Dolby Laboratories Licensing Corp. v. ArcSoft, Inc.		CASE NO. 112CV230794
DATE: 19 December 2014	TIME: 9:00	LINE NUMBER: 7

This matter will be heard by the Honorable Judge Socrates Peter Manoukian in Department 19 in the Old Courthouse, 2nd Floor, 161 North First Street, San Jose. Any party opposing the tentative ruling must call Department 19 at 408.808.6856 and the opposing party no later than 4:00 PM Thursday 18 December 2014.  Please specify the issue to be contested when calling the Court and counsel.

On 19 December 2014, the motions of third-party defendant SanDisk Corporation (“SanDisk”)[1] to (1) compel further responses to requests for production of documents served on defendant/cross-complainant ArcSoft, Inc. (“ArcSoft”), and (2) seal documents in support of the motion to compel further responses were argued and submitted. ArcSoft filed a formal opposition to the motion to compel further responses but did not oppose SanDisk’s motion to seal.[2]

1. Statement of Facts

ArcSoft is a software developer of multimedia imaging technologies used in devices such as smartphones, tablets, personal computers, and cameras. Beginning in 2004, ArcSoft entered into licensing agreements with Dolby Laboratories Licensing Corporation (“Dolby”) for a variety of technologies used in personal computers. The license agreements required ArcSoft to report all distributions of Dolby’s intellectual property and to pay royalties thereon. According to Dolby, ArcSoft failed to report sales and pay royalties in connection with a number of its customers and has refused to allow Dolby to conduct an inspection of ArcSoft’s records as provided for under the terms of the license agreements.

On 14 February 2012, Dolby instituted this action against ArcSoft, alleging that ArcSoft breached the parties’ licensing agreements. Dolby seeks damages and specific performance of its inspection rights.

ArcSoft filed a cross-complaint against Dolby in which ArcSoft also named SanDisk as a “Third-Party Defendant.” SanDisk was one of the customers that ordered and received products from ArcSoft containing Dolby technology. The dispute between ArcSoft and SanDisk revolves around whether SanDisk was obligated to pay royalties directly to Dolby for the company’s technology contained in the products supplied to SanDisk by ArcSoft. ArcSoft alleges that SanDisk was required to make such payments, relieving ArcSoft of the obligation to do so, and seeks indemnification from SanDisk for its failure to make the required payments to Dolby.

In contrast, SanDisk contends that the Dolby technology contained in the ArcSoft product was part of ArcSoft’s standard offering to its customers and that SanDisk was not obligated to pay the royalties pursuant to the parties’ licensing agreements.

The case is currently scheduled for trial to begin on 13 April 2015.

1. Discovery Dispute

On 8 September 2014, SanDisk served ArcSoft with requests for production of documents (“RPD”) Nos. 26-31. (Decl. of Benjamin Kleine in Support of SanDisk’s Mot. to Compel (“Kleine Decl.”), Ex. 4.) Through the RPD, SanDisk sought advertisement and marketing materials, specifications, and agreements relating to the Media Converter product supplied by ArcSoft to its customers. The Media Converter product is at the center of the dispute between ArcSoft and SanDisk and is a software program ArcSoft created that could convert between different audio and video file formats. The Media Converter product supplied to SanDisk contained Dolby technology.

ArcSoft claims that SanDisk requested the inclusion of that technology. SanDisk asserts that it never requested the inclusion of the technology. According to SanDisk, the RPD were aimed at determining whether ArcSoft supplied its other customers with the Dolby technology as part of its standard offering of the Media Converter product.

On 8 October 2014, ArcSoft served SanDisk with responses to the RPD. The responses consisted largely of objections, and ArcSoft refused to produce any documents related to versions of the Media Converter other than the one it licensed to SanDisk. In other words, ArcSoft objected to producing documents related to the Media Converter products supplied to customers other than SanDisk.

Counsel for ArcSoft and SanDisk met and conferred via telephone on 5 November 2014. (Kleine Decl., ¶ 7.) During the call, counsel for SanDisk explained why it believed information about versions of the Media Converter licensed to other customers was relevant, namely, that the information would assist in determining whether the Dolby technology came as a standard part of ArcSoft’s Media Converter products, which would either support or contradict ArcSoft’s claim that SanDisk requested the inclusion of the technology. (See Kleine Decl., Ex. 6.)

On 11 November 2014, counsel for ArcSoft sent counsel for SanDisk an email, indicating that ArcSoft was standing on its objections to the RPD and that ArcSoft would not be augmenting its responses. (Id.)

