S2 Automation LLC v. Micron Technology, Inc.
283 F.R.D. 671, 2012 U.S. Dist. LEXIS 107964, 2012 WL 3150406 (2012)
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Rule of Law:
In complex commercial litigation, a party can establish "good cause" for a protective order under Federal Rule of Civil Procedure 26(c) by showing that discovery will involve trade secrets or other sensitive commercial information. Courts may then issue a broad, two-tiered "umbrella" protective order to facilitate discovery, placing the burden on the party opposing a confidentiality designation to challenge specific documents rather than requiring the producing party to justify each designation upfront.
Facts:
- S2 Automation entered into supplier and service agreements with Numonyx to manage inventory and provide services at the 'Fab 12' computer chip manufacturing facility in Israel.
- Pursuant to the agreements, S2 Automation took ownership and control of all of Numonyx's parts, equipment inventory, and laboratory tools at the facility.
- In 2010, Micron Technology purchased the Fab 12 facility from Numonyx and assumed Numonyx's contractual obligations under the agreements with S2 Automation.
- S2 Automation alleged that Micron Technology did not disclose that a subsidiary was acquiring the assets and that S2 Automation believed it was only dealing with Micron Technology directly.
- The business relationship deteriorated after Micron Technology allegedly attempted to impose new service obligations on S2 Automation that were outside the scope of the original agreements.
- On November 30, 2010, Micron Technology terminated its agreements with S2 Automation, claiming it was 'for cause.'
- Following the termination, a dispute arose over the ownership of the inventory at the facility, with Micron Technology allegedly denying S2 Automation access to document its ownership and refusing to pay for items it kept.
Procedural Posture:
- S2 Automation filed its original complaint against Micron Technology in the U.S. District Court for the District of New Mexico.
- S2 Automation later filed an Amended Complaint asserting six causes of action, including breach of contract, conversion, and misrepresentation.
- During discovery, the parties were unable to agree on the terms of a protective order to govern the exchange of confidential information.
- Micron Technology filed a Motion for Entry of Protective Order, asking the court to implement its proposed two-tiered ('Confidential' and 'Attorneys' Eyes Only') order.
- S2 Automation filed a response opposing the motion, arguing Micron Technology had not shown good cause and that the proposed terms were unreasonable and would impair its ability to prosecute its claims.
- The District Court held a hearing on the motion.
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Issue:
Does a party in complex commercial litigation show 'good cause' for a court to enter a two-tiered protective order by demonstrating that discovery will involve sensitive intellectual property and confidential business information?
Opinions:
Majority - James O. Browning
Yes. A party shows good cause for a two-tiered protective order where discovery involves sensitive commercial information. Micron Technology operates in the highly competitive semiconductor industry and has demonstrated that discovery will involve its intellectual property, confidential manufacturing processes, and other sensitive commercial information. To facilitate the efficient progression of discovery in such complex litigation, it is appropriate to enter a broad 'umbrella' protective order with a two-tiered designation system for 'Confidential' and 'Highly Confidential—Attorneys’ Eyes Only' information. This approach is more practical than requiring the producing party to justify confidentiality on a document-by-document basis. The burden shifts to the receiving party, S2 Automation, to challenge any specific designations it believes are improper, at which point the producing party must justify the designation. The court will, however, modify the proposed order to remove restrictions requiring prior approval for sharing information with experts, as such limitations are overly burdensome.
Analysis:
This opinion provides a practical application of the 'good cause' standard under FRCP 26(c) for protective orders in the context of complex commercial litigation involving intellectual property. It reinforces the judicial preference for broad 'umbrella' protective orders as an efficient case management tool, favoring a 'designate-then-challenge' system over a burdensome document-by-document justification process. The decision illustrates how courts balance the need for broad discovery against the legitimate commercial interest in protecting trade secrets from competitive harm. By customizing the proposed order to reject overly restrictive clauses, the court also demonstrates its role in tailoring discovery protections to be effective but not unduly prohibitive to the opposing party's ability to litigate its case.
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