Apple, Samsung Get to Keep Financial Documents Confidential
|Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: August 28, 2013 @ 8:00 am
Last week the United States Court of Appeals for the Federal Circuit issued a decision in the latest appeal in the Apple/Samsung epic patent battle. See Apple, Inc. v. Samsung Electronics Co. (Fed. Cir., August 23, 2013). In this situation the parties really were not fighting against each other; instead finding themselves arguing on the same side against the decision of the district court to allow sensitive information to be publicly available.
On August 9, 2012, Judge Lucy Koh of the United States District Court for the Northern District of California issued a decision that denied in part the parties’ motion to seal certain filings. In general, Judge Koh sealed information about the parties’ production and supply capacities, confidential source code, third-party market research reports, and the pricing terms of licensing agreements. However, Judge Koh ordered unsealed documents disclosing the parties’ product-specific profits, profit margins, unit sales, revenues, and costs, as well as Apple’s own proprietary market research reports and customer surveys and the non-price terms of licensing agreements.
In her ruling Judge Koh ordered the parties to take an immediate appeal to the Federal Circuit, which occurred on August 13, 2012. The Federal Circuit consolidated the appeal by Apple and the appeal by Samsung, designating Apple as the appellant and Samsung as the cross-appellant. On August 15, 2012, the district court granted a stay pending the final resolution, thus the August 9, 2012 order that sensitive financial information would be made publicly available has been stayed pending disposition of the appeal.
A Very Brief History
Apple sued Samsung on April 15, 2011, asserting among other claims that Samsung’s smartphones and tablets infringed several of Apple’s patents and infringed Apple’s trade dress embodied in its iPhone and iPad products. Samsung filed counterclaims, alleging that the iPhone and iPad infringed several of Samsung’s patents. The case was tried to a jury beginning on July 30, 2012. On August 24, 2012, the jury returned a verdict substantially in Apple’s favor, awarding Apple more than $1 billion in damages.
The trial drew an extraordinary amount of attention from the public and the media, leading the Wall Street Journal to refer to the case as The Patent Trial of the Century. Indeed, the last patent trial of this magnitude was the epic battle between Polaroid and Kodak, which ultimately culminated in Kodak paying a $925 million settlement to Polaroid in 1991. Still, the level of interest in the worldwide dispute between Apple and Samsung has been extraordinarily high, which has lead the district court to grant the press extraordinary access to the judicial proceedings.
In many patent trials there are often mountains of sealed exhibits and occasionally proceedings will occur behind closed courtroom doors. Given the extreme public interest in the case Judge Koh rather famously proclaimed to the parties before the trial that “the whole trial is going to be open.” It would appear as if she was not kidding. The level of information she would have go public is extreme. One does not normally see sensitive, proprietary financial information disclosed for the public (and competitors) to see.
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Federal Circuit Finds Abuse of Discretion
The Federal Circuit, per Judge Prost with Judges Bryson and O’Malley joining, determined that the district court abused its discretion in refusing to seal the confidential information at issue in the appeals, ultimately reversing and remanding the case for further proceedings consistent with this decision.
Because this case raised issues that were not substantive patent law issues the Federal Circuit applies the law of the Circuit where the case is situated, which in this case is the Ninth Circuit. In the Ninth Circuit there is a strong presumption in favor of access to court records, although the right to access all court records is not absolute. Indeed, the Federal Circuit explained: “One factor that weighs in favor of sealing documents is when the release of the documents will cause competitive harm to a business.” Judge Prost cited Nixon v. Warner Commc’ns, Inc., 435 U.S. 589, 597 (1978) for this proposition. Furthermore, the Ninth Circuit further distinguishes between dispositive and non-dispositive motions because there is a belief that the public has less of a need for access to court records when such records are presented only to support non-dispositive motions.
Judge Koh applied the “compelling reasons” standard to determine that the documents attached to non-dispositive motions should be available to the public. The Ninth Circuit, however, requires only that the party seeking to seal documents to a non-dispositive motion demonstrate “good cause” for the documents being withheld from the public. Thus, Judge Koh applied the wrong standard. The Federal Circuit also pointed out that it further seemed inappropriate to apply a higher standard when at least some of the motions related to the admissibility of evidence at trial — evidence ruled inadmissible because it lacked relevance. The Federal Circuit questioned why the public should be entitled to such sensitive information when the district court has ruled the evidence inadmissible and not relevant to the substantive dispute.
Nevertheless, despite applying the wrong standard, the Federal Circuit continued to review the documents on appeal.
Apple and Samsung argued that the district court abused its discretion in refusing to seal their confidential financial information. The parties asserted that their detailed product-specific information concerning such things as costs, sales, profits, and profit margins qualifies as trade secrets. They reiterated the extensive measures they take to keep this information confidential, as well as the harms they will suffer if their competitors gain access to this information.
The Federal Circuit concluded that Apple and Samsung had a justifiable interest in keeping the disputed documents confidential because they could suffer competitive harm if the information were to be made public, and the district court erred by concluding otherwise. Furthermore, the Federal Circuit considered the public’s interest in the information, explaining that just because the public is peculiarly interested in the case does not mean that the public has “a legally cognizable interest in every document filed.” The Federal Circuit explained:
Considering the parties’ strong interest in keeping their detailed financial information sealed and the public’s relatively minimal interest in this particular information, we conclude that the district court abused its discretion in ordering the information unsealed. We recognize that, unlike the district court, we have the benefit of hindsight — we now know that these exhibits were not introduced at trial and thus did not form the basis for the jury’s damages award.
Finally, the Federal Circuit considered the marketing information that Apple wished to keep secret separately. The Federal Circuit found that Apple adequately demonstrated that it could suffer competitive harm if that information were to be made publicly available, and further cited Apple’s willingness to make public all of the information contained in these documents that was actually cited by the parties or the district court. Thus, the Federal Circuit concluded that the district court abused its discretion in ordering that Apple’s nine market research reports be unsealed.
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Posted in: Apple, Companies We Follow, Federal Circuit, Gene Quinn, IP News, IPWatchdog.com Articles, Patent Fools™, Patent Litigation, Samsung
About the Author
Gene Quinn is a US Patent Attorney, law professor and the founder of IPWatchdog.com. He is also a principal lecturer in the top patent bar review course in the nation, which helps aspiring patent attorneys and patent agents prepare themselves to pass the patent bar exam. Gene started the widely popular intellectual property website IPWatchdog.com in 1999, and since that time the site has had many millions of unique visitors. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, USA Today, CNN Money, NPR and various other newspapers and magazines worldwide. He represents individuals, small businesses and start-up corporations. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.