No. 24]; (2) Northbrook's motion to amend or correct its complaint [Docket No. 35]; and (3) Vendio's motion for a protective order [Docket No. 34]. The Court referred Vendio's dispositive motion (the motion to dismiss or transfer) to Magistrate Judge Jeanne J. Graham for a report and recommendation ("R & R") under Rule 72(b)(1) of the Federal Rules of Civil Procedure. Because the other two motions are nondispositive, they were assigned to Judge Graham to be heard in the first instance pursuant to Rule 72(a). Judge Graham issued a lengthy and careful R & R addressing all three motions on April 4, 2008 [Docket No. 59].
Judge Graham recommends denying Vendio's motion to dismiss or transfer. Vendió has not objected to this recommendation, and the Court therefore adopts it and denies Vendio's motion. Judge Graham also recommends granting North-brook's motion to amend or correct its complaint. Again, Vendió has not objected to this recommendation, and the Court therefore adopts it and grants North-brook's motion.
The remaining disputes relate to Vendio's motion for a protective order. Vendió argues that, although Wolfe has entered an appearance as an attorney representing Northbrook, Wolfe should nevertheless be denied access to certain of Vendio's confidential information designated "Confidential — Attorneys' Eyes Only." Vendió also argues that Wolfe's participation as a member of North-brook's litigation team must be limited in light of the Minnesota Rules of Professional Conduct.
Judge Graham recommends granting Vendio's motion for a protective order and denying Wolfe access to Vendio's confidential documents unless Northbrook can demonstrate that Wolfe needs access to certain documents because he has "specialized knowledge about the patented technology" and his access is "essential to Northbrook's preparation of its case." R & R at 33. Judge Graham also recommends that Northbrook be ordered to show cause why Wolfe should not be disqualified from representing Northbrook under Rule 3.7(a) of the Minnesota Rules of Professional Conduct, which generally forbids a lawyer from "actfing] as advocate at a trial in which the lawyer is likely to be a necessary witness.... " Minn. R. Prof. Conduct 3.7(a); R & R at 35-39.
Northbrook objects in part to the R & R. PI. Obj. R & R [Docket No. 61]. Northbrook registers its disagreement with Judge Graham's analysis of Rule 3.7(a) but "does not formally object" to that portion of the R & R. Id. at 12 n. 2. Instead, Northbrook has addressed the concerns raised by Judge Graham over the conflict between Wolfe's role as litigation counsel and his role as a trial witness by agreeing to limit Wolfe's activities as litigation counsel. Specifically, Northbrook promises that Wolfe will not serve as Northbrook's trial counsel and "will not act as Northbrook's attorney in any pretrial proceedings, either." Id. at 12. Because the Court will hold Northbrook to its promise, Wolfe will not "act as advocate at a trial," and thus Wolfe's further participation in this litigation will not violate Rule 3.7(a). The Court therefore finds that further briefing on this issue is unnecessary, and the Court declines to adopt the R & R to the extent that it recommends that the Court order Northbrook to show cause why Wolfe should not be disqualified as litigation counsel.
Northbrook does strenuously object to Judge Graham's recommendation that a protective order be entered in this case under which Wolfe would be denied access to Vendio's confidential information designated "Confidential — Attorneys' Eyes Only." The Court agrees with Judge Graham that Wolfe should not have unfettered access to all of Vendio's confidential information. But the Court's reasoning differs somewhat from Judge Graham's, as do the limitations that the Court finds to be appropriate under the circumstances. The Court therefore adopts the R & R only in part, as will be described below.
Before turning to the merits, though, the Court must comment on a troubling aspect of Vendio's response to North-brook's objection to the R & R. Vendio's first response grossly exceeded the 3,500-word limit set forth in Local Rule 72.2. Because the mistake was inadvertent and because Vendió promptly admitted its error, the Court permitted Vendió to file a substitute response. Order May 6, 2008 [Docket No. 75]. Vendió promptly submitted such a response, and it certified that the response was 3,485 words long, just under the 3,500-word limit of Local Rule 72.2. Cert. Compliance May 7, 2008 [Docket No. 76 Attachment 1].
In fact, though, Vendió violated the spirit, if not the letter, of Local Rule 72.2. Vendio's certificate of compliance affirms that "[p]er the word count feature" of its word-processing program, its memorandum is 3,485 words long. But to reduce the number of words counted by its word-processing program, Vendió hyphenated things that are never hyphenated: Instead of "Docket 59," for instance, Vendió writes "Docket-59"; instead of "Nichols Decl." and "Tautkus Deck," Vendió writes "Nichols-Deck" and "Tautkus-Decl."; instead of "Northbrook Obj.," Vendió writes "NBObjeetion." The first two types of hyphens appear at least nineteen times in Vendio's substitute response. Thus, if Vendió had not manipulated the word-counting feature of its word-processing program through improper hyphenation, Vendio's word-processing program would have counted many more words, and Vendió would have once again violated the word limit imposed by Local Rule 72.2.
This Court makes plenty of inadvertent errors itself, and thus this Court generally overlooks inadvertent errors, as it did with respect to Vendio's first violation of the rule. Had Vendió confined itself to using improper hyphenation in its substitute response, the Court might again have overlooked Vendio's conduct, even though this time the conduct was almost surely not inadvertent. But Vendió has cheated the word limit not only by using hyphens improperly, but by referring to Judge Graham, at least twenty times, simply as "Graham." The Court commends the practice of referring to parties and witnesses by last name only. See Bryan A. Garner, The Winning Brief 266 (2004) ("Generally, dispense with Mr., Mrs., and Ms.; use last names alone after the first mention of a party's or witness's name.") (emphasis added). But this Court cannot recall reading a motion, brief, or other paper — even from the most hapless of pro se litigants— that referred to a federal magistrate judge by her last name only. No one does this because it is disrespectful to the magistrate judge. Surely one of the six lawyers at the three prestigious firms representing Vendió could have figured out a way to squeeze twenty words from a 3,500-word memorandum without being disrespectful to Judge Graham.
The Court understands that Judge Graham's R & R raises complicated issues, but Northbrook's counsel were able to address those issues in 3,500 words without playing games with hyphens or being disrespectful to Judge Graham. If Northbrook can properly object to an R & R in 3,500 words, then surely Vendió can properly respond to that objection in 3,500 words. Vendio's counsel — who now have two strikes against them — should take great care to comply with both the spirit and letter of this Court's rules in the future.
I. LEGAL PRINCIPLES
A. Standard of Review
The only matter before the Court is Judge Graham's recommendation with respect to Vendio's motion for a protective order. Because a motion for a protective order is nondispositive, this Court will modify or set aside those aspects of Judge Graham's R & R relating to the protective order only to the extent that they are "clearly erroneous or . contrary to law." Fed.R.Civ.P. 72(a).
B. Protective Orders in Patent Cases
Rule 26(c)(1) of the Federal Rules of Civil Procedure governs protective orders in civil cases and provides: "The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense...." Fed.R.Civ.P. 26(c)(1). The party seeking the order — in this case, Vendió — bears the burden of establishing the requisite "good cause."
Protective orders are a common feature of patent cases because the parties are often competitors who understandably are reluctant to disclose trade secrets and other confidential information to each other (and to the public). The basic principles governing protective orders in patent cases derive from the Federal Circuit's opinion in U.S. Steel Corp. v. United States, 730 F.2d 1465 (Fed.Cir.1984). U.S. Steel itself dealt with the narrow question of whether in-house counsel for one party should be always be excluded from access to an opposing party's confidential documents. Id. at 1467. U.S. Steel rejected any such categorical rule, holding that "access by retained as well as in-house counsel should be governed by the facts.... " Id. at 1468-69. In reaching this holding, the Federal Circuit said: "In a particular ease, e.g., where in-house counsel are involved in competitive decisionmaking, it may well be that a party seeking access should be forced to retain outside counsel or be denied the access recognized as needed." Id. at 1468. Further, U.S. Steel held that in gauging whether allowing one party's lawyers access to its opponent's confidential information would create an unacceptable risk that the confidential information would be inadvertently disclosed, the risk must be assessed "on a counsel-by-counsel basis...." Id.
These principles have subsequently been applied in numerous patent cases. Not surprisingly, given the fact-intensive nature of the U.S. Steel analysis and the fact that discovery issues are largely within the discretion of district courts, cases with apparently similar facts often come out differently.
Nonetheless, certain themes recur. First, the key issue in many cases is whether the litigants are direct competitors and whether the people who would be denied access to information under a protective order are involved in a party's competitive decisionmaking. Second, some courts distinguish between financial information and technical information, because the two types of information do not necessarily raise the same concerns. And third, courts differ over the extent to which involvement in patent prosecution is treated as competitive activity for protective-order purposes.
All three themes are present in Safe Flight Instrument Corp. v. Sundstrand Data Control Inc., an oft-cited case from the District of Delaware (a district with a significant patent docket). 682 F.Supp. 20 (D.Del.1988). The defendant, Sundstrand, sought a protective order forbidding plaintiff Safe Flight's founder, Leonard M. Greene, from seeing Sundstrand's confidential documents. Greene was "a preeminent aeronautic engineer, having received more than sixty aeronautic patents." Id. at 21. The court granted the protective order, finding that such access would pose a competitive threat because "Greene actively plies aeronautic engineering" and the two companies "directly compete in the market for avionics equipment...." Id. After citing numerous cases supporting the proposition that "proper safeguards should attend the disclosure of trade secrets," the court went on to say that "[t]his line of precedent implicitly recognizes that courts often afford fuller protection to technological information than that extended to ordinary business information." Id. at 22. The court did, however, allow Safe Flight's in-house counsel to have access to Sundstrand's confidential technical information, finding that the in-house lawyers would be "segregated" by Safe Flight to minimize the risk that Safe Flight would misuse the information. Id. at 28. The court also noted that the in-house lawyers, unlike Greene, were officers of the court who were bound by a code of professional responsibility. Id.
But at times even in-house lawyers have been denied access to an opposing party's technical information. In Brown Bag Software v. Symantec Corp., a case involving alleged copyright infringement of software code, the Ninth Circuit affirmed a district court's protective order denying the plaintiffs in-house counsel access to defendant Symantec's trade secrets, which included source code and information about development of the allegedly infringing software. 960 F.2d 1465, 1471 (9th Cir.1992). In Vardon Golf Co. v. BBMG Golf, Ltd., the district court affirmed a magistrate judge's protective order forbidding access to a defendant's confidential information by Vardon Golfs sole employee, a one-man band who (like Wolfe) was his company's president, engineer, patent attorney, and trial counsel. No. 91-C-0349, 1991 WL 222258, at *2 (N.D.Ill. Oct.24, 1991). Similarly, in IP Innovation L.L. C. v. Thomson, Inc., the plaintiffs principal, an inventor with several issued and pending patents, was forbidden from having access to the defendant's confidential information for reasons like those given in Safe Flight. No. 1:03—CV-0216, 2004 WL 771233, at *3 (S.D.Ind. Apr.8, 2004).
Other courts have granted protective orders directed at a party's outside patent-prosecution lawyers. In Motorola, Inc. v. Interdigital Technology Corp., the court granted a protective order with respect to a law firm that was the defendant's trial counsel and that, during the course of the suit, became its patent-prosecution counsel. No. 93-488-LON, 1994 WL 16189689 (D.Del. Dec.19, 1994). The firm, Dick-stein, Shapiro & Morin, was defendant Interdigital's patent-prosecution counsel for at least four patent applications that were continuations or divisional applications of the patents in suit. Id. at *1. The court held:
[T]he [Dickstein, Shapiro & Morin] attorneys who have received confidential information from Motorola under the protective order shall not prosecute any [Interdigital] patent applications relating to the broad subject matter of the patents in suit during the pendency of this case and until one year after the conclusion of the present litigation, including appeals.
Id. at *3.
Where a party's outside patent-prosecution firm has not yet had access to the other party's confidential information, the firm may be prospectively forbidden from having such access. In Mikohn Gaming Corp. v. Acres Gaming Inc., a magistrate judge granted a protective order forbidding one of two firms that had entered an appearance as defendant Acres's trial counsel from (1) having access to plaintiff Mikohn's "sensitive technical information . such as software codes and hardware electrical designs" and (2) attending depositions. 50 U.S.P.Q.2d 1783, 1784 (D.Nev.1998). The firm, called "the Marger firm" by the court, was prosecuting patent applications for Acres that were "the very subject matter" of the suit at the same time that it had entered an appearance as trial counsel. Id. In granting Mikohn's motion for a protective order, the court rejected Acres's argument that because Acres "would not be allowed to amend claims or add new claims regarding matters that were not already disclosed in its original patent application," the Marger firm's patent-prosecution activities were not a competitive threat to Mikohn. Id. at 1785. Instead, the court found that the Marger firm was "prosecuting patent applications that are . part of the very core of this suit" and therefore "in light of the claims made in this lawsuit, the advice rendered by the Marger firm is intensely competitive." Id. A similar result was reached by the court in In re Papst Licensing, GmbH, Patent Litigation, in which the court held:
[I]t is clear that the advice and participation of the Papst parties' counsel in preparation and prosecution of patent applications related to the patents in suit is an intensely competitive decisionmaking activity and would be informed by access to the Non-Papst partiesf] confidential information. Counsel's ability to file new claims in existing and pending patents based on the confidential information discovered during the course of this litigation poses an unacceptable opportunity for inadvertent disclosure and misuse. Although the Court is confident that counsel for the Papst parties maintains the highest ethical and professional standards, the risk of inadvertent disclosure and misuse and the difficulty of distinguishing the source of the Papst parties' basis for filing new claims are great.
