Court Opinion

ID: 9489857
Source: CourtListenerOpinion
Date Created: 2023-08-05 13:26:01.112938+00
Date Added: 2024-06-11T17:53:45.432684
License: Public Domain

RADER, Circuit Judge,
dissenting.
This ease concerns the ability of the United States District Court for the Eastern District of Texas to control its docket and manage the prosecution of suits pending before it. Unlike the court, I believe the district court was within its broad discretion in imposing limited sanctions on the Uwatec companies for their failure to produce the disputed ROM code. In fact, the ROM code resides with Dynatron, a Swiss company set up by Uwatec AG to develop and maintain this potentially claimed feature of the accused device. Because of Switzerland’s notorious laws against release of trade secrets and this court’s disinclination to hold Uwatec accountable for its decision to keep its ROM code in its Swiss affiliate, Uwatec may have found a way to avoid disclosing its potential infringement. Accordingly, I respectfully dissent.
I.
General
Defendants Uwatec AG and Uwatec USA manufacture and sell ALADIN AIR-X dive computers in the United States. The companies are aided in these activities by Dyna-tron, who is the captive developer and supplier of the operating software (the so-called ROM code) for a11 ALADIN AIR-X dive computers. Dynatron exists to serve the Uwatec companies. In fact, it was formed in 1987 for the sole purpose of developing the ROM code for Uwatec AG’s exclusive use. So close is the relationship among these companies that when Uwatec USA was required to produce a corporate designee under Federal' Rule of Civil Procedure 30(b)(6), the company produced Markus Mock, an owner and officer of Dynatron.
*1233After properly charging that Uwatec’s ALADIN AIR-X system infringes its United States patent, Cochran sought discovery of a printed version of the ROM code. Despite having reaped the benefits of their close relationship with Dynatron in the marketplace and in the court, the Uwatec companies resisted this discovery on the grounds that the ROM code was the property of Dynatron and, as such, was beyond the control of the Uwatec companies. The district court rejected this argument and repeatedly ordered the Uwatec companies to produce the requested printout. Ultimately unsatisfied with the Uwatec companies’ failure to comply with its discovery orders, the district court entered an injunction barring the Uwatec companies from conducting commerce in any ALADIN AIR-X dive computer that used the disputed ROM code. The district court’s injunction was to remain in effect until trial on the merits.
Meanwhile, in an apparent attempt to comply with the district court’s orders, Uwatec AG applied to a Swiss court for an order requiring Dynatron to produce a printed copy of the ROM code. After the district court entered its pre-trial injunction against Uwatec USA, but before the briefs in this appeal were filed, the Swiss court handed down a decision denying Uwatee’s request. The Swiss court also indicated that if Uwatec AG were to produce the ROM code itself, it might be in violation of Swiss criminal law protecting Dynatron’s rights in the code. On these facts, the court decides that the district court abused its discretion. I disagree.
Although the panel’s opinion treats the matters presented herein as a unitary “conflict of laws” issue, this case really presents two issues relating to discovery procedures in federal district courts. Those issues are, first, whether the Federal Rules of Civil Procedure empowered the district court to order the Uwatec companies to produce the disputed ROM code and, second, whether the district court exceeded the limits of its power to sanction Uwatec for failure to comply with such an order. Supreme Court precedent separates these two inquiries.
II.
Orders Compelling Production
Under the Federal Rules of Civil Procedure, a party to a suit may request that another party produce documents or information in the “possession, custody or control” of the other party. Fed.R.Civ.P. 34(a). The word “control” includes not merely physical possession, but also legal control. See Searock v. Stripling, 786 F.2d 650, 653 (11th Cir.1984). Thus, a court may properly order a party to produce information beyond its possession, so long as it has a legal right to gain possession. See generally 8A Charles A. Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice & Procedure § 2210 (1994).
Putting aside the effect of Swiss law for a moment, the record discloses very close relationships and similarity of interests among Dynatron, Uwatec AG, and Uwatec USA. The three companies share the singular purpose of making and selling the ALADIN AIR-X dive computers. As described above, Uwatec AG breathed life into Dynatron for the sole purpose of developing software and hardware for the ALADIN AIR-X dive computer. Under the terms of their agreements, Uwatec AG supplied the initial funding for the establishment of Dynatron. Uwatec AG pays Dynatron for its code development efforts on a per-sale basis. Dynatron employees have represented the Uwatec companies at trade shows and, in this case, in depositions. This close nexus among the Uwatec companies and Dynatron on shared technology lends substantial support to the district court’s finding that UAG controls the disputed ROM code.
