Samsung's Counsel Get a Slap on the Wrist for Breaching Confidentiality

As discussed and predicted here in November 2013, Samsung's outside counsel were found to have violated the Court's "Protective Order" in the Apple patent litigation, but received nothing more than "public shaming" from a U.S. Judge.

To address the potential mishandling of proprietary and confidential information during litigation, parties routinely stipulate to entry of a “Protective Order.”

This stipulation takes the form of a Court Order which allows the parties and their counsel to designate documents and information into categories or tiers.

When documents contain highly sensitive information, such as pricing or key licensing terms, the parties are usually able to mark documents as “Outside Counsel’s Eyes Only,” and file such documents under a strict seal so the public cannot get access through the Court’s docket.

Responsible outside counsel take great pains to respect these orders, often at significant cost and inefficiency. Multiple drafts of the same document must be created and digital firewalls maintained with redactions and password-protected file folders.

These day-to-day procedures involved in handling competitors' sensitive data can be onerous to the parties and their outside counsel litigating these cases, but such measures are viewed as necessary to ensure that litigants feel that their sensitive information is not being acquired by their competitors in the guise of discovery exchange.

In the now famous Apple/Samsung patent case, highly confidential licensing terms were apparently contained in a draft expert report on damages that was forwarded to Samsung’s internal personnel without any redactions whatsoever.

The leak of the confidential information only came to light after the case was effectively over, when Samsung happened to be negotiating a license with third party Nokia.  According to testimony, a Samsung executive told Nokia that he knew the terms of the Apple-Nokia license and was able to recite its terms verbatim during the negotiation.  Nokia told Apple, who demanded a formal investigation.

After a Court-ordered investigation, it became clear that Samsung’s outside counsel had posted a draft of its expert’s report on a client file-sharing site that was accessible by Samsung’s staff, and e-mailed instructions for accessing the site, which included over fifty Samsung employees who were not permitted to access the highly confidential information contained therein.

Samsung's outside counsel essentially admitted that all of the above did indeed occur, but denied that the violation was intentional. Samsung argued that no sanctions whatsoever are warranted, despite the harm to Apple and the threat to the integrity of the discovery process.

Frequently, outside counsel entering into the exchange of sensitive discovery materials during intellectual property litigation are asked by their clients whether to trust that the terms of protective orders are respected by their adversaries.

And the standard response that outside counsel typically give to their clients is supposed to allay their concerns:  Any violations of the Protective Order wil be swiftly punished by the Court, thus deterring misconduct.

Not this time.

The Judge found that the only appropriate punishment for Quinn is its "public shaming."  Apparently, that shame will follow the firm all the way to the bank.

As we previously wrote, Americans live under a legal system that is far too tolerant of discovery abuses.

Samsung and Its Outside Counsel Facing Sanctions For Breaching Confidentiality: But Will the Punishment Fit the Offense?

Before Apple and Samsung litigated their now epic patent trial before a federal district court, they were engaged in routine discovery practices, which involved the exchange of the fierce competitors’ highly sensitive licensing information.

To be sure, such disclosure is commonplace and indeed required by discovery in the United States' Federal Rules of Civil Procedure.

To address the potential mishandling of proprietary and confidential information, parties routinely stipulate to entry of a “Protective Order.”

This stipulation takes the form of a Court Order which allows the parties and their counsel to designate documents and information into categories or tiers.

When documents contain highly sensitive information, such as pricing or key licensing terms, the parties are usually able to mark documents as “Outside Counsel’s Eyes Only,” and file such documents under a strict seal so the public cannot get access through the Court’s docket.

Responsible outside counsel take great pains to respect these orders, often at significant cost and inefficiency. Multiple drafts of the same document must be created and digital firewalls maintained with redactions and password-protected file folders.

These day-to-day procedures involved in handling competitors' sensitive data can be onerous to the parties and their outside counsel litigating these cases, but such measures are viewed as necessary to ensure that litigants feel that their sensitive information is not being acquired by their competitors in the guise of discovery exchange.

In the now famous Apple/Samsung patent case, highly confidential licensing terms were apparently contained in a draft expert report on damages that was forwarded to Samsung’s internal personnel without any redactions whatsoever.

The leak of the confidential information only came to light after the case was effectively over, when Samsung happened to be negotiating a license with third party Nokia.  According to testimony, a Samsung executive told Nokia that he knew the terms of the Apple-Nokia license and was able to recite its terms verbatim during the negotiation.  Nokia told Apple, who demanded a formal investigation.

