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Northbrook Digital, LLC v. Vendio Svcs., Inc.: US District Court : PATENT | DISCOVERY - protective order in patent infringement suit; brevity

Case No. 07-CV-2250 (PJS/JJG)
James K. Nichols and Peter M. Lancaster, DORSEY & WHITNEY LLP; Mark A. Wolfe,
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.
Plaintiff Northbrook Digital, LLC (Northbrook) brings suit for patent infringement
against defendant Vendio Services, Inc. (Vendio). 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.
Vendio is a small company that makes software related to internet sales and advertising.
Vendios software product, Dealio, is a toolbar that integrates with web browsers such as
Microsofts Internet Explorer and Mozillas Firefox. Dealio offers end users quick access to
sales (deals) offered by online merchants. Dealio is free for end users; Vendio makes its
1Vendios request for a protective order was made in a letter dated February 21, 2008,
which the Court will treat as a motion.
money from online merchants, who pay Vendio commissions related to ads distributed and sales
made through the Dealio software.
Three motions are now pending before the Court: (1) Vendios motion to dismiss for
lack of personal jurisdiction and improper venue or, in the alternative, to transfer [Docket
No. 24]; (2) Northbrooks motion to amend or correct its complaint [Docket No. 35]; and
(3) Vendios motion for a protective order [Docket No. 34].1 The Court referred Vendios
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 Vendios motion to dismiss or transfer. Vendio has
not objected to this recommendation, and the Court therefore adopts it and denies Vendios
motion. Judge Graham also recommends granting Northbrooks motion to amend or correct its
complaint. Again, Vendio has not objected to this recommendation, and the Court therefore
adopts it and grants Northbrooks motion.
The remaining disputes relate to Vendios motion for a protective order. Vendio argues
that, although Wolfe has entered an appearance as an attorney representing Northbrook, Wolfe
should nevertheless be denied access to certain of Vendios confidential information designated
Confidential Attorneys Eyes Only. Vendio also argues that Wolfes participation as a
member of Northbrooks litigation team must be limited in light of the Minnesota Rules of
Professional Conduct.
Judge Graham recommends granting Vendios motion for a protective order and denying
Wolfe access to Vendios 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 Northbrooks 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 act[ing] 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. Pl. Obj. R&R [Docket No. 61]. Northbrook
registers its disagreement with Judge Grahams 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 Wolfes role as litigation counsel and
his role as a trial witness by agreeing to limit Wolfes activities as litigation counsel.
Specifically, Northbrook promises that Wolfe will not serve as Northbrooks trial counsel and
will not act as Northbrooks 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
Wolfes 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 Grahams recommendation that a protective
order be entered in this case under which Wolfe would be denied access to Vendios confidential
information designated Confidential Attorneys Eyes Only. The Court agrees with Judge
Graham that Wolfe should not have unfettered access to all of Vendios confidential information.
But the Courts reasoning differs somewhat from Judge Grahams, 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
Vendios response to Northbrooks objection to the R&R. Vendios first response grossly
exceeded the 3,500-word limit set forth in Local Rule 72.2. Because the mistake was inadvertent
and because Vendio promptly admitted its error, the Court permitted Vendio to file a substitute
response. Order May 6, 2008 [Docket No. 75]. Vendio 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, Vendio violated the spirit, if not the letter, of Local Rule 72.2. Vendios
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, Vendio hyphenated things that are never hyphenated: Instead of
Docket 59, for instance, Vendio writes Docket-59; instead of Nichols Decl. and Tautkus
Decl., Vendio writes Nichols-Decl. and Tautkus-Decl.; instead of Northbrook Obj.,
2Vendios word count is also artificially low because Vendio 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 documents word count.
Vendio writes NB-Objection. The first two types of hyphens appear at least nineteen times in
Vendios substitute response. Thus, if Vendio had not manipulated the word-counting feature of
its word-processing program through improper hyphenation, Vendios word-processing program
would have counted many more words, and Vendio would have once again violated the word
limit imposed by Local Rule 72.2.2
This Court makes plenty of inadvertent errors itself, and thus this Court generally
overlooks inadvertent errors, as it did with respect to Vendios first violation of the rule. Had
Vendio confined itself to using improper hyphenation in its substitute response, the Court might
again have overlooked Vendios conduct, even though this time the conduct was almost surely
not inadvertent. But Vendio 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 partys or witnesss 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
3Judge Graham could have issued an order on Vendios motion for a protective order but
instead issued an R&R because she considered the protective-order motion in connection with
Vendios 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.
prestigious firms representing Vendio 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 Grahams R&R raises complicated issues, but
Northbrooks 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 Vendio can properly respond to that objection in 3,500 words.