On 25 November 2014, after the parties were unable to informally resolve their discovery dispute, SanDisk filed the motion presently before the Court, seeking an order compelling further responses to RPD Nos. 26-31. SanDisk also filed a motion to seal certain documents that were conditionally lodged under seal in support of the motion to compel further responses to the RPD. ArcSoft filed a formal opposition to the motion to compel further responses on 8 December 2014. ArcSoft has not filed an opposition to the motion to seal. SanDisk filed a reply brief in support of its motion to compel further responses to the RPD on 12 December 2014.

III.     Discussion

1. Motion to Seal

In connection with its motion to compel further responses, SanDisk seeks an order sealing the following documents: (1) an un-redacted version of its memorandum of points and authorities in support of its motion to compel further responses; (2) an un-redacted version of SanDisk’s Separate Statement in support of its motion to compel further responses; and (3) Exhibits 1, 4, 5, and 6 to the Declaration of Benjamin Kleine filed in support of SanDisk’s motion to compel further responses (all of which were designated as “HIGHLY CONFIDENTIAL” or “CONFIDENTIAL” under the parties’ stipulated protective order).[3]

In support of the motion, SanDisk asserts that the documents sought to be sealed contain confidential information that ArcSoft has designated “Confidential” and “Highly Confidential” under the parties’ stipulated protective order entered by Judge Lucas on 10 January 2013. SanDisk further asserts that no less restrictive means exist to protect the parties’ respective interests.

 

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1. B. Relevant Law

Rule 2.551(b) of the California Rules of Court requires that a party seeking to file documents under seal must file a motion that contains a notice of motion, memorandum of points and authorities, and a declaration containing facts sufficient to justify the sealing. A court has the authority to order that a record be filed under seal if the following factors are found to exist: (1) an overriding interest exists that overcomes the right of public access to the record; (2) the overriding interest supports sealing the record; (3) a substantial probability exists that the overriding interest will be prejudiced if the record is not sealed; (4) the proposed sealing is narrowly tailored; and (5) no less restrictive means exist to achieve the overriding interest. (Cal. Rules of Court, rule 2.551(d).)

“Courts have found that, under appropriate circumstances, various statutory privileges, trade secrets, and privacy interests, when properly asserted and not waived, may constitute overriding interests.” (In re Providian Credit Card Cases (2002) 96 Cal.App.4^th 292, 298 n. 3; see also NBC Subsidiary (KNBC-TV), Inc. v. Super. Ct. (1999) 20 Cal.4^th 1178, 1222 n. 46 [overriding interests found in various cases include, inter alia, protection of trade secrets, protection of information within the attorney-client privilege, and enforcement of binding contractual obligations not to disclose]; Code Civ. Proc. [“CCP”], § 3426.5 [“In an action under this title, a court shall preserve the secrecy of an alleged trade secret by reasonable means, which may include granting protective orders in connection with discovery proceedings, holding in-camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.”].)

The California Rules of Court expressly indicate that the sealing rules do not apply to discovery motions, or records filed and lodged in connection with discovery motions. (Cal. Rules of Court, rule 2.550(a)(3).) The rules do apply to discovery materials that are used at trial or submitted as a basis for adjudication of matters other than discovery proceedings. (Id.)

However, the Sixth Appellate District, in dicta, has interpreted the discovery exemption contained in the California Rules of Court as not precluding all discovery motions from the sealing requirements, but imposing a less strict set of requirements than those in the rules of court. (H.B. Fuller Co. v. Doe (2007) 151 Cal.App.4^th 879, 891-894 (“Fuller”).) The plaintiff in Fuller asserted that the rules of court did not apply, because the motion at issue was a discovery proceeding and was expressly exempted. (Id., at p. 892.) The court addressed the dangers of applying a categorical exemption of the sealing rules to all discovery motions. The court found it “absurd” to require “the moving party to expose the materials to public vies, or to prove that there is an overriding interest against their disclosure” for routine discovery motions involving the “quintessentially procedural question of whether and under what conditions the materials must be produced in discovery.” (Id., at p. 893.) The court found that the strict sealing rules were more appropriate for discovery motions that were “not merely ancillary or preliminary to some larger litigation, but [are] the whole end and purpose of the case,” and that involved questions of great significance to the public. (Ibid.) The Fuller court ultimately did not decide the discovery exemption issue because the court found no substantial basis for maintaining the documents at issue under seal. (Id., at p. 894.)