Importantly, the Uwatec AG-Dynatron agreements transferred all rights to the ROM code to Uwatec AG. Specifically, the agreements require Dynatron to “transfer all rights to the [developed hardware and software] to Uwatec.” See 1987 and 1988 Agreements Between Uwatec AG and Dynatron AG (English translations), ¶ 1, dated July 15, 1987 and July 15, 1988, respectively. They further provide.that “Uwatec is entitled to acquire protection for these rights at its discretion, at its own expense, and in its own name.” Id.
*1234The district court thoroughly examined these relationships among the defendants and Dynatron, with particular attention to the legal entitlement to technology, and made a reasoned finding that the Uwatec companies control the ROM code. I would not hold that independent companies invariably risk a finding of control by sharing an economic interest in a joint commercial product. But in this case, the district court found control based on the unique facts. of this record. Those factors include the close relationship among Uwatec AG, Uwatec USA, and Dynatron and Dynatron’s voluntary participation in discovery when it was to its advantage. I believe the record adequately supports the district court’s findings.
The panel’s opinion relies on the ruling of the Swiss court to negate the finding of control of the ROM code. It notes that the Swiss court held that Uwatec AG did not have a legal ownership of the ROM code and that the court further suggested the prospect of criminal penalties in Switzerland for divulging trade secrets. The United States Supreme Court, however, has addressed the effect of Swiss law on findings of control in United States courts. See Societe Internationale Pour Participations Industrielles et Commerciales, S.A. v. Rogers, 357 U.S. 197, 204-06, 78 S.Ct. 1087, 1091-93, 2 L.Ed.2d 1255 (1958). In Societe, the Supreme Court refused to expunge a district court’s finding of control in the face of potential punishment under Swiss law. Id. at 205, 78 S.Ct. at 1092. The Supreme Court recognized that a rule that allowed parties to withhold discovery based on a purported fear of punishment under Swiss law would invite parties to place their assets in the repose of persons or corporations whose sovereigns assure secrecy in order to thwart discovery in American courts. Id.
This reasoning applies in this ease as well. Although Uwatec AG and Uwatec USA purport to lack possession of the ROM code, the district court found that they control this information. Further, the district court entered a protective order to secure the ROM code against any disclosure other than that necessary for the litigation. Finally, as a Swiss citizen, Uwatec AG is in the best position to petition its own government for relaxation of or relief from Swiss civil and criminal laws. Id. With the district court’s finding of control adequately supported by the record, the reasoning of Societe removes the threat of Swiss sanctions from Uwatec AG’s and Uwatec USA’s arsenal to oppose production of the ROM code.
III.
Sanctions
Under Fifth Circuit law, this court reviews the district court’s sanctions for discovery violations for an abuse of discretion. See Chilcutt v. United States, 4 F.3d 1313, 1320 (5th Cir.1993), cert. denied, — U.S. -, 115 S.Ct. 460, 130 L.Ed.2d 367 (1994). The district court has “broad” and “considerable” discretion in such matters. See Sierra Club, Lone Star Chapter v. Cedar Point Oil Co., 73 F.3d 546, 569 (5th Cir.), cert. denied, — U.S. -, 117 S.Ct. 57, 136 L.Ed.2d 20 (1996). Accordingly, “[i]t is unusual for an appellate court to find abuse of discretion in these matters.” Id.
The Federal Rules of Civil Procedure expressly authorize district courts to sanction parties for failure to comply with discovery orders. Fed.R.Civ.P. 37(b)(2). Societe clearly indicates that this rule pertains without regard to the possibility of criminal sanctions in a foreign country:
Whatever its reasons, petitioner did not comply with the production order. Such reasons, and the willfulness or good faith of petitioner, can hardly affect the fact of noncompliance and are relevant only to the path which the District Court might follow in dealing with the petitioner’s failure to comply.
357 U.S. at 208, 78 S.Ct. at 1094.
Under Fifth Circuit law, three criteria measure the district court’s broad discretion to impose sanctions. See Chilcutt, 4 F.3d at 1321. First, the sanction must be just and fair. Id. Second, the sanction must substantially relate to the claim at issue in the discovery order. Id. Third, the sanction must punish the disobeying party, and serve as a deterrent to others who might be inclined to pursue similar behavior. Id.
*1235Foremost in the analysis of fairness and justice, the record shows that Uwatec USA and Uwatec AG had ample warning of the court’s intention to impose sanctions for disobedience. On at least two occasions, the court issued discovery orders explicitly requiring production of the ROM code. Moreover, over two months before it ordered sanctions, the district court expressly cautioned the parties that further discovery violations would result in sanctions. The record shows that the parties received ample notice of the orders and the prospect of sanctions.
The district court’s rejection of stronger sanctions is also indicative of the fairness of its order. In particular, the court considered, but determined not to enter, sanctions striking Uwatec AG’s and Uwatec USA’s substantive defenses and entering a default judgment against Uwatec AG and Uwatec USA. Unlike these proposed sanctions, the district court’s pre-trial injunction does not cripple Uwatec AG’s and Uwatec USA’s ability to prove noninfringement or invalidity at trial on the merits.