No. MDL 1278, 2000 WL 554219, at *4 (E.D.La. May 4, 2000).
Protective orders issued by this Court in other patent cases have likewise recognized that attorneys who are directly involved in patent prosecution may be subject to greater restrictions than other • attorneys. In Medtronic, Inc. v. Guidant Corp., Magistrate Judge Jonathan G. Lebedoff recognized that "prosecuting patents is distinct from other legal duties and presents unique opportunities for inadvertent disclosure." Nos. Civ. 00-1473 & Civ. 00-2503, 2001 WL 34784493, at *4 (D.Minn. Dec.20, 2001). He therefore granted a protective order that prohibited disseminating certain confidential information to attorneys who, during the suit or in the year following its conclusion, "actually draft patent applications, claim language for patent applications, or arguments made in support of patent applications related to the treatment of abnormal cardiac rhythms." Id. at *5. Judge Lebedoff did, however, permit attorneys who only supervised patent prosecution activities to have access to the disputed confidential information. Id.
This is not to say that courts have universally prohibited lawyers and inventors involved in patent prosecution from having access to opposing parties' confidential information. In particular, in Avocent Redmond Corp. v. Rose Electronics, Inc., the court refused to bar plaintiff Avocent's patent prosecutors from having access to defendant Rose Electronics' technical information, holding that "[d]efendants have not offered any evidence that suggests that . Avocent's patent prosecutors advise Avocent in its 'competitive decisionmaking.' " 242 F.R.D. 574, 579 (W.D.Wash. 2007). Similarly, in AFP Advanced Food Products LLC v. Snyder's of Hanover Manufacturing, Inc., the court rejected defendant Snyder's motion for a protective order that would have prohibited plaintiff AFP's patent prosecutors from having access to Snyder's confidential information. No. Civ. A. 05-3006, 2006 WL 47374 (E.D.Pa. Jan.6, 2006). The order sought by Snyder and denied by the court resembled the order granted by Judge Lebedoff in Medtronic: Snyder wanted to forbid any of AFP's lawyers who were given access to Snyder's confidential information from prosecuting patents during the course of the suit or for two years after-wards. Id. at *2. The court held that Snyder had not presented particularized evidence of the need for such an order. Id.
Avocent and AFP Food Products represent a minority view, however. As discussed above, many courts recognize that patent prosecution can pose the type of competitive threat that justifies a protective order. And cases other than Avocent and AFP Food Products that have held that lawyers or inventors involved in a party's patent-prosecution activities could have access to the other party's confidential information tend to involve unusual factual situations. For instance, in Medtronic Sofamor Danek, Inc. v. Michelson, the defendant inventor, Michelson, was allowed access to plaintiff Medtronic's confidential information. No. 01-2373-GV, 2002 WL 33003691 (W.D.Tenn. Jan.30, 2002). Medtronic Sofamor Danek was unusual in two respects: First, the protective-order dispute was over whether Michelson could have access to the technical information of his licensee, Medtronic. Id. at *3 ("Medtronic initiated this lawsuit, seeking a court to declare that patents and methods designed by none other than Dr. Michelson now belong to it pursuant to the various agreements in dispute."). Second, Medtronic had voluntarily given Michelson access to its confidential information in earlier cases in which he had served as an expert for Medtronic. Id. In a different case, Trading Technologies International, Inc. v. eSpeed, Inc., the court refused to restrict the patent-prosecution activities of a plaintiffs attorney who had access to confidential information, but the court found that the attorney was "primarily a litigator" who was only "incidentally involved in patent applications...." No. 04-C-5312, 2004 WL 2534389 (N.D.Ill. Sept.24, 2004).
Finally, as noted at the outset, when litigants compete in output markets' — i.e., when they sell similar products to similar customers — courts routinely grant protective orders forbidding access to confidential information by people, including attorneys, who are involved in competitive decisionmaking apart from patent prosecution. See, e.g., Highway Equip. Co. v. Cives Corp., No. C04-0147, 2007 WL 1612225 (N.D.Iowa May 15, 2007); Probatter Sports, LLC v. Joyner Techs., Inc., No. 05-CV-2045, 2006 U.S. Dist. LEXIS 74219, 2006 WL 5278236 (N.D.Iowa Oct. 11, 2006); Intel Corp. v. VIA Techs., Inc., 198 F.R.D. 525 (N.D.Cal. 2000).
II. ANALYSIS
A. Competition in Output Markets
Generally, competitors in the business world compete in output markets for customers: Coca-Cola competes with Pepsi; McDonald's competes with Burger King; Toyota competes with General Motors. Northbrook, however, does not compete with Vendió for customers, because the two companies are in different businesses.
Northbrook, to the extent that it sells anything, sells the right to use its patented technology — i.e., it sells patent licenses. Vendió, for its part, sells advertising and marketing services. As far as the record shows, Northbrook sells nothing except patent licenses. It does not sell advertising or marketing services, or know-how, or anything else. Similarly, as far as the record shows, Vendió sells nothing except advertising and marketing services. It does not sell licenses to its technology, or know-how, or anything else. Northbrook and Vendió thus sell entirely different products to entirely different customers.
Judge Graham nevertheless found that, because Northbrook and Vendió have a "shared interest in a single patented technology," they are competitors. R & R at 28; PI. Obj. R & R at 6. Northbrook objects to this finding, arguing that such a definition of competition is too broad "because patent litigants always have a shared interest in the relevant patented technology...." PI. Obj. R & R at 6. The Court agrees with Northbrook that the notion of "competition" underlying the R & R is too broad. The R & R is clearly erroneous because it is based on the assumption that Wolfe (as Northbrook's principal) should not have access to Vendio's financial and customer data because Northbrook, as a result of its licensing activity, competes with Vendió in output markets. As described above, that is just not true.
This is not to say that Northbrook has no interest in Vendio's business. North-brook does have an interest, but its interest is as a supplier of inputs to Vendió, and not as a competitor. If Vendió is indeed infringing Northbrook's patents, then Vendió is using inputs (intellectual property) that do not belong to it, and Northbrook has a right to be compensated for (or to stop) Vendio's use of Northbrook's resources. Suppose, for example, that Northbrook owned a gold mine, and Vendió was a retail jeweler that was secretly stealing ore from the mine and turning it into rings. Northbrook and Vendió would not be competitors in any output market, because Vendió would not sell ore, and Northbrook would not sell jewelry. Northbrook would have an interest in Vendio's business, but not as a competitor.
It is true, as Judge Graham notes, that the value of what Northbrook sells — licenses to its patents — is a function of the value of the business of a potential licensee such as Vendió. R & R at 27. But this is not a reason to prevent Northbrook from learning about Vendio's costs, customers, or profitability. Northbrook cannot steal Vendio's customers, because Northbrook does not sell anything to Vendio's customers. At most, Northbrook can use information about Vendio's costs, customers, or profitability to determine what price it should charge Vendió for a license to its patents. In the context of patent litigation, however, determining what price to charge an accused infringer for a patent license is equivalent to assessing the value of the case itself. And every litigant in every case seeks to assess the value of its case: Defendants want to estimate their potential liability, and plaintiffs want to estimate their potential recovery.
In commercial cases between competitors, it makes sense to restrict each competitor's direct access to the other's customer and financial data, because one competitor could use its opponent's information to compete unfairly in the marketplace. Case valuation in such cases must be done by outside attorneys and experts, who can report estimated damages figures to their clients. Those clients, in turn, can use that information in determining whether (and on what terms) to settle the litigation.
But in a case such as this — a case brought by a supplier of inputs (North-brook) against an alleged consumer of those inputs (Vendió) — there is no reason to prevent the supplier from having access to the consumer's financial or customer data. Northbrook alleges that Vendió is infringing its patents. Until Vendió wins the case on the merits, Northbrook must assess the value of its case, as must any litigant. There is no reason why North-brook, through Wolfe, should have to rely solely on outside attorneys and retained experts to assess the portion of the case's valuation that turns on Vendio's financial and customer information. Northbrook cannot use that information to compete unfairly with Vendió for Vendio's customers because Northbrook does not serve those customers. Northbrook can only use Vendio's financial and customer information to determine what to charge for a license, i.e., to determine the settlement value of this case. That is an entirely legitimate use of the information.
B. Competition in Input Markets
As noted above, Northbrook is more like a supplier to Vendió than a competitor, because Northbrook and Vendió do not compete in the same output market (i.e., the market for internet advertising and marketing services). But there is a very limited sense in which Vendió and Northbrook compete in the input market of intellectual property used for internet advertising and marketing.
Vendió uses certain software products and business methods to run its business; those products and methods are the inputs that Vendió transforms into a sendee that it sells to advertisers and marketers. Vendió, like any business, must decide whether to make or buy its inputs. When a business chooses to buy an input that it used to make, we call it "outsourcing"; when a business chooses to make an input that it used to buy, we call it "vertical integration" (or taking an operation "in house").
Suppose that there were two different ways that Vendió could deliver its service: (1) by using methods covered by North-brook's patents; and (2) by using confidential methods developed in-house by Vendió and not covered by Northbrook's patents. If Vendió chose approach (2), it would be in effect choosing to make an input in house rather than to buy the input from Northbrook. Vendió would thus be competing with Northbrook in the input market for software products and business methods — Vendió would be both the maker and the consumer of those inputs. This would be very limited competition, however, over a single customer — Vendió. Because Vendió does not itself license its technology, Vendió and Northbrook do not compete in the broader market for intellectual property.
Now suppose that Vendio's confidential software and business methods are not covered by the claims of the asserted patents, but could be covered by claims in patents issued to Northbrook in the future if Northbrook knew enough about Vendio's operations to draft claims to cover Vendio's software and methods. If that happened, Vendió would no longer be able to choose to make its inputs. Rather, Vendió would have to buy the inputs from North-brook (because, by hypothesis, Northbrook would have patented them). Vendió would be eliminated as Northbrook's competitor in the single-customer (Vendió) input market for the software and business methods underlying Vendio's business. Moreover, this elimination of Vendió would be unfair, because (again, by hypothesis) it would have been possible only because North-brook had access to Vendio's confidential software and business methods.
Vendió asks for a protective order in part to prevent Wolfe from gaining access to Vendio's confidential technical information and using that information in the course of patent prosecution. See Def. Letter Mot. [Docket No. 34] at 3 ("Granting Mr. Wolfe access to Vendio's on-going research and development . would allow Northbrook, to alter its technology development. It would also facilitate amending claims in pending applications by Mr. Wolfe to mirror Vendio's technology."). This is a legitimate basis for preventing Wolfe from having access to Vendio's technical information. Vendió and Northbrook compete, in a limited way, in the input market for software and business methods to facilitate online advertising and marketing, and Vendió has a legitimate interest in preventing Northbrook from competing unfairly in that market by drawing patent claims more precisely to Vendio's methods than Northbrook would be able to do without access to Vendio's confidential technical information.
Judge Graham discounted this rationale, however, because she found that "North-brook is not currently engaged in patent prosecution.R & R at 27. The Court agrees with Vendió that this factual finding is clearly erroneous. See Def. Subst. Resp. at 6-8 [Docket No. 76].
Judge Graham's error is, however, understandable in light of how Wolfe and Northbrook's outside counsel characterized Wolfe's patent-prosecution activities. Wolfe submitted a declaration that misleadingly minimizes the scope of his activities before the PTO. Wolfe says that all of his pending patent applications "are simply continuations of the original applications filed years ago," that they "do not disclose any new or recently-developed subject matter," and that he is not undertaking "development of new technology relating to defendant's business.... " Wolfe Decl. ¶ 10 [Docket No. 46]. Further, Wolfe says that he "no longer devote[s] time to developing and implementing new ideas, products, and/or inventions relating to the patents in suit, relating to anything remotely relevant to defendant's business, or even relating to the consumer Internet in general." Id. ¶ 8. Northbrook's outside counsel amplifies Wolfe's argument, saying that "because federal law forbids introducing 'new matter' into a continuing application," it is "an impossibility" for Wolfe to "take Vendio's confidential information and add it to a continuing patent application, or otherwise alter Northbrook's 'technology development.' " PI. Mem. re Prot. Order at 10 [Docket No. 45].
It is, of course, literally true that a continuation application cannot introduce "new matter" to a patent application in the sense that it cannot claim anything not disclosed in the original application from which the continuation application stems. Donald S. Chisum, 4A Chisum on Patents § 13.03[2] ("A continuation application is a second application that contains the same disclosure as the original application. It may not contain anything that would be considered 'new matter' if inserted in the original application."). But a continuation application can include new claims, as long as the claims are supported by the disclosure in the parent application. See R. Carl Moy, 1 Moy's Walker on Patents § 3:54 at 3-165 (4th ed. 2007) ("The modern continuation practice can thus be taken as providing the applicant with essentially the same degree of freedom to obtain claims in the continuation that he or she enjoyed in the parent."). And if the claims in the parent application claimed only a portion of what the specification discloses, then the new claims will broaden the effective reach of the patent even if they do not introduce "new matter." See, e.g., Central Sprinkler Co. v. Grinnell Corp., 897 F.Supp. 225, 227 (E.D.Pa.1995) ("A continuing application is one that makes explicit a claim that was inherent in a previously filed application. It contains no new information.") By emphasizing that Wolfe cannot introduce "new matter" in his continuation claims, Wolfe and Northbrook's counsel understate the scope and significance of his vigorous continuation practice.