1. Analysis

Having reviewed the documents conditionally lodged under seal, the Court finds that SanDisk has minimally complied with the requirements of the sealing rules. The Court further finds that the documents at issue contain confidential information and that the parties have an overriding interest in the non-disclosure of this information. Similarly, the Court finds that a substantial probability exists that the overriding interest will be prejudiced if the documents are not sealed. The Court also finds that the parties have an overriding interest in honoring their protective order. As the court of appeal stated in Fuller:

The discovery process, which is intended to be largely self-enforcing, would be greatly impeded if every document a party might produce was ipso facto open to public inspection. Records now freely disclosed under protective orders, often entered by stipulation, would require laborious collateral litigation to establish grounds for a sealing order. This would impose a substantial new burden on parties as well as on the courts, all in derogation of a process that is largely a modern invention and has never been conceived as open to the public. (Fuller, supra, 151 Cal.App.4^th at pp. 892-893.)

Finally, having reviewed the documents and the way in which they are used in support of SanDisk’s motion to compel, the Court finds that the proposed sealing is narrowly tailored.

SanDisk’s motion to seal is therefore GRANTED.

1. SanDisk’s Motion to Compel Further Responses to RPD

SanDisk seeks further responses to RPD Nos. 26-31 served on ArcSoft. ArcSoft objected to each of the requests and refused to produce any documents. SanDisk asserts that the documents sought by the requests are relevant and that ArcSoft’s objections to the requests lack merit.

1. Legal Standard

Upon receipt of a response to requests for the production of documents, the demanding party may move for an order compelling further response to the demand if the demanding party deems that any of the following apply:

• A statement of compliance with the demand is incomplete.
• A representation of inability to comply is inadequate, incomplete, or evasive.
• An objection in the response is without merit or too general.

(CCP, § 2031.310, subd. (a)(1) – (3).) The motion for order compelling further responses “shall set forth specific facts showing good cause justifying the discovery sought by the inspection demand.” (CCP, § 2031.310, subd. (b)(1); Kirkland v. Sup. Ct. (2002) 95 Cal.App.4th 92, 98.) To establish “good cause,” the burden is on the moving party to show both relevance to the subject matter (e.g., how the information in the documents would tend to prove or disprove some issue in the case) and specific facts justifying discovery (e.g., why such information is necessary for trial preparation or to prevent surprise at trial). (Glenfed Develop. Corp. v. Sup. Ct. (1997) 53 Cal.4th 1113, 1117.)  Where the moving party establishes “good cause,” the burden shifts to the responding party to justify its objections. (Kirkland, supra, 95 Cal.App.4th at p. 98.)

2.             Analysis

RPD Nos. 26-31 seek three categories of information. The requests in the first category (RPD Nos. 26-29) seek documents related to the advertisement and sale of Media Converters to customers other than SanDisk. For instance, RPD No. 26 seeks: “All DOCUMENTS and COMMUNICATIONS relating to advertisements, marketing materials (including brochures, Power Point or other presentations, etc.), specifications, functionality requirements, and feature lists for the MEDIA CONVERTER.”[4] (SanDisk’s Separate Statement, at p. 2.)

The second category consists of RPD No. 30, which seeks documents reflecting any payments made by ArcSoft to Dolby for Dolby technology contained in all Media Converters sold by ArcSoft.

The final category, which consists of RPD No. 31, requests documents related to one of ArcSoft’s responses to a special interrogatory served by SanDisk in which ArcSoft indicated that the Dolby technology at issue is not a standard specification for the Media Converter and is only added to the product upon a customer’s request.

ArcSoft objected to each of the requests (other than RPD No. 31) on the grounds of relevance, undue burden, overbreadth, and vagueness. As to RPD No. 31, ArcSoft objected on the grounds of relevance and overbreadth. In its objections, ArcSoft stated that, because the requests are “not limited to the SanDisk Sansa Media Converter,” the requests “seek[] wholly irrelevant information.” (See SanDisk’s Separate Statement, at pp. 2, 4, 6, 8, 10.)

The parties’ arguments concerning the propriety of the requests and the merits of ArcSoft’s objections are the same as to all of the requests. The Court will therefore consider all of the requests together.

As indicated above, on a motion to compel further responses to requests for production of documents, the moving party is required to demonstrate good cause for the discovery. To establish “good cause,” the burden is on the moving party to show both relevance to the subject matter (e.g., how the information in the documents would tend to prove or disprove some issue in the case) and specific facts justifying discovery (e.g., why such information is necessary for trial preparation or to prevent surprise at trial). (Glenfed Develop. Corp., supra, 53 Cal.4th at p. 1117.) For the reasons set forth below, SanDisk has carried this burden.