Vendios counsel who now have two strikes against them should take great care to comply
with both the spirit and letter of this Courts rules in the future.
A. Standard of Review
The only matter before the Court is Judge Grahams recommendation with respect to
Vendios 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 Grahams R&R relating
to the protective order only to the extent that they are clearly erroneous or . . . contrary to law.3
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, Vendio 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 Circuits 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 partys
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 case, 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 partys lawyers access
to its opponents 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 partys 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 Flights founder, Leonard M. Greene, from seeing Sundstrands 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 Flights in-house counsel
to have access to Sundstrands 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 23. 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 partys
technical information. In Brown Bag Software v. Symantec Corp., a case involving alleged
copyright infringement of software code, the Ninth Circuit affirmed a district courts protective
order denying the plaintiffs in-house counsel access to defendant Symantecs 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 judges protective order forbidding access to a defendants
confidential information by Vardon Golfs sole employee, a one-man band who (like Wolfe) was
his companys 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 defendants 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 partys outside patentprosecution
lawyers. In Motorola, Inc. v. Interdigital Technology Corp., the court granted a
protective order with respect to a law firm that was the defendants 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, Dickstein, Shapiro & Morin, was defendant
Interdigitals 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 partys outside patent-prosecution firm has not yet had access to the other partys
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 Acress trial counsel
from (1) having access to plaintiff Mikohns 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 Mikohns motion for a protective
order, the court rejected Acress 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 firms 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 parties[] confidential information. Counsels 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.
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
Avocents patent prosecutors from having access to defendant Rose Electronics technical
information, holding that [d]efendants have not offered any evidence that suggests that . . .
Avocents 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. Snyders of
Hanover Manufacturing, Inc., the court rejected defendant Snyders motion for a protective order
that would have prohibited plaintiff AFPs patent prosecutors from having access to Snyders
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 AFPs lawyers who were given access to Snyders
confidential information from prosecuting patents during the course of the suit or for two years
afterwards. 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 partys patent-prosecution activities could have access to
the other partys 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 Medtronics 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 (N.D. Iowa Oct. 11,
2006); Intel Corp. v. Via Techs., Inc., 198 F.R.D. 525 (N.D. Cal. 2000).
A. Competition in Output Markets
Generally, competitors in the business world compete in output markets for customers:
Coca-Cola competes with Pepsi; McDonalds competes with Burger King; Toyota competes with
General Motors. Northbrook, however, does not compete with Vendio for customers, because
the two companies are in different businesses.
Because Northbrook sells nothing 4 to Vendios customers, and Vendio sells nothing to
Northbrooks 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.
Northbrook, to the extent that it sells anything, sells the right to use its patented
technology i.e., it sells patent licenses. Vendio, 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, Vendio sells nothing except advertising and marketing services. It does not sell
licenses to its technology, or know-how, or anything else. Northbrook and Vendio thus sell
entirely different products to entirely different customers.4
Judge Graham nevertheless found that, because Northbrook and Vendio have a shared
interest in a single patented technology, they are competitors. R&R at 28; Pl. 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 . . . .
Pl. 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 Northbrooks principal) should not have access to Vendios financial
and customer data because Northbrook, as a result of its licensing activity, competes with Vendio
in output markets. As described above, that is just not true.
This is not to say that Northbrook has no interest in Vendios business. Northbrook does
have an interest, but its interest is as a supplier of inputs to Vendio, and not as a competitor. If
Vendio is indeed infringing Northbrooks patents, then Vendio is using inputs (intellectual
property) that do not belong to it, and Northbrook has a right to be compensated for (or to stop)
Vendios use of Northbrooks resources. Suppose, for example, that Northbrook owned a gold
mine, and Vendio was a retail jeweler that was secretly stealing ore from the mine and turning it
into rings. Northbrook and Vendio would not be competitors in any output market, because
Vendio would not sell ore, and Northbrook would not sell jewelry. Northbrook would have an
interest in Vendios 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 Vendio.