Further, by saying that he is not devoting time to "developing and implementing new ideas, products, and/or inventions relating to the patents in suit," Wolfe creates a misleading impression that he is not currently engaged in any significant activities before the PTO that are related to the patents in suit. Wolfe Aff. ¶8. Wolfe's statement is literally true if one focuses on the words "new ideas, products, and/or inventions" and assumes that, although a continuation application can include new claims, it cannot include "new ideas, products, and/or inventions" because those would be "new matter" unsupported by the specification. But a claim itself is an idea — a specific idea about how to describe the general invention disclosed in a patent's specification.
In fact, it is apparent from the record that Wolfe, in his continuation practice before the PTO, is devoting significant time to securing new claims related to the patents-in-suit. In connection with its motion for a protective order, Vendió submitted three published patent applications by Wolfe that are currently pending before the PTO. Def. Letter Mot. Exs. B-D. One of these, application number 11/552,519, was filed in October 2006 as a continuation of a different application filed in September 2006. Id. Ex. C. A second of these, application number 11/624,817, was filed in January 2007 as a continuation of a different application filed in May 2006. It is apparent from these two applications alone — which date back to applications filed in the mid-1990s — that Wolfe's current practice before the PTO is not nearly as limited as he and Northbrook's counsel imply.
A fuller picture of the scope of Wolfe's activities before the PTO emerges from the materials submitted by Vendió in response to Northbrook's objection to the R & R. Public records show that Wolfe has a total of fifteen patent applications related to the patents in suit currently pending before the PTO. See Tautkus Decl. Exs. F-L & V. [Docket No. 77]. Of these fifteen applications, at least seven were filed after Northbrook filed this suit.
When a plaintiff in a patent case is involved in prosecuting patents that are related to the defendant's business, federal courts routinely limit the plaintiffs access to the defendant's technical trade secrets. Here, Wolfe is actively involved in prosecuting patent applications that relate to Vendio's business and to the patents in suit. This analysis is not changed by the fact that Wolfe is currently prosecuting continuation applications rather than original applications. Indeed, the vigorous scope of Wolfe's continuation practice, which has been going on for over a decade and which has resulted in multiple different patents that relate back to the same original applications, belies any suggestion that his practice is insignificant and could not result in patents with new claims that relate to Vendio's business.
Accordingly, Wolfe's activities before the PTO in prosecuting continuation applications related to the patents in suit are not compatible with allowing him to review, either as an attorney or as an expert witness, Vendio's confidential technical information. The Court therefore grants Vendio's application for a protective order with respect to Vendio's confidential technical information.
Northbrook contends that denying Wolfe access to Vendio's technical information will work a great hardship upon it. The Court finds that, based on the record so far, the competitive threat to Vendió posed by Wolfe's access to Vendio's confidential technical information substantially exceeds the hardship to Northbrook from limiting that access.
That said, the Court agrees with Judge Graham that Northbrook is entitled to try to show, with respect to specific information provided by Vendió, that the hardship imposed on Northbrook by denying access to Wolfe outweighs the competitive threat to Vendió that would result from such access. The Court also agrees with Judge Graham that Northbrook will need to make a significant showing of need to meet this standard. Contrary to Northbrook's assertion, Judge Graham did not clearly err in placing a heavy burden on North-brook to justify Wolfe's access to Vendio's confidential information. Rather, that heavy burden recognizes that Vendió has already established that giving Wolfe access to Vendio's confidential information poses a significant competitive risk. Put another way, whether to give Wolfe access to Vendio's information depends on the result of a balancing test — but Vendió has already established that the potential competitive harm weighs heavily on one side of the balance.
In short, given that Wolfe is extremely active in prosecuting multiple continuation applications related to technology at issue in this suit, Northbrook will have to make a strong showing that Wolfe requires access to Vendio's confidential technical information before such access will be allowed by the Court. Requests for such access must be particularized and must be made to Judge Graham. Given that technical experts other than Wolfe can readily assess whether Vendió is infringing Wolfe's patents — the function of a patent, after all, is to put the public on notice of what is patented — the Court anticipates that Northbrook will have great difficulty making the requisite strong showing.
C. Terms of Protective Order
Northbrook asks the Court to enter the district's standard protective order in patent cases, Form 5 of the Local Rules. PI. Obj. R & R at 14. For its part, Vendió says that "[a]t all times Vendió has been willing to use this District's Form 5 protective order, with the understanding that Wolfe would not be permitted to access Vendio's confidential information." Def. Subst. Resp. at 11.
Northbrook accuses Vendió of having changed its position with respect to adopting the district's standard protective order, and says that this change suggests "Vendio's strategic motivation...." PI. Obj. R & R at 11. In fact, contrary to North-brook's assertion, Vendió has never really changed its position on this issue. That Vendió seems to have done so demonstrates only that Form 5 is inartfully drafted, not that Vendio's motivations are suspect.
Paragraph 4 of Form 5 creates, for protective-order purposes, up to seven categories of people, labeled (a) through (g). Optional category (e) includes specified "inside counsel"; optional category (f) includes specified parties' employees other than inside counsel. Mandatory category (b) includes "Attorneys and their office associates, legal assistants, and stenographic and clerical employees"; the word "Attorneys" is defined in Paragraph 1 as "counsel of record." Under Paragraph 5 of Form 5, documents designated as "Confidential — Attorneys' Eyes Only" may not be disclosed to parties' employees (people in category (f)) but may be disclosed both to people in category (b) — i.e., "Attorneys" and their staff — and to "inside counsel" listed (if any are) in category (e).
On the most natural reading of Paragraph 4 itself, the class of "Attorneys" in category (b) would not include inside counsel, since there is a separate category— category (e) — that covers only inside counsel. This is apparently how Vendio's out-of-town counsel read Paragraph 4, and thus they were willing to adopt Form 5, since Wolfe is Northbrook's inside counsel and (on this reading) would not be one of the "attorneys" in category (b). See Tautkus Deck Ex. Q at 3. Northbrook's counsel interpret the form differently and think that "Attorneys" in category (b) means "outside attorneys plus any inside attorneys who are counsel of record." See id. at 2.
Northbrook's counsel's interpretation is an unnatural reading of Paragraph 4 standing alone, but it is defensible because the term "Attorneys" is defined in Paragraph 1 as "counsel of record." This means that inside counsel can join the class of attorneys entitled to see material designated "Confidential — Attorneys' Eyes Only" in one of two ways: either (1) by entering an appearance as counsel of record, or (2) by having themselves listed in category (e) of Form 5. There is no logical reason for Form 5 to provide these two different methods when the second one is entirely sufficient.
For purposes of this case, the Court will enter a protective order based on Form 5 with modifications consistent with this opinion. First, the term "Attorneys" will be defined as "counsel of record, excluding Mark A. Wolfe." Second, because of the limited nature of the competition between Vendió and Northbrook, Vendio's in-house lawyers as a group will be designated as "inside counsel" under category (e) and will therefore have access to Northbrook's "Confidential" and "Confidential — Attorneys' Eyes Only" documents. Third, Wolfe will be designated as a Northbrook employee and included in category (f) as someone with access to "Confidential" documents but not "Confidential — Attorneys' Eyes Only" documents. Fourth, Paragraph 5 of Form 5 will be modified to permit the parties to designate technical information only as "Confidential — Attorneys' Eyes Only." By default, Wolfe will not be permitted access to such information. He can gain access to that information only by making a sufficient showing of necessity, as described above.
ORDER
Based on the foregoing and on all of the files, records, and proceedings herein, the Court OVERRULES IN PART North-brook's objection [Docket No. 61] and ADOPTS IN PART Judge Graham's Report and Recommendation [Docket No. 59] to the extent that it is consistent with this Memorandum Opinion and Order. Accordingly, IT IS HEREBY ORDERED THAT:
1. Defendant Vendió Services, Inc.'s motion to dismiss or transfer [Docket No. 24] is DENIED.
2. Plaintiff Northbrook Digital, LLC's motion to amend or correct its complaint [Docket No. 35] is GRANTED.
3. Defendant Vendió Services, Inc.'s motion for a protective order [Docket No. 34] is GRANTED as follows: The Court will enter a protective order patterned on the district's standard order for patent cases but modified in accordance with this memorandum opinion and order.
REPORT AND RECOMMENDATION
JEANNE J. GRAHAM, United States Magistrate Judge.
This matter came to the undersigned on March 6, 2008 on defendant Vendió Services' motion to dismiss or in the alternative to transfer venue (Doc. No. 24) and its application for a protective order (Doc. No. 34); and on plaintiff Northbrook Digital's motion to amend its complaint (Doc. No. 35). Peter M. Lancaster, Esq., appeared on behalf of Northbrook Digital (North-brook). Rita E. Tautkus, Esq., and Felicia M. Boyd, Esq., appeared on behalf of Vendió Services (Vendió). The motion to dismiss was referred for a report and recommendation in accordance with 28 U.S.C. § 636 and Local Rule 72.1(b).
I. BACKGROUND
In this patent infringement litigation, Vendió moves to dismiss for lack of personal jurisdiction, or in the alternative, that venue be transferred to the Northern District of California. It separately brings a motion for a protective order, asking that its confidential information be protected from disclosure to Mark A. Wolfe, Esq., who is evidently both the sole stakeholder in Northbrook and one of its attorneys of record here.
Northbrook brings its own motion to amend its complaint. Opposing this motion, Vendió renews the jurisdictional arguments from its motion to dismiss, and thus contends that the motion to amend is futile. As Vendió does not raise any other arguments against Northbrook's motion to amend, the outcome of this motion to amend accordingly depends on the ruling for the motion to dismiss. The motion to amend, therefore, is properly considered in this report.
In brief, the patents-in-suit teach methods for search and retrieval of data over computer networks such as the internet. Vendió developed and distributed software, called Dealio, which allegedly includes a search feature that infringes these patents.
Dealio software is a toolbar application that operates in conjunction with web browsing software. (Exh. 1.) While a user is browsing the internet, Dealio software downloads links to the toolbar from Vendio's servers. (See. Exh. 1; Exh. 2 at 2.) The links advertise bargains from merchants. If a user clicks on a link, the web browser navigates to a page on the merchant's website, where the user may buy directly from that merchant. (See Exh. 1; Exh. 8 at 2; Exh. 4 at 3.) And Dealio software includes the accused search feature, allowing a user to search for bargains online. (See Exh. 1.)
For links or searches on Dealio software to function, there must be a connection via the internet between the user's computer and Vendio's servers. (Exh. 2 at 2.) The links shown on Dealio software are typically refreshed once every fifteen minutes, based on a signal or "ping" that Dealio software transmits to Vendio's servers. (See Exh. 1; Exh. 2 at 2; Exh. 5 at 4.) All users of Dealio software receive the same links; the offers linked on Dealio software are not customized from data received from users, except for when the search feature is used. (See Exh. 5 at 4.)
Dealio software is available for free download from Vendio's website. In order to use Dealio software, the user must register online and then activate the software on the user's computer. (Exh. 2 at 2.) To register, the user need only provide a username, a password, and an e-mail address. Vendió thus does not request information about the physical location of Dealio software users. (See Exh. 1; Exh. 2 at 2.)
One key factual dispute in this matter is whether Dealio software users are located in Minnesota. As there is no direct information from users regarding their location, the parties have looked at other ways to answer this question. One is premised on the assumption that, of downloads within the United States, a certain proportion is likely to be from Minnesota. Because recent census data indicates that 1.7% of the United States' population are residents of Minnesota, and because about 225,000 domestic users have downloaded Dealio software, it may be estimated that about 3,800 users of Dealio software are residents of Minnesota. (Exh. 2 at 3; Exh. 5 at 3; Exh. 6 at 21, 29.)
Another method is to track the physical location of users by looking at their IP addresses. From IP addresses that Vendió received when Dealio software users activated the search feature, Vendió determined that 389 residents of Minnesota used Dealio software over a two-month period. (See Exh. 5 at 4; Exh. 6 at 29; Exh. 7.) From this figure, it may be estimated that 2,300 Minnesota residents have used Dealio software in a year. And when this figure is compared with the previous estimate of downloads, it is reasonable to infer that Minnesota users of Dealio software number in the thousands, or at least are on that order of magnitude.
Aside from usage of Dealio software itself, the parties raise some additional questions about the revenues that Vendió earns from the software. Because the software is available for free, Vendió does not directly generate cash from its users. The record implies that in certain circumstances, when a user activates the search feature — and then presumably purchases something — Vendió is directly paid a fee or commission. According to Vendió, it earned $700 in a two-month period as a result of such activity by Minnesota users. (Exh. 8.)
This revenue, however, is apparently only part of the revenue that Vendió earns from Dealio software. Another source is derived from advertising by merchants whose links are displayed through Dealio software. A complicated series of transactions controls how this advertising is generated and how Vendió ultimately collects advertising-related revenues.
Vendió does not directly acquire advertising from merchants. The merchants instead give the right to distribute such advertisements to brokers, which the record opaquely refers to as "affiliate program administrators." These administrators evidently offer portfolios of advertising to websites or shopping utilities that display the links. No money changes hands, however, until a user clicks through a link and buys something from the merchant. After the sale, the merchant pays a commission to the affiliate program administrator, which in turn pays a share to the entity that actually displayed the link. (See Exh. 3 at 2, 5; Exh. 4 at 2-3; Exh. 6 at 11-12, 21.)
The record indicates that Dealio software displayed links from two major retailers whose principal place of business is in Minnesota, among other large retailers with nationwide operations. These retailers have made their links available for distribution through affiliate program administrators whose operations are based in New York and California. So when users of Dealio software click through links and buy from Minnesota merchants, Vendió receives its commission from New York and California rather than from Minnesota. (See Exh. 6 at 11-12, 21.)
