Court Opinion

ID: 2966876
Source: CourtListenerOpinion
Date Created: 2015-09-22 01:22:42.149383+00
Date Added: 2024-06-11T15:27:40.761549
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: JON S. WILSON,
Debtor.

COOK GROUP, INCORPORATED;
WILSON-COOK MEDICAL,
INCORPORATED; COOK, INC.; VANCE
                                                                       No. 97-1908
PRODUCTS, INCORPORATED; SABIN
CORPORATION,
Plaintiffs-Appellants,

v.

C. R. BARD, INCORPORATED,
Intervenor-Appellee.

Appeal from the United States District Court
for the Middle District of North Carolina, at Greensboro.
N. Carlton Tilley, Jr., District Judge.
(CA-97-222-2)

Argued: January 27, 1998

Decided: June 26, 1998

Before HAMILTON and WILLIAMS, Circuit Judges, and
PHILLIPS, Senior Circuit Judge.

_________________________________________________________________

Affirmed by published opinion. Senior Judge Phillips wrote the opin-
ion, in which Judge Hamilton and Judge Williams joined.

_________________________________________________________________
COUNSEL

ARGUED: Aaron J. Kramer, SCHIFF, HARDIN & WAITE, Chi-
cago, Illinos, for Appellants. Michael Lindsay Robinson, ROBINSON
& LAWING, Winston-Salem, North Carolina, for Appellee. ON
BRIEF: Aphrodite Kokolis, Linda K. Stevens, Ronald Wilder,
SCHIFF, HARDIN & WAITE, Chicago, Illinois; Jeffrey E. Oleynik,
Jimmy W. Phillips, Jr., BROOKS, PIERCE, MCLENDON, HUM-
PHREY & LEONARD, Greensboro, North Carolina; William B. Sul-
livan, WOMBLE, CARLYLE, SANDRIDGE & RICE, Winston-
Salem, North Carolina, for Appellants. Norwood Robinson, ROBIN-
SON & LAWING, Winston-Salem, North Carolina; Thomas J. Wie-
gand, WINSTON & STRAWN, Chicago, Illinois, for Appellee.

_________________________________________________________________

OPINION

PHILLIPS, Senior Circuit Judge:

This is an appeal by several related companies (collectively
"Cook") challenging a ruling of the Bankruptcy Court allowing dis-
closure of certain protected trade secret information to two high-level
employees of a company, C.R. Bard, Incorporated ("Bard"), to allow
Bard to defend itself against a state court action by Cook that claimed
misappropriation of the trade secrets. We affirm.

I.

In 1990, Wilson-Cook Medical, Inc. ("Wilson-Cook") sued Wiltek
Medical, Inc. ("Wiltek") alleging, among other things, misappropria-
tion of trade secrets involving medical devices ("Wilson-Cook case").
In due course, the Wilson-Cook case was consolidated with an action
filed by the Cook Companies against Jon Wilson ("Wilson"), the
founder of Wiltek and former president of Wilson-Cook, and with
Wilson's personal bankruptcy proceeding.

The consolidated action was tried without a jury before Judge Wil-
liam L. Stocks of the United States Bankruptcy Court for the Middle
District of North Carolina. On May 22, 1995, Judge Stocks entered

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an order of Injunction and Judgment ("Judgment"), permanently
enjoining Wilson and Wiltek from "using, licensing, marketing or
otherwise displaying or disclosing" "any . . . of the trade secrets . . .
found by this court." (JA 647.) Accompanying the Judgment was a
194-page Memorandum Opinion, Findings of Fact and Conclusions
of Law ("Memorandum"). Because the Memorandum and Judgment
contained trade secret information, Judge Stocks ordered that the doc-
uments be filed under seal and subject to a Stipulated Protective
Order, previously entered pursuant to Fed. R. Civ. P. 26.

