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PCT International Incorporated v. Holland Electronics LLC

United States District Court, D. Arizona

November 18, 2014

PCT International Incorporated, Plaintiff,
v.
Holland Electronics LLC, Defendant.

ORDER

JAMES A. TEILBORG, District Judge.

Pending before the Court are Plaintiff PCT International Inc. ("PCT")'s Renewed Motion to File Under Seal Certain Documents (Doc. 216) and Defendant Holland Electronics, LLC ("Holland")'s Revised Motion to File Under Seal (Doc. 214). The Court now rules on the motions.

I. Background

Both parties in this case filed a number of motions to file under seal dispositive motions (including responses and replies) and various documents attached to dispositive motions. The Court denied without prejudice the motions to file under seal, finding that the parties had not met the standard for sealing documents attached to a dispositive motion under Ninth Circuit Court of Appeals case law. (Doc. 213). The Court ordered the parties to each file a single motion to file under seal addressing all documents sought to be sealed and for each document, specifying with particularity the compelling reasons why that document should be sealed. ( Id. at 8).

Each party has filed a motion to file under seal as well as a response to the other party's motion. (Docs. 214, 216, 217, 218). The Court now rules on the motions.

II. Legal Standard

It has long been recognized that the public has a general right of access "to inspect and copy... judicial records and documents." Nixon v. Warner Commc'ns, Inc., 435 U.S. 589, 597 (1978). This right extends to all judicial records except those that have "traditionally been kept secret for important policy reasons, " namely grand jury transcripts and certain warrant materials. Kamakana v. City & Cnty. of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006). "Unless a particular court record is one traditionally kept secret, ' a strong presumption in favor of access' is the starting point." Id. (citing Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003)). "[T]he strong presumption of access to judicial records applies fully to dispositive pleadings, including motions for summary judgment and related attachments, " because "the resolution of a dispute on the merits, whether by trial or summary judgment, is at the heart of the interest in ensuring the public's understanding of the judicial process and of significant public events.'" Kamakana, 447 F.3d at 1179 (quoting Valley Broadcasting Co. v. U.S. Dist. Ct. for Dist. of Nev., 798 F.2d 1289, 1294 (9th Cir. 1986)).

"A party seeking to seal a judicial record then bears the burden of overcoming this strong presumption by meeting the compelling reasons' standard." Id. at 1178 (citing Foltz, 331 F.3d at 1135). The party must "articulate compelling reasons supported by specific factual findings that outweigh the general history of access and the public policies favoring disclosure, such as the public interest in understanding the judicial process." Id. at 1178-79 (internal quotation marks and citations omitted). A court deciding to seal judicial records must "base its decision on a compelling reason and articulate the factual basis for its ruling, without relying on hypothesis or conjecture." Id. at 1179 (quoting Hagestad v. Tragesser, 49 F.3d 1430, 1434 (9th Cir. 1995)).

The presumption of public access is not rebutted merely because "documents subject to a protective order are filed under seal as attachments to a dispositive motion." Foltz, 331 F.3d at 1136. A party seeking to seal a judicial record must still meet its heavy burden of demonstrating compelling reasons exist for sealing. See Kamakana, 447 F.3d at 1179.

"In general, compelling reasons' sufficient to outweigh the public's interest in disclosure and justify sealing court records exist when such court files might have become a vehicle for improper purposes, ' such as the use of records to gratify private spite, promote public scandal, circulate libelous statements, or release trade secrets." Id. (quoting Nixon, 435 U.S. at 598). "The mere fact that the production of records may lead to a litigant's embarrassment, incrimination, or exposure to further litigation will not, without more, compel the court to seal its records." Id.

Accordingly, a party's allegations that material is "confidential" or "business information" are insufficient to justify sealing court records containing such material unless the party proves the existence of compelling reasons for sealing. Krause v. Nev. Mut. Ins. Co., 2013 WL 3776146, at *5 (D. Nev. July 16, 2013) (citing Kamakana, 447 F.3d at 1179). Moreover, because "confidentiality alone does not transform business information into a trade secret, " a party alleging trade secret protection as a basis for sealing court records must show that the business information is in fact a trade secret. St. Clair v. Nellcor Puritan Bennett LLC, 2011 WL 5335559, at *2 (D. Ariz. Nov. 7, 2011). Thus, only in extremely limited circumstances will confidential information actually merit the sealing of court records. See Kamakana, 447 F.3d at 1182 (finding that conclusory statements about the content of documents did not provide "compelling reasons sufficiently specific to bar the public access to the documents").

III. Analysis

A. PCT's Motion to File Under Seal

PCT asks to file under seal six documents that it asserts contain "highly confidential commercially sensitive information." (Doc. 216 at 2). The Court will address each document in turn.

1. PCT's License Agreements

PCT seeks to file under seal the excerpted expert report of David A. Haas previously attached as Exhibit 5 to the Declaration of Jamie R. Kurtz. ( Id. at 5). This report contains, among other information, a discussion of royalty rates that PCT pays to license other patents for its use. PCT submits the declaration of PCT's vice president Brandon Wilson, who testifies that PCT maintains the secrecy of its license agreements and these agreements are important to PCT's competitive standing during patent licensing negotiations. (Doc. 216-2 at 2).