The record does not meaningfully explain how these revenues, or similar commissions earned from other affiliate program administrators, may be connected to Minnesota. But Vendió contends that in 2007, its total revenue from Dealio software was $135,000. (Exh. 5 at 3.) It may be inferred that this figure includes earnings for both the search feature activity and for advertising commissions. And as noted earlier, only a tiny fraction of Dealio software users are Minnesota residents. From the small amount Vendió collected due to their search feature activity, it is reasonable to infer that a similarly small amount of advertising commissions can be connected to Minnesota users.
Northbrook counters that Vendió has at least $300,000 in revenues, in 2007, which may be traced to customers in Minnesota. There is no reason to doubt that this fig ure is correct. (See Exh. 9.) But this accounting does not itemize what part of the revenues, if any, can be attributed to Dealio software as opposed to Vendio's other business operations.
II. ANALYSIS
A. Personal Jurisdiction
The initial question here is whether it is appropriate to exercise personal jurisdiction over Vendió. When examining personal jurisdiction in patent litigation, the law of the Federal Circuit applies. 3D Sys., Inc. v. Aarotech Labs., Inc., 160 F.3d 1373, 1376 (Fed.Cir.1998).
1. Standard of Review
Although the parties have not specified the standard of review in this context, it merits discussion here. According to case law from the Federal Circuit, the standard of review depends on whether the parties have conducted jurisdictional discovery and whether a party has requested an evidentiary hearing.
As a general rule, where there is no jurisdictional discovery, the plaintiff need only make out prima facie evidence for personal jurisdiction, meaning that factual conflicts in the record are resolved in the plaintiffs favor. See Trintec Indus., Inc. v. Pedre Promotional Prods., Inc., 395 F.3d 1275, 1282-83 (Fed.Cir.2005); Silent Drive, Inc. v. Strong Indus., Inc., 326 F.3d 1194, 1201 (Fed.Cir.2003).
The prima facie standard still controls when the parties provide documentary evidence beyond the allegations in the complaint. Electronics for Imaging, Inc. v. Coyle, 340 F.3d 1344, 1348-49 (Fed.Cir. 2003). But where jurisdictional discovery is complete and the parties advise that no evidentiary hearing is necessary, the plaintiff is put to proof and must show personal jurisdiction by a preponderance of the evidence. Pieczenik v. Dyax Corp., 265 F.3d 1329, 1334 (Fed.Cir.2001).
Northbrook has undertaken some jurisdictional discovery here, including limited time for deposition that this Court authorized by an order on January 18, 2008. Relying on information from this discovery, Northbrook argues there is personal jurisdiction over Vendió here. Neither party represents that jurisdictional discovery is complete, however, or advises that an evidentiary hearing is needed. Without further guidance from the parties, this Court concludes that the prima facie standard applies to the current motion.
2. General Principles
A federal court cannot exercise jurisdiction over a nonresident defendant unless it has personal jurisdiction over that defendant. Two components are essential to personal jurisdiction: whether service may be accomplished under the long-arm statute of the forum state, and whether exercise of such authority comports with due process. Breckenridge Pharm., Inc. v. Metabolite Labs., Inc., 444 F.3d 1356, 1361 (Fed.Cir.2006).
As Minnesota's long-arm statute generally permits personal jurisdiction to the extent allowed by due process, these components merge and only the limits of due process are germane here. See Minn.Stat. § 543.19; Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1359-60 (Fed.Cir.2001); Guinness Import Co. v. Mark VII Distributors, Inc., 153 F.3d 607, 614 (8th Cir.1998).
To decide whether personal jurisdiction comports with due process, a court must evaluate whether the defendant has sufficient contacts with the forum state. There are two theories for determining the sufficiency of such contacts: general personal jurisdiction and specific personal jurisdic tion. Each requires independent discussion here.
3. General Personal Jurisdiction
Under the theory of general personal jurisdiction, the inquiry is whether the defendant has continuous and systematic contacts with the forum state. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416-18, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984).
It is not enough for the defendant to sell or distribute its products or services in the forum state, even where revenues from that activity are substantial. See id. at 416-18 (concluding that, where a helicopter servicing company earned over $4 million in seven years' activity in forum state, contacts were not sufficient to establish general personal jurisdiction). There must also be extensive facilities for service or distribution within the forum state, which ordinarily consist of substantial premises or operations there. See LSI Indus. Inc. v. Hubbell Lighting, 232 F.3d 1369, 1375 (Fed.Cir.2000) (upholding general personal jurisdiction where defendant had millions in sales and a "broad distributorship network" in the forum state).
The record shows that Vendió earns substantial revenues, at least $300,000 in 2007, from customers in Minnesota. But there is no indication that, to provide service for these customers, Vendió maintains ongoing business operations in Minnesota. Vendió has no premises located in Minnesota and it is not licensed to do business there. (Exh. 2 at 1.) Nor is there the sort of broad sales or distribution network that would establish systematic and continuous contacts. For these reasons, this Court concludes there is no basis to exercise general personal jurisdiction here. Cf. Hockerson-Halberstadt, Inc. v. Propet USA, Inc., 62 Fed.Appx. 322, 337 (Fed.Cir.2003) (ruling that $32,000 in internet sales to forum state was not enough to show general personal jurisdiction).
4. Specific Personal Jurisdiction
For the theory of specific personal jurisdiction, it is sufficient for the defendant to have minimal contacts with the forum state, so long as the plaintiffs claim arises from those contacts. The Federal Circuit has formulated a three-part standard for determining whether the exercise of specific personal jurisdiction is appropriate, asking if (1) the defendant purposefully directed its activities at the forum state; (2) the plaintiffs claims arise from those activities; and (3) litigation of such claims in the forum state comports with fairness and substantial justice. Akro Corp. v. Luker, 45 F.3d 1541, 1545 (Fed.Cir.1995).
a. Activities Directed at Forum State
i. Internet Contacts and the Zippo Standard
In the context of the current litigation, the first element of this standard largely depends on the quality of Vendio's internet contacts with Minnesota. The Federal Circuit has yet to offer much guidance in this area. Cf. Multi-Tech Sys., Inc. v. VocalTec Communications, Inc., 122 F.Supp.2d 1046, 1049 n. 5 (D.Minn.2000). Perhaps the strongest indication may be taken from its decision in Trintec Industries, Inc. v. Pedre Promotional Products, Inc. 395 F.3d 1275 (Fed.Cir.2005). The court noted that a defendant advertised over the internet, but it did not analyze the impact of this fact, and instead remanded to the district court for jurisdictional discovery. Id. at 1281-83. But in dictum, the court mentioned a leading case on the internet and personal jurisdiction, the decision of the Western District of Pennsylvania in Zippo Mfg. Co. v. Zippo Dot Com, Inc. 952 F.Supp. 1119 (W.D.Pa.1997).
The Zippo court proposed a sliding-scale standard for evaluating the quality of internet contacts. At the top of this scale, where personal jurisdiction is appropriate, are situations where a defendant is buying or selling over the internet. At the bottom, where personal jurisdiction is inappropriate, are situations where a defendant posts information but does not allow interaction by internet users. As the level of interactivity or commerce increases, however, it becomes more likely that internet activity will supply sufficient contacts for personal jurisdiction. Id. at 1224.
There are several reasons that the Zippo standard is not entirely helpful here. One is that Zippo is sometimes criticized for focusing too much on the internet operations of the defendant, without examining the relationship between those operations and the forum state. See Toys "R" Us, Inc. v. Step Two, S.A., 318 F.3d 446, 452 (3d Cir.2003) (noting that post-Zippo decisions "have made explicit the requirement that the defendant intentionally interact with the forum state via the web site"); cf. GTE New Media Servs. Inc. v. BellSouth Corp., 199 F.3d 1343, 1349-50 (D.C.Cir. 2000) (rejecting personal jurisdiction where there was no evidence forum residents used the defendant's interactive website).
Another is that this litigation does not, strictly speaking, only involve a website. Instead, this litigation is about software. Although the software must be downloaded via the internet, its activation and utility depend entirely on the independent conduct of its users.
As a result, the current case is entirely distinguishable from cases where the plaintiff has attempted to show minimal contacts by pointing to a defendant's advertisements on the internet. Courts frequently rule that advertising via the internet is at the passive end of the Zippo standard, and therefore, advertising by itself does not support personal jurisdiction. See Richard E. Kaye, Annotation, Internet Web site activities of nonresident person or corporation as conferring personal jurisdiction, 81 A.L.R.5th 41 § 3 (2000 & Supp.2007).
In this context, courts commonly draw an analogy between an informational website on the internet and an advertisement in a nationally published magazine. In either case, publication of the website or the advertisement by itself is not enough to justify personal jurisdiction. See, e.g., Principal Financial Servs., Inc. v. Big Finance & Ins. Servs., Inc., 426 F.Supp.2d 976, 980-81 (S.D.Iowa 2006). But the current circumstances do not involve the merchant who places the advertisement or the goods or services that are advertised. By way of analogy, Dealio software is more like the magazine itself — the media that is being published to the forum state — and Vendió is the publisher.
ii. Internet Contacts and Accused Software
Being mindful of these differences, and the limitations of the Zippo standard, this Court turns to other cases that may be more helpful here.
One illustrative case is CoolSavings.Com, Inc. v. IQ.Commerce Corp., a decision from the Northern District of Illinois. 53 F.Supp.2d 1000 (N.D.Ill.1999). This patent infringement suit involved a system for downloading coupons over the internet. Unlike the current case, the system operated entirely through a website and did not require users to download proprietary software. Because this system was still in development, few had accessed the website from the forum state. But the defendant had separately retained a marketing firm in the forum state to promote the website and solicit advertisers. Id. at 1001-02.
After noting this scenario did not "neatly fit" into the Zippo standard, the Cool-Savings court reasoned that the operation of the website must be taken with other relevant circumstances. It held that the website, along with the conduct of the marketing firm within the forum state, was enough to show that the defendant purposefully directed its activities there. Id. at 1003 & n. 3. The current litigation involves many more users, in the thousands, but there is no indication that Vendió has taken any other action to promote Dealio software in Minnesota.
Further guidance may be taken from the decision of this District in Multi-Tech Systems, Inc. v. VocalTec Communications, Inc. 122 F.Supp.2d 1046 (D.Minn. 2000) (Montgomery, J.). Another suit for patent infringement, it involved software allowing telephone use via the internet. The defendant, an Israeli corporation, sold the software through brick-and-mortar retailers in Minnesota and through its own website. Id. at 1049-50.
The Multi-Tech Systems court concluded that internet sales, combined with sales through conventional retailers, were enough to show that the defendant purposefully directed its activities into Minnesota. Id. at 1050. The current litigation, by comparison, does not involve the sale of software. But the free downloads have a plain commercial purpose, to encourage users to buy from advertised merchants, and there is ample evidence that the software has been downloaded by users in Minnesota.
Also useful are cases, though not in patent law, where users downloaded the software that is at the center of the parties' dispute. One increasingly common scenario is where the defendant distributes peer-to-peer file sharing software that may be used to illegally download copyrighted films or music. When media producers bring suit for copyright infringement, the presence of software users in the forum state is enough to show that the defendant purposefully directed its activities there. See Arista Records, Inc. v. Sakfield Holding Co., 314 F.Supp.2d 27, 32 (D.D.C.2004); Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 243 F.Supp.2d 1073, 1087 (C.D.Cal.2003).
iii. Analysis of Internet Contacts
This Court now returns its attention to the current case. To review, Dealio software requires a user to download and register it before using it. The software must then ping Vendio's servers from the user's computer to function. Because activation of the software requires independent action by a user, and because the software cannot function without the acquiescence of the user, these circumstances show a high degree of interactivity-
If the Zippo standard applies here, this level of interactivity appears to favor the exercise of personal jurisdiction. More importantly, this interaction can be connected to Minnesota, based on the fact that thousands of Dealio software users are in Minnesota. But mechanical application of Zippo need not be the sole framework for evaluating these contacts.
The peer-to-peer file sharing cases strongly support the proposition that, where users in the forum state download and use software published by the defen dant, there is sufficient proof that the defendant purposefully directed its activities into the forum state. The reasoning in Multi-Tech Systems is consistent with this rule. Although Multi-Tech Systems focused on sales rather than downloads, it was the existence of commercial activity, and not the precise nature of that activity, that was material. CoolSavings, by comparison, did not need to focus on activity of users in the forum state, because there were other types of contacts involved.
In the current litigation, personal jurisdiction hinges on the connections with Minnesota users, not Minnesota merchants. Even if the record is taken in Northbrook's favor, it shows only nominal revenue flowing to Vendió from Minnesota merchants, and that revenue is earned from affiliate program administrators in other states. But there is ample reason to find that thousands of Minnesota residents have downloaded and used Dealio software. Such contacts are more than enough to conclude that Vendió has purposefully directed its activities into Minnesota.
iv. Purposeful Direction, Intent, and the Stream of Commerce Test
Vendió raises an argument, against this conclusion, that requires careful discussion here. Because it does not learn the physical location of users who download Dealio software, Vendió contends that it could not purposefully direct its activities into Minnesota. Implicit in this position is the notion that, if a defendant does not know where its activities are directed, then it cannot have purposeful conduct toward a forum state.
In the context of a personal jurisdiction analysis, purposefulness is not based on whether a defendant knowingly contacts the forum state. It instead depends on whether the defendant has reason to be aware, from its purposeful conduct, that it may be haled into the courts of the forum state. This question is informed by whether the defendant receives such benefits from the forum state that it may also expect to be subject to liability there. See Shaffer v. Heitner, 433 U.S. 186, 215-16, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977).