On July 3, 1995, Cook sued Bard in Indiana state court, alleging,
among other things, misappropriation of trade secrets and violation of
the injunction entered in the consolidated action. Bard was not a party
in the consolidated action. Although the applicable Indiana rules of
court required that documents referenced in a complaint be attached
to that filing, Cook submitted neither the Memorandum nor the Judg-
ment with its complaint. When the Indiana court ordered Cook to pro-
duce the Judgment and Memorandum, Cook indicated that it could
not provide the materials because they were under seal in the consoli-
dated action. The Indiana court then allowed Cook time to approach
Judge Stocks regarding a lifting of the protective order. When Cook
failed to act, Bard moved to intervene in the consolidated action to
unseal the Memorandum and Judgment. After a hearing, Judge Stocks
entered a written order allowing disclosure of the papers to Bard's
counsel, independent experts, and two of its employees ("October
Order").* The order further provides:

          Each of the persons to whom the Memorandum . . . and
          Judgment are made available . . . shall agree, expressly and
          in writing, to abide by this Order and the Stipulated Protec-
          tive Order entered by this court . . ., and each such person
          shall thereby consent to the jurisdiction and contempt power
_________________________________________________________________
*Specifically, Judge Stocks ordered that the documents be produced to
any two of the following employees designated by Bard: Jim Burger,
Supervisor of Advanced Manufacturing Engineering; Bob Greene, Man-
ufacturing Cell Manager; John Dimitriou, Senior Process Engineer; Paul
Mucci, Vice-President of Manufacturing; and Ed McNamara, Section
Head-NPD (Biliary Product Line).

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            of this Court with respect to enforcement of this order and
            the Stipulated Protective Order.

(JA 332.)

When Cook challenged that portion of the October Order requiring
disclosure to Bard's employees, the United States District Court for
the Middle District of North Carolina affirmed. On appeal to this
court, Cook again challenges only that portion of the October Order
allowing disclosure to Bard's employees. Pursuant to various stay
orders, disclosure of the Judgment and Memorandum has not been
made yet to Bard's employees.

II.

On appeal from a district court's order affirming an order of a
bankruptcy court, this court reviews the decision of the district court
de novo, see In Re Runski, 102 F.3d 744, 745 (4th Cir. 1996), and
applies the same standard of review that the district court applied to
the bankruptcy court's decision. See In Re Southeast Hotel Properties
Ltd. Partnership, 99 F.3d 151, 154 (4th Cir. 1996). As we have noted,
a protective order entered pursuant to Fed. R. Civ. P. 26(c) is
reviewed for abuse of discretion. See M & M Med. Supplies & Svc.
Inc. v. Pleasant Valley Hosp., Inc., 981 F.2d 160, 163 (4th Cir. 1992)
(en banc), cert. denied, 508 U.S. 972 (1993).

Fed. R. Civ. P. 26(c)(7) provides that "for good cause shown," a
court may enter a protective order requiring "that a trade secret . . .
not be revealed or be revealed only in a designated way." To obtain
a protective order under Rule 26(c), the party resisting discovery must
establish that the information sought is covered by the rule and that
it will be harmed by disclosure. See 8 Charles Alan Wright, et al.,
Federal Practice and Procedure § 2043, at 555-57 (2d ed. 1994). If
this showing is made, the party seeking the materials then must estab-
lish that the information is sufficiently necessary and relevant to his
case to outweigh the harm of disclosure. See id. at 559.

Here, it is undisputed that the Judgment and Memorandum contain
trade secrets covered by Rule 26(c). Also, Cook concedes that the

                      4
information is relevant to Bard's case. Cook argues, however, that
Bard has not established necessity. Cook further contends that the
lower courts failed to consider the harm it would suffer from disclo-
sure and to weigh that harm against Bard's claimed need for the docu-
ments.

Cook argues that Bard can adequately defend itself in the Indiana
action without the Judgment and Memorandum being disclosed to its
employees. According to Cook, "numerous precedents" recognize that
a competitor can litigate trade secret issues without the secrets being
disclosed to its employees, provided they are disclosed to its outside
counsel and/or independent experts. As Judge Stocks noted, however,
the Indiana action is not a simple trade secrets case; Cook's Indiana
lawsuit expressly seeks to enforce against Bard the terms of the
injunction issued in the consolidated action. Since Bard was not a
party to that action, Bard's employees need the Memorandum and
Judgment to understand the core allegations leveled against them.
Because none of Cook's "numerous precedents" arise in this context,
they are distinguishable.

Cook contends that Judge Stocks failed to consider the harm it will
suffer from disclosure and to balance that harm against Bard's need
for its employees to access the documents. According to Cook, when
the requisite balancing is done, the scales tip decidedly against disclo-
sure.

