In last week’s only precedential opinion issued in a patent case, the Federal Circuit reversed contempt and sanctions orders entered by the District Court for the Western District of Wisconsin following defendant’s alleged violations of a stipulated protective order governing discovery.  This case offers useful guidance for patent litigants contemplating a coordinated defense with similarly-situated parties in other litigation.

The underlying case involved alleged infringement of plaintiff-appellee Leader Accessories’ design patent.  Defendant-appellant Static Media had entered into a joint defense agreement with OJ Commerce, another party sued by Leader in Florida for infringement of the same patent.  Relying on a provision of the Wisconsin protective order permitting disclosure of designated materials to retained outside consultants, Static and its counsel disclosed to OJ Commerce’s counsel certain designated materials concerning Static’s licensing and sales information as produced in the Wisconsin case.  OJ Commerce subsequently relied on that information in assessing a settlement proposal from Static in the Florida action.  Because the Wisconsin protective order provided that confidential information and documents “shall be used solely for the purpose of this action,” the district court had found that Static and its attorney violated that order when they disclosed the information to OJ Commerce.

The Federal Circuit acknowledged that this use by OJ Commerce was “improper,” but reversed the Wisconsin court’s contempt and sanctions orders against Static and its attorney.  Relying on the Supreme Court’s recent holding that a finding of contempt is improper where 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) (as modified in Static Media, cleaned up), as well as a “clear and convincing” evidentiary standard for contempt, the Court found that Leader had failed to prove Static’s violation of the protective order on each of two separate theories.

First, the district court had reasoned that given the joint defense agreement, Static’s attorney knew or reasonably should have known that OJ Commerce would improperly use any disclosed information in defense of the Florida action.  However, Static argued that it made the disclosures for consulting purposes in the Wisconsin action; had not disclosed any information to OJ Commerce’s counsel until after the latter had executed a required undertaking to be bound by the terms of the protective order; and had reminded OJ Commerce of the protective order’s requirements with each disclosure of designated information.  On these facts, the Federal Circuit found Static had done “exactly what was required to ensure that [OJ Commerce’s counsel] would abide by the protective order,” and that there was no sufficient basis for finding Static’s counsel should have known that OJ Commerce “would independently decide to violate the protective order.”

The district court had also reasoned more broadly that use of designated information in a joint defense strategy generally was a violation of the protective order.  Here, the Federal Circuit deferred to Taggart’s guidance that a contempt finding may be appropriate where the alleged contemnor’s conduct was based on an “objectively unreasonable understanding” of the order at issue.  Noting that the Wisconsin protective order’s stated purpose was to protect against “public dissemination and disclosure” of designated materials, the Court concluded that it was not objectively unreasonable for Static to have read the order as permitting disclosures or uses entirely internal to protective order signatories, including developing a joint defense strategy, and thus there was a “fair ground of doubt” that such use was improper.

Because the district court abused its discretion in holding Static and its counsel in contempt for OJ Commerce’s unauthorized use, the Federal Circuit reversed the contempt and sanctions orders.  Judge Reyna dissented, arguing that Seventh Circuit law requires deferential review of sanctions orders, and otherwise agreeing that Static could not reasonably have believed that OJ Commerce would not use disclosed information in defending the Florida action.

The opinion can be found here.

By Jason A. Wrubleski