The U.S. Supreme Court examined these principles, and the question of foreseeability, in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980). It reasoned that the fortuitous entry of a defendant's product into the forum state, even if this entry is foreseeable, is not enough to show that a defendant purposefully directed its activities there. Id. at 295-96, 100 S.Ct. 559.
To evaluate what level of foreseeability is required, the Court instead developed what has since been called the "stream of commerce" test. Under this test, there are sufficient contacts if a business "delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State." Id. at 298, 100 S.Ct. 559. When considering the expectations of the defendant in this context, the Court looked at whether the product entered the forum state because of the conduct of unrelated third parties, or whether the defendant had a framework in place for marketing its product directly to residents of the forum state. Id. at 297-98, 100 S.Ct. 559.
Subsequent Federal Circuit cases have applied the stream of commerce test and used it to evaluate whether a defendant purposefully directed activities toward a forum state. When using this standard, these eases evaluate purposefulness not in terms of a defendant's intent, but instead by whether the defendant's contacts were foreseeable rather than fortuitous. See Viam Corp. v. Iowa Export-Import Trading Co., 84 F.3d 424, 428-29 (Fed.Cir. 1996); North American Philips Corp. v. American Vending Sales, Inc., 35 F.3d 1576, 1580-81 (Fed.Cir.1994). This Court concludes that the stream of commerce test provides an appropriate means to determine whether Vendió has acted purposefully here.
The question then becomes how the stream of commerce test applies when the internet is involved. Depending on how a defendant uses the internet, it may be viewed as a framework for marketing a product directly to residents of the forum state. If so, it is reasonable to infer that a defendant may foresee that its products will enter that state.
In accordance with these principles, case law in this area typically focuses on whether a defendant's internet marketing strategies are targeted toward users in the forum state. Where a defendant's products reached the forum state, and a website provided support for purchasers who resided there, there was sufficient evidence of purposeful direction toward that state. Jones v. Boto Co., 498 F.Supp.2d 822, 829 (E.D.Va.2007). The same is true where a defendant sells its goods online, and those goods are purchased by users in the forum state, even though the website is not expressly targeted toward the forum state. American Eyewear, Inc. v. Peeper's Sunglasses & Accessories, Inc., 106 F.Supp.2d 895, 901 (N.D.Tex.2000); Stomp, Inc. v. NeatO, LLC, 61 F.Supp.2d 1074, 1078-79 (C.D.Cal.1999).
What is particularly notable about these cases is that the defendants claimed, like Vendió does here, that they did not know their internet activities would reach the forum state. But these arguments were uniformly rejected, often with the observation that a defendant doing business online has ample reason to expect that its activities will reach a distant forum. See Jones, 498 F.Supp.2d at 829; Stomp, Inc., 61 F.Supp.2d at 1078.
Vendió made its Dealio software software freely available on its website, without restricting its availability to users in a particular geographic area. And Dealio software offers its users the opportunity to buy goods from major retailers in the United States. Although Dealio software is not expressly directed at Minnesota residents, the marketing of the software is plainly directed toward users nationwide, including Minnesota. And this observation is confirmed by the fact that thousands of Minnesota residents have actually downloaded and used Dealio software.
Because Dealio software is freely available online, Vendió placed it into the stream of commerce. And because Vendió has directed its marketing activities toward Minnesota residents, its contact with Minnesota is foreseeable rather than fortuitous. As a result of its conduct, Vendió benefits from the laws and privileges of Minnesota, and so it may expect to be held liable there. In these circumstances, the only reasonable conclusion is that Vendió purposefully directed its activities into Minnesota.
As an internet-oriented business, Vendió must be well aware that the internet offers the opportunity to enter remote markets at minimal cost. But it must also know that this opportunity comes with a corresponding danger, that its activity may result in being held liable in a distant forum. In such circumstances, Vendió cannot avoid jurisdiction simply by ignoring information about the physical location of its Dealio software users.
If Vendio's position were taken to its logical conclusion, then any entity doing business over the internet could avoid jurisdiction simply by disregarding informa tion about the location of its customers. Such a rule overlooks other concerns, such as interactivity, foreseeability, and commercial activity, which are the ordinary hallmarks of internet jurisdictional analysis. With due regard for these concerns, this Court is persuaded that jurisdiction is appropriate here.
v. Revenues as a Measure of Activity in the Forum State
Vendió also implies that, because it receives minimal revenue from the use of Dealio software in Minnesota, its activities here are insufficient for personal jurisdiction. At the motion hearing, Northbrook focused on this issue, arguing that revenues should not be the sole means to measure Vendio's contacts with Minnesota.
Though the Federal Circuit does not squarely address this issue, it treats revenues as but one factor when examining contacts with a forum state. Other commercial activities are no less important. See Dainippon Screen Mfg. Co. v. CFMT, Inc., 142 F.3d 1266, 1271 (Fed.Cir.1998); cf. Deprenyl Animal Health, Inc. v. Univ. of Toronto Innovations Found., 297 F.3d 1343, 1352 (Fed.Cir.2002) (upholding minimum contacts, where defendant engaged in licensing activity in the forum state, without considering whether the defendant earned revenues there).
Given the intensive analysis up to this point, this Court thinks it enough to observe that Vendio's revenues are not particularly material to the issues presented here. The primary factual concerns, instead, are the distribution and use of the Dealio software. To the extent that Vendió asserts that its revenues are insufficient, however, it may be implying that there are no sales that support jurisdiction over a claim for patent infringement. This line of inquiry anticipates the next issue in this analysis, whether Northbrook's claims arise from the activities that Vendió directed toward Minnesota.
b. Claim Arising out of Activities in Forum State
Assuming that Vendió has purposefully directed its activities toward Minnesota, the next issue is whether Northbrook's patent infringement claims arise out of those activities. This issue is informed by the statute that permits suit for patent infringement. See 3D Sys., Inc. v. Aarotech Labs., Inc., 160 F.3d 1373, 1379 (Fed.Cir.1998). Infringement occurs under 35 U.S.C. § 271(a) when one "makes, uses, offers to sell, or sells any patented invention[.]"
Because Dealio software is available for free, there is evidently no sale under § 271(a). But it is plain that, when Minnesota residents employ Dealio software's search feature, Vendió is using accused technology to provide this service. Because the accused software allegedly infringes the patents-in-suit, these circumstances establish that Northbrook's patent infringement claim arises from Vendio's activities in Minnesota. Multi-Tech Sys., Inc. v. VocalTec Communications, Inc., 122 F.Supp.2d 1046, 1051 (D.Minn.2000) ("This case is unusual because the use of the interactive technology itself infringes the plaintiffs patent.").
Although Northbrook prevails on this outcome, it has an argument it is prudent to address here. It proposes that, to determine whether its claim arises out of Vendio's contacts, it is proper to use the "effects test." This test originates from the U.S. Supreme Court decision in Calder v. Jones, 465 U.S. 783, 104 S.Ct. 1482, 79 L.Ed.2d 804 (1984), and it is typically used to determine personal jurisdiction in matters involving intentional torts. The general analysis, under the effects test, is whether a defendant intentionally committed a wrongful act and intended the harm to be felt in the forum state. See Finley v. River North Records, Inc., 148 F.3d 913, 916 (8th Cir.1998) (fraud); General Elec. Capital Corp. v. Grossman, 991 F.2d 1376, 1387-88 (8th Cir.1993) (corporate malfeasance). Because patent infringement is an intentional tort, Northbrook argues, this test should be applied here.
The Federal Circuit sometimes uses the effects test to evaluate, in a declaratory judgment action, whether the action arises out of patent licensing activity. See Silent Drive, Inc. v. Strong Indus., Inc., 326 F.3d 1194, 1203-04 (Fed.Cir.2003); Akro Corp. v. Luker, 45 F.3d 1541, 1547 (Fed.Cir. 1995). Contrary to the proposition urged by Northbrook, however, these cases do not apply the effects test to patent infringement claims, nor is there any indication the Federal Circuit would embrace such a rule.
The probable reason is that, except for vicarious liability, patent infringement does not require an intent to infringe. See Intel Corp. v. Int'l Trade Comm'n, 946 F.2d 821, 832 (Fed.Cir.1991). Assuming that patent infringement may be characterized as a tort, Trintec Indus. Inc. v. Pedre Promotional Prods., Inc., 395 F.3d 1275, 1280 (Fed.Cir.2005), it is not an intentional tort. For this reason, it is'not appropriate to apply the effects test here. Glaxo Inc. v. Genpharm Pharms., Inc., 796 F.Supp. 872, 876-77 (E.D.N.C.1992).
c. Fairness and Substantial Justice
In this specific personal jurisdiction analysis, the remaining issue is whether the exercise of personal jurisdiction accords with fairness and substantial justice. When examining this issue, a court generally considers the consequences of haling the defendant into the forum state, such as (1) the burden on the defendant; (2) the interest of the forum state; (3) the interest of the plaintiff in obtaining relief; (4) the interest of the interstate judicial system in expeditious resolution of controversies; and (5) the interest of the states generally in furthering social policy. Viam Corp. v. Iowa Export-Import Trading Co., 84 F.3d 424, 429 (Fed.Cir.1994).
When examining the factors, fairness and substantial justice are not compromised except in the
rare situation in which the plaintiffs interest and the state's interest in adjudicating the dispute are so attenuated that they are clearly outweighed by the burden of subjecting the defendant to litigation within the forum.
Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1568 (Fed.Cir.1994).
As Vendió is based in California, and all its offices are located there, it faces substantial burdens when litigating in Minnesota. But Northbrook has a countervailing interest in obtaining relief in Minnesota. And because Dealio software affects users and businesses in Minnesota, the state has an interest as well.
This Court concludes that, because both the interests of Northbrook and Minnesota have substantial weight, the exercise of personal jurisdiction does not violate fairness or substantial justice. This outcome means that in this matter, all the elements for specific personal jurisdiction over Vendió are satisfied. So its motion to dismiss for lack of personal jurisdiction is properly denied. And because Vendió only asserts lack of personal jurisdiction against North-brook's motion to amend, this motion is correspondingly granted.
B. Transfer of Venue
Vendió alternatively argues that, even if the exercise of personal jurisdiction is proper here, venue should be transferred to the Northern District of California. When deciding a motion to transfer venue in a patent case, a court applies the law of its regional circuit, rather than that of the Federal Circuit. Storage Technology Corp. v. Cisco Sys., Inc., 329 F.3d 823, 836 (Fed.Cir.2003).
A district court may, for the convenience of the parties and witnesses and in the interests of justice, transfer venue to any district where the action may be brought. 28 U.S.C. § 1404(a). Although a motion for transfer of venue is committed to the discretion of the district court, such a motion should not be granted freely. It is presumed that a case should be venued in the current forum, and the moving party has the burden to show that a proposed forum is more convenient. Terra Int'l, Inc. v. Mississippi Chem. Corp., 119 F.3d 688, 691 (8th Cir.1997); Graff v. Qwest Communications Corp., 33 F.Supp.2d 1117, 1121 (D.Minn.1999).
Where the proposed forum is more convenient for the moving party, and would only shift inconvenience to the nonmoving party, transfer is appropriately denied. But where the proposed forum provides more access to live witness testimony, and will provide some extra convenience for the nonmoving party, transfer may be granted. K-Tel Int'l, Inc. v. Tristar Prods., Inc., 169 F.Supp.2d 1033, 1045-46 (D.Minn.2001). A court may also consider the relative ability of the parties to bear the costs of litigating in a distant forum. Radisson Hotels Int'l, Inc. v. Westin Hotel Co., 931 F.Supp. 638, 641-42 (D.Minn.1996).
Vendió proposes that this litigation be transferred to the Northern District of California. It maintains its offices there, as well as the servers for its website and for Dealio software operations. And it has thirty employees, including several who allegedly had important roles in the development of the accused search feature in Dealio software. (Exh. 2 at 1, 3.) Vendió adds that two of its employees, with material knowledge about Dealio software, recently departed. Because these persons continue to reside in the Northern District of California, Vendió asserts, only that district has the power to subpoena them. (See Exh. 5 at 4.)
Northbrook responds that it has but one material witness, Mark Wolfe, but that he has a substantial role in this litigation. Wolfe is the founder, and apparently the sole stakeholder, in Northbrook. He is also the named inventor and the prosecutor of the patents-in-suit. According to Wolfe, Northbrook lacks the resources to litigate in California, and he must participate in this litigation personally to pursue Northbrook's claims for patent infringement. (Exh. 10 at 1, 4-7; Exh. 11 at 1-2.)
Evidence about Dealio software, and witnesses with knowledge regarding its accused features, are generally located in California. For this reason, it is somewhat more convenient. This benefit however, favors Vendió at the expense of North-brook. Vendió would have its proof close at hand, and would avoid the cost of litigating in a distant forum, whereas North- brook would take its evidence to California and accrue substantial costs litigating there. Assuming it is necessary to subpoena witnesses in California, this fact is not particularly material, as the parties evidently will have to do so there regardless of where this matter is ultimately venued.
Transfer of venue to California, therefore, effectively shifts cost and inconvenience from Vendió to Northbrook. In such circumstances, Vendió does not overcome the presumption that favors litigation of this matter in Northbrook's selected forum. It is also appropriate, therefore, to deny Vendio's motion to transfer venue.
C. Protective Order
The next inquiry in this matter arises from Vendio's application for a protective order. As this Court signaled in an order on January 18, 2008, the application is in effect a motion, now ripe for decision. This Court further notes that the application seeks nondispositive relief, which ordinarily is not handled by a report and recommendation to the district judge. This procedure requires some explanation.