Royalty rates contained in a license agreement can be trade secrets. See In re Electronic Arts, Inc., 298 F.Appx. 568, 569 (9th Cir. 2008). "A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.'" Id. (quoting Restatement (First) of Torts § 757 cmt. b). In MMI, Inc. v. Baja, Inc., 743 F.Supp.2d 1101 (D. Ariz. 2010), the Court concluded that a license agreement including the royalty rate charged to licensees was a trade secret because the information was not generally known by others, the information was not readily ascertainable by proper means, and the license terms were business decisions that affected profitability. 743 F.Supp.2d at 1106.

The release of trade secrets is a compelling reason sufficient to outweigh the public's interest in disclosure. See Kamakana, 447 F.3d at 1179. The Court concludes that PCT has demonstrated compelling reasons for sealing this document, and will permit PCT to file this document under seal.

2. PCT's Bag Label Drawings

PCT seeks to file under seal bag and connector label drawings originally submitted as Exhibits 13, 37, and 38 to the Harting Declaration. (Doc. 216 at 7). These drawings contain specifications for the packaging in which PCT products are sent to customers, [1] and show design elements such as PCT's logo, the product name (for example, "compression connectors"), the typeface used for various pieces of text, and so forth. The drawings also show the identity of PCT's manufacturer.

PCT asserts that the identity of its manufacturer is a protectable trade secret and that it has not publicly disclosed this identity. ( Id. at 9). But PCT has disclosed its manufacturer several times, most significantly in its complaint in a collateral action in the District of Nevada. See Complaint at 5-7, Andes Industries, Inc., et al. v. Cheng Sun Lan, et al., No. 2:14-cv-00400-APG-GWF (D. Nev. Mar. 18, 2014). The Court takes judicial notice of the allegations in that complaint not for the truth of those allegations but merely for the fact that PCT filed them into the public record. Fed.R.Evid. 201(c)(1); Peel v. BrooksAmerica Mortg. Corp., 788 F.Supp.2d 1149, 1157-58 (C.D. Cal. 2011). Because PCT has publicly disclosed the identity of its manufacturer, this information cannot qualify as a trade secret. See MMI, 743 F.Supp.2d at 1105-06; A.R.S. § 44-401(4)(b) (Arizona Uniform Trade Secrets Act). Accordingly, PCT has not shown that these documents should be filed under seal.

3. PCT's Engineering Drawings

PCT also seeks to file under seal various engineering drawings of its connector designs originally submitted as Exhibits 36 and 39 to the Harting Declaration. (Doc. 216 at 6). These drawings show the detailed dimensional specifications for PCT's connectors, including measurements, design tolerances, and materials of manufacture. PCT asserts that it is difficult to reverse engineer PCT's connectors to determine the precise dimensions of each component and that it would be extremely difficult and expensive to ascertain PCT's precise design tolerances from finished connectors. (Doc. 216-2 at 2-3). PCT also asserts that these design tolerances have significant economic value, PCT has expended significant resources to define the optimal tolerances, and PCT does not publicly disclose these tolerances. ( Id. at 3). PCT makes similar arguments concerning materials of manufacture. ( Id. at 4-5).

Because the Court finds portions of this information to constitute trade secrets, the Court will permit PCT to file these documents under seal. However, the drawings themselves are not trade secrets because they are merely schematics of connectors that PCT makes available for sale. Thus, PCT's redacted public version of these documents must redact only the numbers in the schematics that represent the measurements and design tolerances. The materials of manufacture must not be redacted.

B. Holland's Response to PCT's Motion to File Under Seal

PCT originally also sought to file under seal documents that Holland had designated as protected under the protective order. Holland argues in its response to PCT's motion to file under seal that PCT should be permitted to file these documents under seal. (Doc. 218 at 7). Because Holland has an interest in preserving the confidentiality of these documents, the Court will address Holland's arguments. The Court will address each document in turn.

1. Exhibit 6 to the Yang Declaration

Holland has redacted portions of the document originally filed as Exhibit 6 to the Yang Declaration that it considers to contain confidential information that "constitutes Holland's trade secrets." ( Id. at 7). The Court has examined this document and notes that Holland's proposed redactions include photos of its connectors and industry-standard tests for tensile strength. Because Holland sells its connectors to the public, there is nothing about conducting tests upon those connectors that falls into the classification of a trade secret. Metrics of how well Holland's connectors perform in various environments are not trade secrets.

This document also contains, however, reproductions of Holland's engineering drawings that show the dimensions for components of Holland's connectors as well as design tolerances. For the same reasons as the Court discussed above with respect to PCT's engineering drawings, these are protectable trade secrets. But because the engineering drawings are included in this document for purposes other than referencing the dimensions and design tolerances, redaction of this irrelevant information is more appropriate than even filing the entire document under seal but redacting only the engineering drawings. Accordingly, the Court ...


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