Explaining the relevance of the information sought by the requests, SanDisk points out that one of ArcSoft’s primary defenses to Dolby’s claims—which is also the basis for ArcSoft’s indemnification claim against SanDisk—is that ArcSoft’s customers (including SanDisk) agreed to pay the licensing fees directly to Dolby for the technology supplied by ArcSoft in the Media Converter products. SanDisk also points out that ArcSoft has alleged that the Media Converter did not come with the Dolby technology at issue as a standard specification and that SanDisk specifically requested the inclusion of the technology. SanDisk informs the Court that it is contesting ArcSoft’s allegation. In other words, SanDisk asserts that it never specifically requested the inclusion of the technology.

SanDisk further points out that, based upon ArcSoft’s discovery responses to previous requests in this case, it appears that ArcSoft is going to attempt to prove that SanDisk requested the inclusion of the technology through evidence of the parties’ course of conduct. According to SanDisk, the requested information will be used in rebutting ArcSoft’s assertion that SanDisk specifically requested the technology. Put another way, SanDisk believes that the information will show whether or not ArcSoft included the Dolby technology as a “standard feature” of its Media Converter product. If that is the case, it would contradict the assertion that SanDisk requested the inclusion of the technology.

ArcSoft argues that the information sought by the requests is not relevant. It points out that it has three types of customers: (1) retail customers (those who purchase and download products directly from ArcSoft’s website and are not required to pay licensing fees to companies such as Dolby); (2) pay through customers (customers who have ArcSoft collect and pay the royalties to the licensors of technology such as Dolby); and (3) custom specification customers (those who contract with ArcSoft to produce a custom software master disc). There does not appear to be any dispute that SanDisk’s relationship with ArcSoft fell within the third category, i.e., SanDisk was one of ArcSoft’s custom specification customers.

Given that SanDisk was a custom specification customer, ArcSoft’s argument boils down to the following assertion: “Fundamentally, because these are custom specification builds of software, there is no ‘default’ version of the software [and] [w]hether ArcSoft designed software for others with Dolby technology or without does not add anything to SanDisk’s defense against ArcSoft’s cross-claims.” (Opp., p. 7.)

The Court agrees with SanDisk that the information sought by the requests is relevant. The primary dispute between ArcSoft and SanDisk is whether SanDisk requested the inclusion of the Dolby technology in the Media Converters purchased from ArcSoft. ArcSoft claims that SanDisk did request the technology but, according to SanDisk, ArcSoft does not have any documentation demonstrating that such a request was ever made. Instead, ArcSoft will attempt to prove that SanDisk requested the technology through evidence of the parties’ course of conduct.

The Court agrees with SanDisk that the information sought by the requests could be used to rebut that assertion. In other words, depending on what the discovery shows, SanDisk could potentially provide the fact-finder with evidence that ArcSoft included the Dolby technology at issue to every one of its customers. If that is in fact the case, SanDisk could argue that the fact-finder should infer that the technology was included as a “standard feature” of the Media Converter products and that SanDisk did not in fact request the inclusion of the technology.

ArcSoft’s contention that SanDisk must have requested the inclusion of the technology because it was a custom specification customer—and products for such customers were built based upon the customer’s specifications—is not well-taken. That assertion, which ArcSoft asks the Court to take as a given, is precisely what SanDisk is attempting to discover, i.e., whether the master discs provided to custom specification customers were truly “built from scratch” or whether there was a default version for the Media Converters that all contained the Dolby technology. Indeed, in support of its motion to compel, SanDisk points out that in a sales presentation made in October 2005, ArcSoft made representations to SanDisk that ArcSoft would provide a “[f]ramework for building customized products from [a] standard ‘base.’” (Kleine Decl. in Support of SanDisk’s Reply, Ex. A, emphasis added.)

Based upon the above discussion, the Court finds that SanDisk has demonstrated the relevance of the information sought by the requests and set forth specific facts justifying the discovery. The Court therefore finds that SanDisk has demonstrated good cause, shifting the burden to ArcSoft to justify its objections to the requests. (Kirkland, supra, 95 Cal.App.4th at p. 98.)