Since this litigation began, Vendió has forcefully opposed disclosure of its confidential information to Wolfe, for reasons that will be explored later. Pending a decision on a protective order, Northbrook has limited Wolfe's access to its documents. Based on the same concerns about confidentiality, the parties have redacted many of the documents that were filed for the motions currently under consideration. To ensure an appropriate public record for these motions, subject to any justifiable interests in confidentiality, this Court deems it appropriate to handle these issues now.
1. General Principles
Protective orders are controlled by Rule 26(c), which provides that for good cause shown, a party may seek an order that limits the scope or dissemination of discoverable information. A court has broad discretion to fashion a protective order, and the general public right of access does not reach pretrial discovery. Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36-37, 104 S.Ct. 2199, 81 L.Ed.2d 17 (1984). Rule 26(c)(7) specifically contemplates such protection for confidential commercial information. See Phillips ex rel. Estates of Byrd v. General Motors Corp., 307 F.3d 1206, 1210-11 (9th Cir.2002).
A party seeking a protective order has the burden to show good cause. Chicago Tribune Co. v. Bridgestone/Firestone, Inc., 263 F.3d 1304, 1313-14 (11th Cir.2001); General Dynamics Corp. v. Selb Mfg. Co., 481 F.2d 1204, 1212 (8th Cir.1973). To make this showing, the moving party cannot rely on broad or conclusory allegations of harm. Gulf Oil Co. v. Bernard, 452 U.S. 89, 102 n. 16, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981). Where the moving party makes a sufficient showing that public disclosure will cause it harm, the burden then shifts to the nonmoving party to demonstrate that open disclosure outweighs any private interests in nondisclosure. American Standard Inc. v. Pfizer Inc., 828 F.2d 734, 740 (Fed.Cir.1987); Ci pollone v. Liggett Group, Inc., 785 F.2d 1108, 1122 (3d Cir.1986).
2. Protective Orders Against Patent Counsel
Patent litigation often requires parties to disclose confidential information to one another. And where the parties are competitors in a particular field, there is danger that one party may use such information to the competitive disadvantage of the other. The typical means to mitigate this risk is through a protective order that allows documents to be designated "attorneys eyes only." This designation ensures that only counsel, and no other officers or employees of the party, have access to confidential information. Counsel may thus advance their party's interests without the risk that an adverse party will use confidential information for purposes other than litigation. See Avocent Redmond Corp. v. Rose Elecs., Inc., 242 F.R.D. 574, 575-76 (W.D.Wash.2007); Glaxo Inc. v. Genpharm Pharms., Inc., 796 F.Supp. 872, 874 (E.D.N.C.1992).
This procedure works if litigation counsel consists of an outside law firm, or "external counsel," whose involvement is limited to litigation alone. But where a party employs its own attorneys, or "internal counsel," as litigation counsel, there is a risk that these attorneys may use information acquired in litigation in other areas of their employment. Notwithstanding their best professional efforts, internal counsel may acquire confidential information in litigation and use it for other matters, to the advantage of their employer and the disadvantage of the opposing party. See Intel Corp. v. VIA Techs., Inc., 198 F.R.D. 525, 529-30 (N.D.Cal.2000).
The Federal Circuit considered the appropriate scope of a protective order, in a scenario where internal counsel also served as litigation counsel, in U.S. Steel Corp. v. United States. 730 F.2d 1465 (Fed.Cir.1984). The court first observed that, when deciding whether counsel should have access to confidential information, designation as internal or external counsel is immaterial. The court instead took a more factually oriented approach, asking whether counsel is involved in "competitive decisionmaking" for the party. Id. at 1468-69.
The U.S. Steel court described involvement in competitive decisionmaking as
counsel's activities, association, and relationship with a client that are such as to involve counsel's advice and preparation 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. In dictum, the court also suggested a protective order against internal counsel may not be warranted in circumstances that work "extreme and unnecessary hardship" against a party. Id. at 1469.
Since U.S. Steel, the competitive decisionmaker standard, with the hardship exception, has governed protective orders against patent counsel. See Matsushita Elec. Indus. Co. v. United States, 929. F.2d 1577, 1578-79 (Fed.Cir.1991); Avocent Redmond Corp., 242 F.R.D. at 577. In the current litigation, the parties' dispute requires consideration of both the underlying standard and the exception. Before commencing this analysis, however, some more factual background is useful.
3. Competitive Decisionmaking
a. Background
As noted earlier, Wolfe is the named inventor for all the patents-in-suit. He prosecuted all the patents and is currently the sole assignee. Wolfe then formed Northbrook as a means to pursue licensing of the patents, and Northbrook has no other business. So Northbrook does not provide any products or services, and it lacks any facilities for implementing or marketing the technologies in the patents-in-suit. Wolfe further asserts that North-brook has no future plans to further market or develop these patents. (Exh. 10.)
The record, however, does not disclose the exact nature of the relationship between Wolfe and Northbrook. Vendió alleges that Wolfe is the sole member of Northbrook and that, as a practical matter, Northbrook is but an alter ego for Wolfe. Setting aside the legal ramifications of whether Northbrook is an alter ego, there otherwise is sound support for Vendio's allegations. From his own declaration, it may be inferred that Wolfe controls licensing negotiations and litigation activity for Northbrook. And these matters appear to be Northbrook's entire business. Given his role as the inventor and the assignee for the patents, and the authority that he exercises on behalf of Northbrook, it is reasonable to conclude that Wolfe is the principal stakeholder in Northbrook, if not its sole member.
This conclusion means that Wolfe is a decisionmaker, if not the sole decisionmaker, for Northbrook. Northbrook does not materially dispute that Wolfe is involved in decisionmaking. It instead argues that these decisions are not competitive, because Northbrook does not compete with Vendió. Northbrook contends that, unlike Vendió, it does not develop or sell software, nor does it engage in any other activity to commercialize the technology in the patents-in-suit. In particular, it denies that it makes any decisions about pricing or design, the examples that the U.S. Steel court used to describe competitive decisionmaking.
This argument may be framed into two discrete areas. One is that Northbrook does not engage in competitive activities against Vendió. The other is that, because Northbrook lacks the ability to market or manufacture its own products, it cannot be deemed a competitor in any case.
b. Activities Involving Competitive Decisionmaking
As a threshold matter, this Court observes that the U.S. Steel court did not take á narrow view of competitive decision-making. Though it signaled that pricing and design may be types of competitive decisionmaking, it included "any or all" decisions that are influenced by "similar or corresponding information about a competitor." U.S. Steel, 730 F.2d at 1468 n. 3. Ensuing decisions, though none from the Federal Circuit itself, have examined whether particular sorts of activities involve competitive decisionmaking.
In this area, the parties evidently focus on cases involving patent prosecution. By itself, this activity may not be enough to implicate competitive decisionmaking. See Avocent Redmond Corp., 242 F.R.D. at 578-79; MedImmune, Inc. v. Centocor, Inc., 271 F.Supp.2d 762, 773-74 (D.Md. 2003). Such decisionmaking is more likely to be implicated, however, where there is a relationship between the prosecution and the patents-in-suit. In particular, where related patents are being prosecuted and litigated simultaneously, a party may obtain strategic advantage by using information from the litigation in the patent prosecution. Mercexchange, L.L.C. v. eBay, Inc., 467 F.Supp.2d 608, 624-25 (E.D.Va. 2006); Interactive Coupon Mktg. Group v. H.O.T.! Coupons, LLC, No. 98-7408, 1999 WL 618969 at *2-*3 (N.D.Ill. Aug.9, 1999).
Because Northbrook is not currently engaged in patent prosecution, however, these cases are not very useful here. Northbrook's business, and thus its decisionmaking, instead involves patent licens ing. For this reason, a better question is whether counsel's involvement in licensing will implicate competitive decisionmaking.
Only one published decision, from the Northern District of California, appears to address this issue. Intel Corp. v. VIA Techs., Inc. involved internal counsel who was actively involved in negotiating licensing agreements. 198 F.R.D. 525 (N.D.Cal. 2000). As part of these duties, counsel evaluated "the strength of the patent, [her client's] products implicated by the patent, and competitors' products implicated by the patent." Id. at 530. The court ruled that this activity involved competitive decisionmaking, crediting testimony that such activity "directly affected [her client's] competitiveness in the market by affecting [her client's] ability to sell products." Id.
Though the current litigation involves different circumstances, the Intel decision remains persuasive here. Perhaps the most important principle is that licensing, by itself, has an impact on the competitive posture of a business. A license provides a business with the ability to benefit from the patentee's monopoly on the patented technology. Without a license, the business faces the costs of liability, or it must develop some other alternative to the invention.
The Intel court also implicitly recognizes that licensing negotiations require counsel to evaluate what a patent is worth. A license may be worth more where the patent is particularly useful, or where it avoids the cost to develop proprietary technology; a license may be worth less where the patent is vulnerable to concerns about enforceability.
When defending against infringement claims, an accused party is highly likely to provide confidential information that is material to all of these issues. Such information may be used to assess the cost of a license. So there is a pricing decision that can be shaped by corresponding information from a competitor. Involvement in a party's licensing activity, therefore, implicates competitive decisionmaking.
c. Competitive Posture; Ability to Exploit Patented Technology
As the preceding analysis suggests, the question of competitiveness does not depend on whether a party markets or manufactures a competing product. Put differently, competition can be inferred from shared interest in a single patented technology, even though the patentee lacks the capital to produce the technology. And this principle is supported elsewhere in patent law.
A patentee may exploit patented technology in many ways, either by using or marketing the patented technology itself; by licensing the right to use or market that technology to others; or by excluding others from using or marketing the technology. Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1578 (Fed.Cir.1991). But a patentee has no obligation to use the patented technology, and pursuant to the right to exclude others, may limit or prevent others' use of that technology. See Carborundum Co. v. Molten Metal Equip. Innovations, Inc., 72 F.3d 872, 880 (Fed. Cir.1995) ("A patentee is generally entitled to determine how it wishes to commercialize its invention to optimize its economic benefit from the patent grant."); see also Monsanto Co. v. Scruggs, 459 F.3d 1328, 1340 (Fed.Cir.2006) (recognizing field restrictions on patent licensees' use); Catalina Mktg. Int'l, Inc. v. Coolsavings.com, Inc., 289 F.3d 801, 809 (Fed.Cir.2002) (describing scope of patentees' right to exclude).
A patentee may decide, therefore, to profit through licensing rather than by marketing or manufacturing the patented technology. But under either scenario, the patentee has commercial interests that conflict with other businesses using similar technology. So even where a patentee lacks the ability to produce the technology, the patentee is in a competitive posture against other businesses in the field.
d. Result
Although Northbrook evidently lacks the capability to market or manufacture its patents, its interest in the patented technology is enough to establish its competitive posture with potential licensees such as Vendió. And because Wolfe essentially controls all of Northbrook's affairs, including its licensing activity, he is involved in the competitive decisionmaking of North-brook.
Vendió has accordingly shown that Wolfe is involved in competitive decision-making and, if its confidential information is disclosed to him, Vendió faces substantial harm. Cf. Intel Corp., 198 F.R.D. at 530. In such circumstances, it would ordinarily be appropriate to enter a protective order that prevents Wolfe from accessing Vendio's confidential information. The analysis now turns whether such an order causes hardship to Northbrook.
4. Hardship
a. Background
In its arguments regarding hardship, Northbrook discusses Wolfe's unique multiple roles, both as its principal and as the inventor for the patents-in-suit. According to Wolfe, his work as the inventor means that he has unique qualifications in the area of the patented technology. In particular, Wolfe claims expertise in obsolete software, which is evidently representative of the state of the art at the time the patents-in-suit issued. To determine whether Dealio software infringes the patents-in-suit, Wolfe implies, it will be necessary to compare Dealio software with the obsolete software. (Exh. 10 at 4-5.)
Wolfe adds that such obsolete software may no longer be available for analysis or study. So if Northbrook were to retain an expert, Wolfe contends, that expert faces substantial obstacles to understanding of the patented technology. (Id.) Due to his unique qualifications, Northbrook asserts that Wolfe must be its expert witness, and otherwise, it cannot afford to retain or educate another expert. (Exh. 11 at 2.)
Some different issues arise out of the legal relationship between Wolfe and Northbrook. As noted beforehand, the record does not precisely identify this relationship, but it is reasonable to infer that Wolfe is the principal of Northbrook and he controls its affairs. If so, then Wolfe is also directing litigation strategy and supervising external counsel. What is more, at the motion hearing, Northbrook further indicated that Wolfe would also act as litigation counsel and would be conducting depositions.
What this litigation presents, therefore, is a scenario where one person is the patentee; a fact witness and an expert witness; a controlling officer for a party; and counsel of record. Such circumstances are evidently unprecedented. Northbrook ar gues that, if Wolfe is constrained by a protective order, it will impair Wolfe's ability to perform one or more of his assorted roles. And Northbrook contends that it is unable, in part due to lack of financial resources, to substitute another person in these roles. So it essentially claims a protective order against Wolfe will put it out of court.
b. Analysis
Turning to the analysis, a few rules may be taken from published decisions in this area. Hardship cannot solely be based on a showing that a party cannot afford external counsel, A. Hirsh, Inc. v. United States, 657 F.Supp. 1297, 1305-06 (C.I.T. 1987), or that it may have difficulties supervising external counsel, Intel Corp. v. VIA Techs., Inc., 198 F.R.D. 525, 528-29 (N.D.Cal.2000). Moreover, a court will presume that external counsel is competent to review confidential information on behalf of the party. Intel Corp., 198 F.R.D. at 528-29.