The district court also showed fairness in offering full protection for the ROM code. The district court made every effort to assuage Uwatec AG’s and Uwatec USA’s legitimate concerns about the compromise of trade secret information. Indeed the record shows no challenge to the adequacy of the protections offered in the district court’s protective order.
The panel’s opinion indicates that Uwatec AG’s efforts to acquire the ROM code in Swiss courts alter the fairness of this sanction. Even if Uwatec AG and Uwatec USA diligently sought to comply by appealing to Swiss courts, see Societe, 357 U.S. at 211-12, 78 S.Ct. at 1095-96, the sanction is still fair because the district court did not order dismissal or otherwise preclude Uwatec AG and Uwatec USA from making a case on the merits as was proscribed in Societe. 357 U.S. at 213, 78 S.Ct. at 1096 (“We decide only on this record that dismissal of the complaint was not justified.”). Rather, the district court properly exercised its discretion to temporarily prevent Uwatec AG and Uwatec USA from obtaining economic advantage from their refusal to comply with discovery orders.
Our courts are not rendered impotent merely because the laws of another country may, in varying degree, prevent the courts’ orders from ultimately being carried out. In matters respecting their own dockets and the litigants properly before them, trial courts must have the power to balance the interests of the parties and determine the requirements of discovery. When the parties do not comply with the court’s requirements, for whatever reason, the court has the further power to rebalance the interests of the parties and determine what consequences attach to the non-production. The Supreme Court has expressly reserved this power in cases, like this one, where one reason for non-production is the specter of foreign criminal penalties. See Societe, 357 U.S. at 212-13, 78 S.Ct. at 1096 (noting that plaintiffs inability to produce documents protected by Swiss law may justify the district court in drawing adverse inferences against plaintiff).
None among us would encourage Uwatec AG to flaunt the determination of the Swiss court. Nor do I disparage in any way the laws or decisions of any Swiss institution. But, with all respect for the Swiss law and courts, the focus of this court is properly on the power of United States courts to determine the procedural and substantive rights of litigants before them. This court must be mindful of the state of Swiss law, but our decisions cannot be dictated by it.
The Fifth Circuit standard for discovery sanctions next examines the relationship between the sanction and the claim sought to be proved by the requested discovery. See Chilcutt, 4 F.3d at 1321. This ease seeks damages, in part, for patent infringement based on sales of the defendants’ ALADIN AIR-X dive computers. The ROM code is the main component of the accused ALADIN AIR-X products. Based on the record, the district court made express findings that the ROM code was a “significant part of the underlying res of the lawsuit” and was “likely to bear significantly on Cochran’s claims before this court.” The court’s injunction covers only the ALADIN AIR-X products “utilizing the ROM Code at issue in this case or *1236a substantially similar ROM Code.” Thus, the district court limited the sanction to the underlying claim Cochran seeks to prove.
The panel’s opinion relies on the Uwatec companies’ contention that only one percent of the ROM code relates to the disputed aspect of infringement. Yet, on the record before this court, neither defendant company ever objected to the discovery request as being overly broad or sought to limit discovery to only relevant portions.
Moreover, as the district court recognized, Uwatec AG owns the exclusive beneficial rights to the ROM code. Uwatec AG and Uwatec USA have benefited from these rights by importing and selling their ALA-DIN AIR-X products in this country. Yet when charged with infringement of a United States patent, they refuse to produce the ROM code for the products that they market in the United States. By preventing Uwatec AG and Uwatec USA from importing products with the very ROM code that they refuse to produce, the district court linked the sanction directly to Cochran’s discovery violation.
Finally, the district court’s sanction deters similar discovery violations. The purpose of sanctions under Rule 37(b)(2) is not to reward parties who comply with discovery orders, but to punish those who do not and to deter others similarly situated. See National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 643, 96 S.Ct. 2778, 2781, 49 L.Ed.2d 747 (1976). This sanction provides deterrence by conditioning access to United States markets upon compliance with the lawful orders of United States courts.
In sum, I believe that the district court’s chosen sanctions fall within the bounds of its discretion. The question is not whether this court would have imposed the same sanctions, but whether the district court’s imposition of sanctions was an abuse of discretion. Id. at 642, 96 S.Ct. at 2780. On the record, I cannot say that the district court abused its discretion.
IV.
Conclusion
Although the panel cites numerous eases and scholarly publications, in the end it offers no principled reason for rebuffing the discretion of the district court. Nor does it offer guidance as to how the next challenge to a district court’s discretion will be judged. About the most that can be said is that the panel weighs the facts and circumstances differently than the district court did. Simply put, this does not amount to an abuse of discretion. Accordingly, I would affirm.