R&R at 27. But this is not a reason to prevent Northbrook from learning about Vendios costs,
customers, or profitability. Northbrook cannot steal Vendios customers, because Northbrook
does not sell anything to Vendios customers. At most, Northbrook can use information about
Vendios costs, customers, or profitability to determine what price it should charge Vendio 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 competitors
direct access to the others customer and financial data, because one competitor could use its
opponents 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 (Northbrook) against
an alleged consumer of those inputs (Vendio) there is no reason to prevent the supplier from
having access to the consumers financial or customer data. Northbrook alleges that Vendio is
infringing its patents. Until Vendio wins the case on the merits, Northbrook must assess the
value of its case, as must any litigant. There is no reason why Northbrook, through Wolfe,
should have to rely solely on outside attorneys and retained experts to assess the portion of the
cases valuation that turns on Vendios financial and customer information. Northbrook cannot
use that information to compete unfairly with Vendio for Vendios customers because
Northbrook does not serve those customers. Northbrook can only use Vendios 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 Vendio than a competitor, because
Northbrook and Vendio 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 Vendio and
Northbrook compete in the input market of intellectual property used for internet advertising and
Vendio uses certain software products and business methods to run its business; those
products and methods are the inputs that Vendio transforms into a service that it sells to
advertisers and marketers. Vendio, 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 Vendio could deliver its service: (1) by
using methods covered by Northbrooks patents; and (2) by using confidential methods
developed in-house by Vendio and not covered by Northbrooks patents. If Vendio chose
approach (2), it would be in effect choosing to make an input in house rather than to buy the
input from Northbrook. Vendio would thus be competing with Northbrook in the input market
for software products and business methods Vendio would be both the maker and the
consumer of those inputs. This would be very limited competition, however, over a single
customer Vendio. Because Vendio does not itself license its technology, Vendio and
Northbrook do not compete in the broader market for intellectual property.
Now suppose that Vendios 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 Vendios operations to draft claims
to cover Vendios software and methods. If that happened, Vendio would no longer be able to
choose to make its inputs. Rather, Vendio would have to buy the inputs from Northbrook
(because, by hypothesis, Northbrook would have patented them). Vendio would be eliminated as
Northbrooks competitor in the single-customer (Vendio) input market for the software and
business methods underlying Vendios business. Moreover, this elimination of Vendio would be
5The analysis would be essentially the same if, through this litigation, Northbrook learned
enough about Vendios operations to draft claims that arguably covered Vendios software and
methods. Vendio would then be vulnerable to threats of potentially ruinous patent-infringement
litigation. While Vendio would not have to purchase a license from Northbrook to continue
operations, Vendio would feel added pressure to do so to avoid the risks and costs of litigation.
Vendio would not feel such added pressure if Northbrook had not been able to draft its claims
with an eye toward Vendios software and methods.
unfair, because (again, by hypothesis) it would have been possible only because Northbrook had
access to Vendios confidential software and business methods.5
Vendio asks for a protective order in part to prevent Wolfe from gaining access to
Vendios 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 Vendios
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 Vendios technology.). This is a legitimate basis for preventing Wolfe from having
access to Vendios technical information. Vendio and Northbrook compete, in a limited way, in
the input market for software and business methods to facilitate online advertising and
marketing, and Vendio has a legitimate interest in preventing Northbrook from competing
unfairly in that market by drawing patent claims more precisely to Vendios methods than
Northbrook would be able to do without access to Vendios confidential technical information.
Judge Graham discounted this rationale, however, because she found that Northbrook is
not currently engaged in patent prosecution . . . . R&R at 27. The Court agrees with Vendio
that this factual finding is clearly erroneous. See Def. Subst. Resp. at 6-8 [Docket No. 76].
Judge Grahams error is, however, understandable in light of how Wolfe and
Northbrooks outside counsel characterized Wolfes 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 defendants
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 defendants business, or even relating
to the consumer Internet in general. Id. 8. Northbrooks outside counsel amplifies Wolfes
argument, saying that because federal law forbids introducing new matter into a continuing
application, it is an impossibility for Wolfe to take Vendios confidential information and
add it to a continuing patent application, or otherwise alter Northbrooks technology
development. Pl. 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 Moys 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.).