As noted above, ArcSoft objected to all of the requests on the grounds of relevance and overbreadth. It also objected to RPD Nos. 26-30 on the grounds of vagueness and undue burden. The Court addressed the relevance of the information sought by the requests above and found the information relevant. ArcSoft’s relevance objections are therefore overruled. Similarly, ArcSoft has not made any specific arguments as to why the requests are overly broad. Instead, the overbreadth objections appear to be tethered to ArcSoft’s relevance objections. Because the Court has rejected ArcSoft’s arguments that the requests seek irrelevant information and because ArcSoft has not otherwise justified its overbreadth objections, those objections are overruled. Along the same lines, ArcSoft has not attempted to justify its objections that the requests are vague. Those objections are therefore overruled.

The only objection, other than relevance, that ArcSoft attempts to justify is the objection to the requests on the basis of undue burden. A party claiming that requested discovery is unduly burdensome must make a particularized showing of facts demonstrating hardship. (West Pico Furniture Co. v. Super. Ct. (1961) 56 Cal.2d 407, 417-418.) These facts include how much work, time and expense is required in order to answer or produce all responsive documents. (Id., at p. 418.) Standing alone, the fact that a response to a particular discovery request will require a lot of work to answer does not justify an undue burden objection. (Id.) Instead, it must be shown that the burden of answering is so unjust that it amount to oppression. (Id.) In determining whether the burden is unjust, a weighing process is required: it must appear that the amount of work required to answer the questions is so great, and the utility of the information sought so minimal, that it would defeat the ends of justice to require the answers. (Columbia Broadcasting System, Inc. v. Super. Ct. (1968) 263 Cal.App.2d 12, 19.)

In support of ArcSoft’s undue burden objection, counsel for the company states the following:

Locating and producing the documents sought by SanDisk would be an extreme burden on ArcSoft. This task would take hundreds if not thousands of hours, and would cost hundreds of thousands of dollars. The reason for this is ArcSoft does not maintain a central database. As such, to locate documents relating to ArcSoft’s Media Converter would require searching in multiple geographical locations, multiple servers, interviewing engineers and sales persons to determine which products involve ArcSoft’s Media Converter. (Decl. of Dao in Support of ArcSoft’s Opp., ¶ 11.)

Setting aside the question of whether the above statement is sufficiently particularized to demonstrate undue burden, the Court finds that the objection must fail because the balancing test does not tip in favor of ArcSoft.

As SanDisk points out, ArcSoft is the party that sued SanDisk in this case. Moreover, it is undisputed that the question of whether SanDisk requested the Dolby technology in the Media Converter products supplied by ArcSoft is one of the central disputes in this case and the Court has found that the information sought by the requests is relevant to that question. ArcSoft should not be allowed to ask the trier of fact to infer that SanDisk requested the technology in the product by looking at the parties’ course of conduct while at the same time refusing to provide SanDisk with discovery that may be useful in rebutting that assertion.

The reason cited by ArcSoft for why it would be burdensome to collect the information requested by SanDisk essentially comes down to the fact that the company does not have a central database for the information. It would make little sense from a policy standpoint to allow a company to avoid discovery by claiming undue burden based upon poor bookkeeping. For these reasons, the Court finds that ArcSoft has not justified its objections to the requests on the basis of undue burden.

Because SanDisk has demonstrated good cause for the discovery and ArcSoft has failed to justify its objections, SanDisk’s motion to compel further responses to RPD Nos. 26-31 is GRANTED.

1. Conclusion and Order

SanDisk’s motion to seal documents in support of its motion to compel further responses is GRANTED.

SanDisk’s motion to compel ArcSoft to provide further responses to RPD Nos. 26-31 is GRANTED. Accordingly, ArcSoft shall serve verified, code-complaint further responses, without objections to RPD Nos. 26-31 within 20 calendar days of the date of the filing of this Order.

________________­­­____________ DATED:

_________________________­­­________________________ HON. SOCRATES PETER MANOUKIAN Judge of the Superior Court County of Santa Clara

[1] SanDisk is designated in the caption of the pleadings as a “Third-Party Defendant” rather than a cross-defendant.

[2] “The failure to file a written opposition or to appear at a hearing or the voluntary provision of discovery shall not be deemed an admission that the motion was proper or that sanctions should be awarded.”  (Cal. Rules of Court, rule 3.1348(b).)

[3] SanDisk has conditionally lodged these documents under seal and filed publicly accessible redacted versions of the documents in accordance with the California Rules of Court.

[4] The term “Media Converter” is specially defined in the RPD as meaning “all versions of or products in ArcSoft’s product family called or marketed as the ‘Media Converter’ . . . but not limited to[] the version licensed to SANDISK . . . .” (SanDisk’s Separate Statement, at p.  1.)