Although Judge Stocks's October Order does not expressly con-
sider the harm to Cook in the course of its balancing analysis, Bard's
need for the information and the potential harm to Cook upon disclo-
sure were argued extensively at the hearing on Bard's motion to inter-
vene. Also, at the hearing, Judge Stocks indicated that Bard was
entitled to obtain the documents to a "limited" and "minimal" degree.
(See, e.g., JA 296 ("I'm willing to make it available to the client to
a limited degree, a minimal degree, that will enable the client to par-
ticipate in the defense of the claim in a meaningful way."); id. at 298
("I'm not just going to open it up to anybody and everybody. I think
it's just a minimum amount necessary for the client to participate in
the defense of the case in a meaningful way from the outset.").) These
statements implicitly reflect consideration of the harm to Cook upon

                     5
disclosure and a balancing of that harm against Bard's need for the
material.

Arguing that the harm it will suffer outweighs Bard's need for the
information, Cook asserts that disclosing trade secrets to a direct com-
petitor in a competitive industry poses grave business risks. Accord-
ingly, Cook argues, "the weight of judicial authority in inter-
competitor trade secrets cases" holds that trade secrets may only be
disclosed to outside counsel and independent experts. Cook thus
appears to advocate a per se rule prohibiting disclosure of trade
secrets to a competitor's employees. When pressed on this issue at
oral argument, however, Cook backed away from the contention that
a per se rule applies. Such a retreat is not surprising in light of the fact
that in the consolidated action, Cook signed on to the Stipulated Pro-
tective Order allowing disclosure of confidential materials to "Jon
Wilson and any management-level full-time employee of Wiltek
Medical Inc." (JA 156.) Furthermore, we note that at least one of
Cook's own cases undercuts the suggestion that a per se rule bars dis-
closure of trade secrets to a competitor's employees. See Safe Flight
Instrument Corp. v. Sundstrand Data Control Inc., 682 F. Supp. 20,
22 (D. Del. 1988) (refusing to allow disclosure to an officer of plain-
tiff's corporation who was also a working scientist of the company
but suggesting that "plaintiff might, if necessary in the future, nomi-
nate a non-technical officer to . . . review . . . the confidential docu-
ments"). We therefore reject any suggestion that the disclosure
ordered here violated any per se non-disclosure rule.

Cook further contends that the harm from disclosure is not poten-
tial but inevitable. According to Cook, once Bard's technical employ-
ees become familiar with Cook's trade secrets, they inevitably will be
influenced by that information. Even if we were to subscribe to the
"inevitable disclosure" theory advanced by Cook, the requisite balanc-
ing test contemplates that some harm will be suffered as a result of
disclosure. Thus, even if harm is inevitable or great, the inquiry is not
at an end; the court must still determine whether the need for the
information outweighs the harm that will be suffered from disclosure.
Here, Bard's need for the information is acute: without disclosure of
the Judgment and Memorandum to Bard's employees, Bard will be
unable to understand the very nature of the claim alleged against it in
the Indiana action. Judge Stocks did not abuse his discretion in con-

                     6
cluding that this need outweighed the harm Cook will suffer. Thus,
if Cook wishes to pursue a claim for enforcement of the injunction
against Bard, it must disclose the terms of that injunction to Bard's
employees, as specified by Judge Stocks. Any other result would be
inequitable. Finally, we note that Cook's Indiana injunction claim is
just a "shortcut" around its Indiana misappropriation claim. Cook thus
can avoid any harm that might result from disclosure by dropping the
injunction claim and pursuing only the misappropriation claim.

III.

Alternatively, Cook argues that Judge Stocks abused his discretion
by permitting immediate disclosure of the Judgment and Memoran-
dum to Bard's employees. Cook contends that a decision on disclo-
sure should be postponed until it can determine the extent to which
Bard has learned of and adopted its trade secrets. Specifically, Cook
advocates delaying a decision on disclosure until after it has the
opportunity to inspect Bard's facilities.

At bottom, Cook wants to sue Bard for violating a secret injunction
and delay revealing the terms of that injunction until it has the oppor-
tunity for a discovery expedition in Bard's plants during which time
Bard will remain in the dark as to what Cook is looking for. Judge
Stocks did not abuse his discretion in rejecting such a procedure.

IV.

For the reasons discussed above, the decision of the district court,
affirming that of the Bankruptcy Court, is

AFFIRMED.

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