In connection with protective orders, other courts h 6 ave 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).
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 Northbrooks
counsel understate the scope and significance of his vigorous continuation practice.6
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. Wolfes 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 patents
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, Vendio submitted three published patent
7Vendio 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, Vendio 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; Vendio has counted that single application twice,
once for each patent that it relates to. See Tautkus Decl. Ex. V. Second, Vendio is counting
applications filed in April 2007 among the set of applications filed after this suit began, even
though Northbrooks complaint is dated May 9, 2007.
8See 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
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 Wolfes current practice before the PTO is not nearly as limited as he and
Northbrooks counsel imply.
A fuller picture of the scope of Wolfes activities before the PTO emerges from the
materials submitted by Vendio in response to Northbrooks 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.7
When a plaintiff in a patent case is involved in prosecuting patents that are related to the
defendants business, federal courts routinely limit the plaintiffs access to the defendants
technical trade secrets.8 Here, Wolfe is actively involved in prosecuting patent applications that
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).
9Although it should go without saying, the Court emphasizes that it is protecting only
technical information that is both (1) Vendios and (2) confidential. It is not protecting just any
technical information produced by Vendio.
relate to Vendios 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 Wolfes 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 Vendios business.
Accordingly, Wolfes 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, Vendios confidential technical information. The Court therefore grants
Vendios application for a protective order with respect to Vendios confidential technical
Northbrook contends that denying Wolfe access to Vendios technical information will
work a great hardship upon it. The Court finds that, based on the record so far, the competitive
threat to Vendio posed by Wolfes access to Vendios 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 Vendio, that the hardship imposed on
Northbrook by denying access to Wolfe outweighs the competitive threat to Vendio that would
10Northbrook asserts: There is nothing unique about Mr. Wolfes 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 [3Ms 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).
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 Northbrooks assertion,
Judge Graham did not clearly err in placing a heavy burden on Northbrook to justify Wolfes
access to Vendios confidential information. Rather, that heavy burden recognizes that Vendio
has already established that giving Wolfe access to Vendios confidential information poses a
significant competitive risk. Put another way, whether to give Wolfe access to Vendios
information depends on the result of a balancing test but Vendio 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 Vendios confidential technical information before such
access will be allowed by the Court.10 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 Vendio is infringing Wolfes 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 districts standard protective order in patent cases,
Form 5 of the Local Rules. Pl. Obj. R&R at 14. For its part, Vendio says that [a]t all times
Vendio has been willing to use this Districts Form 5 protective order, with the understanding
that Wolfe would not be permitted to access Vendios confidential information. Def. Subst.
Resp. at 11.
Northbrook accuses Vendio of having changed its position with respect to adopting the
districts standard protective order, and says that this change suggests Vendios strategic
motivation . . . . Pl. Obj. R&R at 11. In fact, contrary to Northbrooks assertion, Vendio has
never really changed its position on this issue. That Vendio seems to have done so demonstrates
only that Form 5 is inartfully drafted, not that Vendios 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
Indeed, this interpretation of Paragraph 4 effectively 11 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 sides Confidential Attorneys Eyes Only information by simply having those
additional lawyers enter an appearance as counsel of record.
only inside counsel. This is apparently how Vendios out-of-town counsel read Paragraph 4, and
thus they were willing to adopt Form 5, since Wolfe is Northbrooks inside counsel and (on this
reading) would not be one of the attorneys in category (b). See Tautkus Decl. Ex. Q at 3.
Northbrooks 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.
Northbrooks counsels 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.11
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 Vendio and Northbrook, Vendios in-house lawyers as a group will be
designated as inside counsel under category (e) and will therefore have access to Northbrooks
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
12Of course, the parties can stipulate to a modification of the protective order at any time.
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.12
Based on the foregoing and on all of the files, records, and proceedings herein, the Court
OVERRULES IN PART Northbrooks objection [Docket No. 61] and ADOPTS IN PART Judge
Grahams 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 Vendio Services, Inc.s motion to dismiss or transfer [Docket No. 24]
2. Plaintiff Northbrook Digital, LLCs motion to amend or correct its complaint
[Docket No. 35] is GRANTED.
3. Defendant Vendio 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
districts standard order for patent cases but modified in accordance with this
memorandum opinion and order.
Dated: June 9 , 2008 s/Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge


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