The purpose of a protective order is to promote an efficient discovery process, while safeguarding the confidential information of the parties. Violating a protective order could lead to sanctions including contempt of court.

In the Seventh Circuit, finding contempt requires clear and convincing evidence that (1) a court order sets forth an unambiguous command; (2) the alleged contemnor violated that command; (3) the violation was significant, meaning the alleged contemnor did not substantially comply with the order; and (4) the alleged contemnor failed to make a reasonable and diligent effort to comply. SEC v. Hyatt, 621 F.3d 687, 692 (7th Cir. 2010) (citing Prima Tek II, LLC v. Klerk's Plastic Indus., B.V., 525 F.3d 533, 542 (7th Cir. 2008)).

A district court's finding of contempt, however, is improper when there “is [a] fair ground of doubt as to the wrongfulness of the [contemnor's] conduct.” Taggart v. Lorenzen, 139 S. Ct. 1795, 1801–02 (2019) (quoting Cal. Artificial Stone Paving Co. v. Molitor, 113 U.S. 609, 618 (1885)).

A Tale of Two Cases Involving the Same Patent

The U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) recently reversed a contempt finding from the Western District of Wisconsin which is in the Seventh Circuit. Static Media LLC v. Leader Accessories LLC, No. 2021-2303 (Fed. Cir. Jun. 28, 2022). On procedural issues, the Federal Circuit applies the law of the regional circuit.

The procedural issue here was whether the protective order from a design patent infringement case between Leader and Static Media had been violated.

Leader and OJ Commerce, who had been accused by Static for infringing the same design patent in Florida, had entered into a Joint Defense Agreement (“JDA”) for both cases. Jen-Feng Lee represented Leader and Sam Hecht represented OJ Commerce.

Before Mr. Lee shared some confidential deposition transcripts and licensing/sales information from Static Media to Mr. Hecht, he had Hecht sign a confidentiality agreement to abide by the Wisconsin court's Protective Order. A few of the pages in those documents were marked confidential under the Protective Order.

The Wisconsin Protective Order stated that confidential documents subject to the protective order “shall be used solely for the purpose of this action.”

Mr. Hecht later used the royalty information he had obtained from Mr. Lee to assess a settlement proposal from Static Media in the Florida case. The Wisconsin district court agreed and found Leader and Mr. Lee in civil contempt for violating the protective order. Leader was ordered to pay Static's attorney's fees and to pay Static a $1,000 sanction.

Knew or Should Have Known

On appeal, the Federal Circuit held there is no clear and convincing evidentiary support for finding that Mr. Lee knew or should have known that Mr. Hecht would use the confidential information in the Florida action.

Before disclosing the deposition transcripts to Mr. Hecht, Mr. Lee did exactly what was required to ensure that Mr. Hecht would abide by the protective order. Mr. Lee had Mr. Hecht sign the Written Assurance, and with each disclosure, Mr. Lee reminded Mr. Hecht of the obligations the protective order imposed on his use of the confidential information. There is similarly no sufficient basis for finding that Mr. Lee should have known that Mr. Hecht would independently decide to violate the protective order.

In these circumstances, all that remains regarding the first theory of contempt is the fact that Mr. Hecht made an improper disclosure in the Florida action, but Static conceded at oral argument that it would be erroneous for the district court to hold Leader and Mr. Lee in contempt for Mr. Hecht's disclosure.

The Federal Circuit further noted that it would be erroneous for the Wisconsin district court to hold Leader and Mr. Lee in contempt for Mr. Hecht's disclosure in the Florida action.

Joint Defense Agreement Itself

The Federal Circuit also held that the underlying strategy of a JDA itself did not constitute an impermissible use of the confidential information, even though it was to be used for developing a joint defense strategy for both actions.

[T]here is a fair ground of doubt as to whether the protective order barred Mr. Lee's disclosure to develop a joint defense strategy.

* * *

That the protective order exists to prevent injury, damage, or competitive disadvantages resulting from public disclosure of the information suggests that a “use” entirely internal to protective order signatories—developing a joint defense strategy—would not violate its terms, even though the information would be used to develop a strategy beneficial to both the Wisconsin action and the Florida action. In other words, “use” here implies disclosure to the public or those not signatories to the protective order. The reasonableness of this interpretation is supported by decisions holding that the use of information gained by an attorney under a protective order in one case may appropriately be used by the same attorney to develop a strategy applicable to a second action.

Citing the U.S. Supreme Court's decision in Taggart, the Federal Circuit found there was “a fair ground of doubt” as to whether Leader's and Mr. Lee's actions violated the protective order.

It was objectively reasonable to interpret the protective order as prohibiting only the public disclosure of documents or disclosure to a third party not bound by the protective order.

The Federal Circuit also relied on the reasoning regarding the term “use” in context of protective orders in several other court decisions, including In re Dual-Deck Video Cassette Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993).

Dissent

Judge Reyna dissented, noting that “confidential information to formulate a joint defense strategy that would be used in both cases, not solely this action.” (emphasis in original). In Judge Reyna's dissenting view, Leader and Mr. Lee were “was in violation of the protective order independently of whether the information was eventually used in the second litigation.” The dissent also criticized the majority for not giving deference to the district court.

The attorneys at Thomas P. Howard, LLC litigate cases nationwide including in Colorado.