After a Court-ordered investigation, it turns out that Samsung’s outside counsel had posted a draft of its expert’s report on a client file-sharing site that was accessible by Samsung’s staff, and e-mailed instructions for accessing the site, which included over fifty Samsung employees who were not permitted to access the highly confidential information contained therein.

Samsung's outside counsel has essentially admitted that all of the above did indeed occur, but denies that the violation was intentional. Samsung incredibly argues that no sanctions whatsoever are warranted, despite the harm to Apple and the threat to the integrity of the discovery process.

The Magistrate Judge appears to be mulling what sanctions are appropriate for the apparent violation of the Court’s Protective Order.

Frequently, outside counsel entering into the exchange of sensitive discovery materials during intellectual property litigation are asked by their clients whether to trust that the terms of protective orders are respected by their adversaries.

And the standard response that outside counsel typically give to their clients is supposed to allay their concerns:  Any violations of the Protective Order wil be swiftly punished by the Court, thus deterring misconduct.

But let’s face reality for a moment:  Unless the fines imposed on Quinn Emanuel, Samsung’s outside counsel here, are truly draconian in nature, the misconduct is likely to go largely unpunished.

Quinn Emanuel undoubtedly billed millions upon millions of dollars in legal fees to Samsung for its litigation services, and any fine imposed is likely to be paltry in comparison to the violence such conduct does to the integrity of the discovery process and the commercial harm to Apple.

And, in the event that the fines imposed the Magistrate were truly draconian in nature, what is the likelihood that Judge Koh would enforce them?  The Court has already reduced the damages awarded to Apple against Samsung by the jury from over $1billion to less than half.

Further, even if Judge Koh found the nerve to impose a draconian penalty against the misconduct, Quinn Emanuel and Samsung will inevitably appeal to the U.S. Court of Appeals for the Ninth Circuit.  What are the odds that that California-based appellate court would sustain a draconian penalty against Samsung and/or its outside counsel?  Slim to none, I suspect.

Therefore, while Quinn Emanuel very well may have inadvertently violated the Protective Order rather than willfully, parties facing high-stakes intellectual property litigation requiring the exchange of highly sensitive data with competitors would be well advised to consider the risks inherent in litigating against a fierce adversary with all the wrong incentives, in a legal system that is far too tolerant of discovery abuses.

Sanctions Against "Rogue" Porn-Copyright Attorney Upheld by 5th Circuit

A federal appeals court has affirmed monetary sanctions assessed against an Intellectual Property lawyer who represents a maker of adult films in a series of copyright-infringement-by-downloading cases.

U.S. District Court Judge David C. Godbey in Dallas had ruled in January that attorney Evan Stone of Denton, Texas had abused the discovery process, and termed him a “rogue attorney" with "staggering chutzpah" in a blistering decision.

In a July 12 ruling, the 5th U.S. Circuit Court of Appeals  affirmed the District Court's sanctions levied against Stone.

Stone represents Germany’s Mick Haig Productions E.K. against a large number of unnamed "John Doe" Defendants who stand accused of downloading Haig’s “Der Gute Onkel” film without authorization. 

Stone, no stranger to controversy, was depicted strangling pirates near scantily-clad porn stars in a recent Dallas Observer article.

The District Court had appointed attorneys from Electronic Frontier Foundation and Public Citizen as "ad litem" attorneys to represent the interests of the John Doe defendants and it was these lawyers who had sought the sanctions in District Court. The sanctions included attorneys' fees of more than $22,000, and $500 per day for each day Stone failed to comply with a court order.

Stone filed an appeal to the 5th Circuit, arguing the sanctions were unjustified and that the court-appointed attorneys lacked standing to seek them.

The appeals court flatly rejected Stone's argument.  It specifically held that “no miscarriage of justice will result from the sanctions” that were imposed “as a result of Stone’s flagrant violation” of court rules.

The appeals court said Stone committed the violations by using the subpoena power of the court to find the identity of anonymous Internet users “then shaming or intimidating them to settle for thousands of dollars” each.

The appeal is captioned Mick Haig Productions E.K. v. Does 1-670, 11- 10977, U.S. Court of Appeals for the Fifth Circuit (New Orleans). The District Court case is Mick Haig Products E.K. v. Does 1-670, U.S. District Court, Northern District of Texas (Dallas).

The tactic of using the threat of John Doe subpoena discovery against pornography downloaders has come under recent fire in high-profile class action litigations against a number of adult film companies.