This rule has one notable exception. Where internal counsel has specialized expertise about the patents-in-suit, and that expertise is necessary for evaluating confidential materials and supervising litigation, there is an adequate showing of hardship to overcome a protective order. See Intel Corp., 198 F.R.D. at 528-29; cf. U.S. Steel Corp. v. United States, 730 F.2d 1465, 1469 (Fed.Cir.1984) (allowing internal counsel to retain access to confidential materials where the litigation was "extremely complex and at an advanced stage").
Similar principles have applied in circumstances that do not necessarily involve counsel. If a party has employees with "substantial experience in a narrow field that cannot be replaced in the open market," and thus denying those employees access to confidential materials will impair the party's ability to prosecute an infringement claim, there is a sufficient showing of hardship. MGP Ingredients, Inc. v. Mars, Inc., 245 F.R.D. 497, 502 (D.Kan.2007). If a party chooses to use its employees as expert witnesses in litigation, however, a court may take measures to limit those employees' disclosures in other areas, such as patent prosecution. Mercexchange, L.L. C. v. eBay, Inc., 467 F.Supp.2d 608, 624-25 (E.D.Va.2006).
Courts have not accorded much significance to the fact that a corporate officer is among those bound by a protective order. So where the president of a party had unique expertise on patented technology, he was allowed to access some confidential information for the purpose of preparing an expert opinion, but this access was carefully limited. Micro Chem., Inc. v. Lextron, Inc., 193 F.R.D. 667, 668 (D.Colo. 2000). And where general counsel for a party was also the designated president pro tem for a closely held corporation, this relationship did not influence entry of a protective order limiting general counsel's access to confidential information. See A. Hirsh, 657 F.Supp. at 1299, 1305-06.
To summarize, hardship cannot be founded solely on concerns about inconvenience or expense. There must be some further showing that, because of a party's inability to access confidential information, it will lack access to evidence that is essential to its litigation. As the preceding analysis shows, examples include where a party cannot meaningfully supervise the litigation; or where a party's employees have such expertise that they are the only ones who can serve as expert witnesses.
c. Outcome
Northbrook has retained external counsel, and this Court presumes that external counsel is competent to evaluate Vendio's confidential information. If Wolfe is not allowed to access the information, and Northbrook incurs greater attorney fees or because retains outside experts, such increased costs do not establish hardship under the applicable case law. And though Northbrook claims that it cannot afford these expenses, that cost is balanced by the potential costs Vendió faces from the dissemination of its confidential information. Cf. A. Hirsh, Inc., 657 F.Supp. at 1305-06.
The hardship to Northbrook instead hinges on whether Wolfe has such unique knowledge that, without his participation, it will lack evidence essential to the prosecution of its case. This Court is persuaded that Wolfe indeed has specialized knowledge about the patented technology. What is less clear, however, is whether this knowledge is essential to Northbrook's preparation of its case. This inquiry must be framed by the question of how this knowledge will be applied to Vendio's confidential information.
For informed supervision of this litigation, Northbrook does not need to be advised of all Vendio's confidential information. To illustrate, Vendió may disclose information regarding its accounts, its clients, or its marketing tactics that are relevant to this litigation, yet do not require particularized expertise to be understood by external counsel. Nor can it be assumed, from the current record, that Wolfe is the only person able to analyze how Vendio's technology influences this litigation. It must be presumed that external counsel, with the assistance of retained experts, is competent to carry out the representation on their own.
Regarding experts, Northbrook indicates that it may be costly to prepare an expert other than Wolfe, but it does not directly claim that Wolfe has "substantial experience in a narrow field that cannot be replaced in the open market." See MGP Ingredients, Inc., 245 F.R.D. at 502. But at this stage of litigation, this Court need not decide whether Wolfe is irreplaceable. It is enough to note, based on North-brook's purported need to analyze now-obsolete software, Wolfe may be uniquely qualified to evaluate Vendio's confidential technology. The record, however, requires further development to answer this question.
5. Order; Case Management
This Court deems it best, under these circumstances, to exercise its discretion and craft a protective order that guards the interests of both parties. To prevent harmful disclosure of confidential information to Northbrook, Vendió may designate such information "attorneys eyes only" and it shall not be disclosed to Wolfe. Assuming no dispute on the confidentiality of this information, Northbrook may then move this Court for permission to disclose this information to Wolfe, on a showing of hardship consistent with the preceding analysis.
As the preceding analysis indicates, Northbrook has the burden to show hardship. Before seeking relief from this Court, it is urged to focus on those documents it deems most essential to its case, and to carefully evaluate whether Wolfe's involvement is necessary. Should a motion go forward, this Court will expect the parties to present evidence that specifically relates to the documents in question, rather than making generalized statements about harm or necessity. And to further promote resolution of such matters, the protective order will also require the parties to meet and confer in good faith before seeking court intervention.
One other remaining issue must be revisited at this point. At the outset of this discussion regarding a protective order, this Court observed that the parties have redacted some information they filed in support of their current motions, notwithstanding the absence of a protective order. Should the District Judge adopt this report, and so maintain jurisdiction over this matter, then it will be necessary to review the filings and determine what matters are properly sealed under a protective order. In the recommendations at the end of this report, this Court outlines some procedures for handling these issues.
D. Attorney as Witness
1. Introduction
In addition to the parties' motions, this Court deems it prudent to raise one other issue. As the preceding discussion indicates, Wolfe evidently intends to proceed in this litigation as a fact witness, an expert witness, and counsel of record. These circumstances plainly present an ethical concern about whether he may act as both an attorney and a witness.
To maintain public confidence in the legal profession and the courts, a court has inherent authority to regulate and discipline attorneys at bar, North Star Hotels Corp. v. Midr-City Hotel Assocs., 118 F.R.D. 109, 112 (D.Minn.1987), and a court may address violations of professional ethics on its own initiative, O'Connor v. Jones, 946 F.2d 1395, 1399 (8th Cir.1991). Under Local Rule 83.6(d)(2), attorneys admitted to practice in this District are bound by the Minnesota Rules of Professional Conduct. Applicable here is Rule 3.7(a), which provides,
A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless:
(1) the testimony relates to an uncontested issue;
(2) the testimony relates to the nature and value of legal services rendered in the case; or
(3) disqualification of the lawyer would work substantial hardship on the client.
An attorney is a necessary witness, under this rule, where no other person can testify in the place of the attorney. See Humphrey ex rel. State of Minnesota v. McLaren, 402 N.W.2d 535, 541 (Minn. 1987) (discussing substantially similar predecessor rule). Because Wolfe is the named inventor on the patents-in-suit, there is little question that he is a necessary witness in the current litigation. At the motion hearing, Northbrook said as much, describing Wolfe as the "key trial witness."
The issue, therefore, is whether Wolfe may continue to participate as litigation counsel without violating the rule. At the motion hearing, Northbrook represented that Wolfe would not be appearing as litigation counsel at trial. But it added that Wolfe would have a significant role in pretrial litigation, and in particular, that he would conduct most depositions. Consistent with its arguments regarding the protective order, Northbrook asserts that if Wolfe is not allowed to proceed with the representation, it will suffer hardship and be unable to prosecute its claims.
These circumstances raise two issues. One is whether Wolfe may conduct pretrial litigation without violating the rule. The other is whether disqualification of Wolfe works a substantial hardship to North-brook. Minnesota authorities do not offer much guidance on either question. Because Rule 3.7 is adopted from the Model Rules of Professional Conduct, however, persuasive guidance may be found in case law from other jurisdictions that adopt the model rule. Cf. In re Disciplinary Action Against Graham, 453 N.W.2d 313, 321-22 (Minn.1990); Hurwitz v. Padden, 581 N.W.2d 359, 363 (Minn.App.1998).
2. Participation in Pretrial Litigation
The primary purpose served by the attorney-as-witness rule is to prevent undue confusion and prejudice at trial. As the commentary accompanying the rule observes,
A witness is required to testify on the basis of personal knowledge, while an advocate is expected to explain and comment on evidence given by others. It may not be clear whether a statement by an advocate-witness should be taken as proof or as an analysis of the proof.
For this reason, participation in pretrial litigation is not cause for concern, except where it may potentially be disclosed at trial. Culebras Enters. Corp. v. Rivera-Rios, 846 F.2d 94, 99-100 (1st Cir.1988); Fognani v. Young, 115 P.3d 1268, 1276-77 (Colo.2005).
If Wolfe does conduct depositions in this litigation, this Court is not prepared to assume that none of the deposition testimony will be received at trial. There is a risk that such evidence will reveal Wolfe's role as an attorney, which especially in complex patent litigation, may cause preju dice or confusion. See World, Youth Day, Inc. v. Famous Artists Merchandising Exchange, Inc., 866 F.Supp. 1297, 1303-04 (D.Colo.1994); see also General Mill Supply Co. v. SCA Servs., Inc., 697 F.2d 704, 716 (6th Cir.1982) (considering predecessor rule).
3. Hardship
On the issue of hardship, the commentary to the rule provides,
[A] balancing is required between the interests of the client and those of the tribunal and the opposing party. Whether the tribunal is likely to be misled or the opposing party is likely to suffer prejudice depends on the nature of the case, the importance and probable tenor of the lawyer's testimony, and the probability that the lawyer's testimony will conflict with that of other witnesses. Even if there is risk of such prejudice . due regard must be given to the effect of disqualification of a lawyer's client. It is relevant that one or both parties could reasonably forsee that the lawyer would probably be a witness.
If an attorney is a necessary witness for a party, and the attorney is also an officer or stakeholder for that party, courts often find prejudice to the adverse party. One rationale is that counsel is more likely to be motivated by pecuniary interest than advocacy. See Mt. Rushmore Broad., Inc. v. Statewide Collections, 42 P.3d 478, 482 (Wyo.2002); Int'l Res. Ventures, Inc. v. Diamond Mining Co., 326 Ark. 765, 934 S.W.2d 218, 220-21 (Ark.1996).
Regarding the countervailing weight to be given to the effects of disqualification, courts have not found adverse effects simply because the attorney is also an officer or stakeholder. See McCulloch v. Velez, 364 F.3d 1, 4-5 (1st Cir.2004); Emerald Partners v. Berlin, 564 A.2d 670, 680 (Del. Ch.1989). If such a conflict is foreseeable, as the commentary suggests, then courts will ordinarily expect that a party retain outside counsel. See Mt. Rushmore Broad., Inc., 42 P.3d at 482; Int'l Res. Ventures, Inc., 934 S.W.2d at 221; cf. Collins Entertainment, Inc. v. While, 363 S.C. 546, 611 S.E.2d 262, 271 (S.C.Ct.App.2005) (upholding district court order that counsel either proceed as attorney or fact witness).
Northbrook bases its allegations of hardship, in part, on the additional legal costs it will incur if Wolfe does not serve as its litigation counsel. Some courts suggest such costs may be a factor in determining hardship. See D.J. Investment Group, L.L. C. v. Dae/Westbrook, L.L. C., 147 P.3d 414, 424 (Utah 2006); cf. Sargent County Bank v. Wentworth, 500 N.W.2d 862, 872 (N.D.1993) (noting increased costs to replace counsel where litigation was ongoing for years); McElroy v. Gaffney, 129 N.H. 382, 529 A.2d 889, 893 (N.H.1987) (plurality opinion) (similar).
A more common concern is whether a party will lose the knowledge and expertise that counsel has acquired throughout the litigation. So as the duration of litigation increases, there is an accordingly greater likelihood that disqualification of counsel will work hardship against the client. See Carta ex rel. Estate of Carta v. Lumbermens Mut. Cas. Co., 419 F.Supp.2d 23, 31-32 (D.Mass.2006); Brown v. Daniel, 180 F.R.D. 298, 302 (D.S.C.1998).
4. Conclusion
Because Wolfe has an interest in North-brook's success in this litigation, his participation as both a witness and litigation counsel causes prejudice to Vendió. This prejudice is weighed against the potential effects of disqualification. Wolfe's evident status as the controlling member of North-brook is immaterial. Northbrook also had reason to foresee that Wolfe was a necessary witness — it admits as much — and he may be disqualified at this early stage of litigation without necessarily impairing Northbrook's preparation of its case.
What remains, therefore, are the additional attorney fees that Northbrook incurs in lieu of the services provided by Wolfe. As noted beforehand in the protective order analysis, the record does not explain how this cost affects Northbrook or its ability to prosecute its claims. See infra at p. 763 n. 8. Nor is it evident, from authorities examining the rule, that such costs are enough to establish hardship.
Some significant ethical questions are presented by Wolfe's representation of Northbrook in this litigation, and this Court has an obligation to take note of them. But it is not appropriate, at this time, to take action on these questions. Pursuant to Local Rule 83.6(d)(1), it is suitable for Wolfe to receive notice and an opportunity to be heard. This Court accordingly recommends that he be ordered to show cause why he not be disqualified from representation, for violation of Rule 3.7(a), and that the parties be given time for briefing on this matter. Cf. In re SuperGuide Corp., 18 Fed.Appx. 810, 812 (Fed.Cir.2001).
III. CONCLUSION
Because Vendió does not have systematic and continuous contacts with Minnesota, it is not subject to general personal jurisdiction here. Minimal contacts are established, however, by Minnesota residents who have downloaded and used Vendio's software. Because Northbrook's patent infringement claims arise from the contacts, and because exercising personal jurisdiction comports with fairness and substantial justice, Vendió is subject to specific personal jurisdiction in Minnesota.
Although evidence and witnesses may be found in the Northern District of California, transfer of venue there does little more than shift costs of litigation from Vendió to Northbrook. For this reason, Vendió does not overcome the presumption of venue in Northbrook's selected forum, and it is not appropriate to transfer venue. This Court concludes that Vendio's motion to dismiss for lack of personal jurisdiction, or in the alternative to transfer venue, is appropriately denied.
As Wolfe is evidently the controlling member of Northbrook, and because he engages in its licensing activities, he is involved in competitive decisionmaking. Notwithstanding the fact that Northbrook lacks the ability to market or manufacture its patented technologies, its interest in those technologies is enough to establish its competitive posture against other businesses in the field. Under these circumstances, a protective order is appropriate, under which Vendió may withhold its confidential information from Wolfe. North-brook may challenge such withholding, however, on an appropriate showing of hardship.
Because Wolfe will be a necessary witness at trial, his continued participation as counsel for Northbrook raises significant ethical questions. Under the circumstances, it is suitable that he show cause why he not be disqualified from his representation in this litigation.
IV. RECOMMENDATION
Being duly advised of all the files, records, and proceedings herein, IT IS HEREBY RECOMMENDED THAT:
1. Vendio's motion to dismiss or in the alternative to transfer venue (Doc. No. 24) be DENIED.
2. Northbrook's motion to amend its complaint (Doc. No. 35) be GRANTED.
3. Vendio's application for a protective order (Doc. No. 34) be GRANTED.
4. No later than seven days after the order adopting this report, the Magistrate Judge issue a protective order consistent with this report.
5. No later than fourteen days after the order adopting this report, the parties meet and confer to determine whether redactions in previously filed documents may be sealed consistent with the protective order.
6. No later than twenty-one days after the order adopting this report, the parties do one or both of the following:
a. File a stipulation and proposed order stating how redactions in previously filed documents should be handled.
b. File letter memoranda that, concisely and with particularity, explain the parties' disputes on whether previously filed documents are subject to seal under the protective order.
7. Once the parties' submissions regarding the redacted documents are complete, the Magistrate Judge shall take the matter under advisement without further hearing.
8. No later than fourteen days after the order adopting this report, Mr. Wolfe shall file a memorandum and affidavit and SHOW CAUSE why he not be disqualified from representation for violation of Rule 3.7(a). These submissions shall specifically address the legal questions raised in this report.
9. No later than twenty-one days after the order adopting this report, the parties may file memoranda addressing any contentions raised by Mr. Wolfe.
10. Once these submissions are complete, the District Judge determine if a hearing is appropriate, or whether this matter should be referred to the Magistrate Judge for further consideration.
April 4, 2008.
APPENDIX
Exh. 1 Screen Shots [undated] (Deck of J. Nichols, Feb. 15, 2008, Exhs. A, H) [Doc. No. 52],
Exh. 2 Deck of R. Sales, Oct. 17, 2007 [Doc. No. 28].
Exh. 3 Contract, June 19, 2007 (Deck of J. Nichols, Feb. 15, 2008, Exh. B) [Doc. No. 52],
Exh. 4 Contract, Mar. 1, 2007 (Deck of J. Nichols, Feb. 15, 2008, Exh. C) [Doc. No. 52].
Exh. 5 Deck of R. Sales, Feb. 25, 2008 [Doc. No. 40].
Exh. 6 Depo. of R. Sales, Feb. 4, 2008 (Deck of J. Nichols, Feb. 15, 2008, Exh. G) [Doc. No. 52].
Exh. 7 Report [undated] ("Financial Figures and Analysis") (Deck of J. Nichols, Feb. 15, 2008, Exh. F) [Doc. No. 52],
Exh. 8 Report [undated] ("Explanation of Estimation of Annual Minnesota Revenue from Auto-Search") (Deck of J. Nichols, Feb. 15, 2008, Exh. F)' [Doc. No. 52].
Exh. 9 Report [undated] ("Collections from Minnesota Customers") (Deck of J. Nichols, Feb. 15, 2008, Exh. F) [Doc. No. 52],
Exh. 10 Deck of M. Wolfe, Feb. 28, 2008 [Doc. No. 46].
Exh. 11 Deck of P. Lancaster, Feb. 28, 2008 [Doc. No. 47],
. Vendio's request for a protective order was made in a letter dated February 21, 2008, which the Court will treat as a motion.
. Vendio's word count is also artificially low because Vendió has omitted from citations some spaces that the Bluebook calls for. See Def. Subst. Resp. at 2 [Docket No. 76] ("F.Supp.2d" should be "F.Supp.2d"), 10 ("F.Supp." should be "F.Supp."), 11 ("D.Mass" should be "D. Mass."). These omissions are inconsistent enough that the Court presumes that they are inadvertent errors of citation format, which the Court normally overlooks. Other omissions of spaces seem more deliberate but could be simple mistakes. See id. at 6 ("S.Becker" and "P.Hunter" should be "S. Becker" and "P. Hunter"). In any event, omitting spaces is not an acceptable way to reduce a document's word count.
. Judge Graham could have issued an order on Vendio's motion for a protective order but instead issued an R & R because she considered the protective-order motion in connection with Vendio's motion to dismiss. The Court reviews the portion of the R & R that relates to the protective-order motion as if it were an order on that motion.
. Because Northbrook sells nothing to Vendio's customers, and Vendió sells nothing to Northbrook's customers (to the extent that they exist), this case is significantly different from Intel Corp. v. VIA Techs., Inc., 198 F.R.D. 525 (N.D.Cal.2000). The parties in Intel were direct competitors in the output market for computer chips and were also competitors in the market for licenses to computer-chip-related intellectual property. Id. at 529-30.
. The analysis would be essentially the same if, through this litigation, Northbrook learned enough about Vendio's operations to draft claims that arguably covered Vendio's software and methods. Vendió would then be vulnerable to threats of potentially ruinous patent-infringement litigation. While Vendió would not have to purchase a license from Northbrook to continue operations, Vendió would feel added pressure to do so to avoid the risks and costs of litigation. Vendió would not feel such added pressure if North-brook had not been able to draft its claims with an eye toward Vendio's software and methods.
. In connection with protective orders, other courts have rejected the argument that certain patent-prosecution activities pose no competitive threat because the patentee cannot introduce new matter — the very argument that Northbrook advances here. See In re Papst Licensing, GmbH, Patent Litigation, No. MDL 1278, 2000 WL 554219, at *4 (E.D.La. May 4, 2000); Mikohn Gaming Corp. v. Acres Gaming Inc., 50 U.S.P.Q.2d 1783, 1785 (D.Nev.1998).
. Vendió asserts that Wolfe has twenty-five pending continuation applications, of which thirteen were filed after Northbrook filed this suit. Def. Subst. Resp. at 7. For two reasons, these numbers appear to be inflated. First, Vendió seems to be double-counting certain applications. For instance, application number 11/735,423, filed on April 13, 2007, is a single application that happens to be related to two issued patents; Vendió has counted that single application twice, once for each patent that it relates to. See Tautkus Decl. Ex. V. Second, Vendió is counting applications filed in April 2007 among the set of applications filed after this suit began, even though Northbrook's complaint is dated May 9, 2007.
. See IP Innovation L.L. C. v. Thomson, Inc., No. 1:03-CV-0216, 2004 WL 771233, at *3 (S.D.Ind. Apr.8, 2004); Mikohn Gaming Corp. v. Acres Gaming Inc., 50 U.S.P.Q.2d 1783, 1784 (D.Nev.1998); Motorola, Inc. v. Interdigital Tech. Corp., No. 93-488-LON, 1994 WL 16189689, at *3 (D.Del. Dec.19, 1994); Vardon Golf Co. v. BBMG Golf, Ltd., No. 91-C-0349, 1991 WL 222258, at *2 (N.D.Ill. Oct.24, 1991).
. Although it should go without saying, the Court emphasizes that it is protecting only technical information that is both (1) Vendio's and (2) confidential. It is not protecting just any technical information produced by Vendió.
. Northbrook asserts: "There is nothing unique about Mr. Wolfe's role in this litigation. In-house counsel are commonly listed as counsel of record in patent cases." PL Obj. R & R at 10. This is not entirely true— the in-house lawyers who appear as counsel of record in patent cases are not usually involved, as Wolfe is, in patent prosecution. See, e.g., 3M Co. v. Reflexite Corp., Civil No. 02-1251, Order on Prot. Order at 4 (D.Minn. Aug. 21, 2003) ("The risk of inadvertent disclosure is minimal because [3M's in-house lawyers] are not involved in competitive decisionmaking at 3M.... In fact, all three work solely in litigation for 3M Innovative Properties Company, rather than 3M Company itself. None of them prepare or prosecute patent applications for 3M.") (attached as Ex. Q to Nichols Decl. [Docket No. 64]) (emphasis added).
. Indeed, this interpretation of Paragraph 4 effectively allows either party to unilaterally modify the protective order. Even if certain inside counsel have been specified in category (e) by stipulation, a party can authorize additional in-house lawyers not listed in category (e) to see the other side's "Confidential — Attorneys' Eyes Only" information by simply having those additional lawyers enter an appearance as counsel of record.
. Of course, the parties can stipulate to a modification of the protective order at any time.
. Exhibits are cited in an appendix at the end of this report and recommendation.
. Around the time this litigation commenced, Vendió purportedly removed the accused search feature from Dealio software. This development, however, is not material to the questions presented here.
.There are several reasons that this figure provides, at best, an incomplete indication of actual usage of Dealio software in Minnesota. One is that Vendió evidently counted only those users who engaged the search feature, rather than all users who were actively receiving links. The record also fails to mention whether each user is unique or whether single users may have been counted more than once. And there is a suggestion that Dealio software selected a two-month period with lighter traffic than normal. (See Exh. 6 at 24-25; Exh. 7.) Even with these caveats, however, this information is enough to give some reliable indication about the extent to which Dealio software is used in Minnesota.
. At the motion hearing, Vendió claimed that Northbrook was chiefly relying on the theory of general personal jurisdiction. Northbrook denied this characterization and countered that it was advancing specific personal jurisdiction as well, a position that is borne out by Northbrook's papers. This Court accordingly considers both theories here.
. Because usage is a sufficient theory to establish jurisdiction over the infringement claims here, it is not necessary to consider whether Vendió derives any other economic gain that may constitute a sale under § 271(a). But there is little question that, even though Vendió distributes Dealio software for free, it does so to its commercial advantage. See Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 243 F.Supp.2d 1073, 1086-87 (C.D.Cal.2003) (holding that where accused software was available for free and was used to facilitate copyright infringement, distribution to the forum state was "an essentially commercial act" for "the singular purpose of facilitating advertising and generating income").
. Vendió notes the question of proper venue, citing the provision that determines venue in patent cases, 28 U.S.C. 1400(b). But Vendió does not squarely address the issue, nor has it brought a motion to dismiss for improper venue under Rule 12(b)(3). Furthermore, the parties evidently do not contest that venue is appropriate here so long as there is personal jurisdiction. Whether or not this rule is correct, the question of improper venue is not meaningfully presented for decision at this time. Cf. VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574, 1582-83 (Fed. Cir.1990).
. According to Northbrook, there are two other cases where Wolfe has performed multiple roles for Northbrook, yet he was not subject to a protective order. But Northbrook only identifies one case, Northbrook Digital Corp. v. Browster, No. 06-4206 (D.Minn.), another patent infringement suit in this District.
According to the record in Browster, North-brook was represented by Peter M. Lancaster, Esq. — also counsel of record in the current litigation — and Wolfe, among others. But Wolfe has not signed or filed any pleadings in the Browster litigation, nor has he appeared as counsel for Northbrook at any hearings or conferences. Although Magistrate Judge Arthur J. Boylan entered a protective order on February 6, 2008, the parties stipulated to the order, and the stipulation does not mention Wolfe. And by an order on February 13, 2008, Judge Michael J. Davis noted that Wolfe was providing opinion evidence for North-brook, but did not otherwise comment about him.
There is no indication that either judge was advised of unique concerns about Wolfe. A possible explanation is that Browster, the accused infringer, is out of business and it does not risk meaningful harm from disclosing its confidential information to Wolfe. By comparison, Vendió is an ongoing business posed with a real risk of harm, and it raises concerns about Wolfe that are evidently presented for the first time in this litigation.
. The record lacks any accounting of North-brook's financial resources, and so it is not possible to meaningfully test Northbrook's claim that it is unable to afford additional experts or attorneys.
. At the motion hearing, Northbrook asserted that this District's form protective order, under the Local Rules, offers the best means to protect the parties' confidential information. Although this Court agrees that the form protective order is generally useful for that pur pose, the form does not constrain this or any judge's discretion to craft a protective order as needed, particularly where special circumstances require it.
. Pending entry of a protective order in this litigation, the parties have a preliminary agreement in place to maintain confidentiality of sensitive documents. Pursuant to this agreement, Vendió has designated much of its production "attorneys eyes only" and prevented Wolfe from having access. Northbrook argues that, because many of the designated documents are not particularly sensitive or are openly available to the public, Vendió is misusing the designation. If the parties are unable to resolve these matters after conferring in good faith, Northbrook may also move this Court for relief, specifying particular documents in dispute.
. As noted beforehand, Northbrook contends that in other cases, Wolfe acted as both attorney and witness without being sanctioned. But it does not appear that the issue was ever called to the attention of the presiding judges. See infra, p. 762-63 n. 7.
. Assuming that Wolfe can participate in pretrial litigation, his participation does not entitle him to have access to Vendio's confidential information. As determined in the preceding protective order analysis, his access depends on his involvement in competitive decisionmaking.