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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA, |
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Plaintiff, |
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Civil Action |
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- against - |
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No. 72-344 (AGS) |
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INTERNATIONAL BUSINESS |
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MACHINES CORPORATION, |
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Defendant. |
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MEMORANDUM ON PROTECTIVE ORDER ISSUES
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Kent Brown (KB-5429)
Sanford M. Adler (SA-7428)
Richard L. Irvine (RI-8783)
Ian Simmons (IS-7468)
James J. Tierney (JT-7842)
U.S. Department of Justice
Antitrust Division
555 4th Street, N.W.
Suite 9901
Washington, D.C. 20001
(202) 307-0797
Attorneys for Plaintiff United States of America
David Turetsky
Deputy Assistant Attorney General
Rebecca P. Dick
Deputy Director of Operations
N. Scott Sacks
Assistant Chief, Computer and Finance Section
August 21, 1995
Page i
TABLE OF CONTENTS
I. OPEN ISSUES............................................................................................................................. 1
A. IBM's business employees and in-house counsel should not obtain confidential
information............................................................................................................... 1
B. The protective order should provide a mechanism to allow third parties to provide
meaningful assistance................................................................................................ 7
C. Government's right to retain and use confidential information for law enforcement
purposes................................................................................................................... 9
D. IBM's remaining objections to the Government's proposed
protective order are without merit ............................................................................. 10
1. Inadvertent waiver of attorney-client privilege................................................ 10
2. Advance disclosure of economic experts and persons who have had prior
access to confidential information.................................................................. 10
3. Confidentiality designations.......................................................................... 11
4. Separate ESO/TUO Investigation.................................................................. 11
II. DISCUSSION............................................................................................................................ 12
A. To prevent the harm that would result from disclosure, the Court should deny
IBM's business employees and in-house lawyers access to nonparty confidential
information ............................................................................................................. 12
B. Third party requests for access to confidential information are foreseeable and
therefore the protective order should include a mechanism to consider such
requests................................................................................................................... 18
C. Established Department practice and statutes recognize the Department's right to
use and maintain documents for law enforcement purposes ......................................... 19
D. IBM offers no principled basis for objecting to the Government's other proposals.......... 21
1. The Government will not agree to overrule establish Second Circuit law
regarding the inadvertent production of privileged documents.......................... 21
2. The Court should deny IBM the unfair advantage it seeks to gain by
requiring advance disclosure of the identity of economic experts and
investigative contacts ................................................................................... 22
3. The protective order should protect against over-inclusive confidentiality
designations................................................................................................. 24
Page ii
III. CONCLUSION......................................................................................................................... 25
Page iii
TABLE OF AUTHORITIES
Cases
Amsted Indus. Inc. v. National Castings, Inc.,
1988 WL 90022 (N.D. Ill. 1988) ....................................................................................................... 16
Bayer AG v. Barr Laboratories, Inc.,
1995 WL 334727 (S.D.N.Y., June 6, 1995)........................................................................................ 19
Brown Bag Software v. Symantec Corp.,
960 F.2d 1465 (9th Cir.), cert. denied sub nom. BB Asset Management v. Symantec Corp,
113 S. Ct. 198 (1992)................................................................................................................... 13- 14
Chesa Inter., Ltd. v. Fashoin Assoc., Inc.,
425 F. Supp. 234 (S.D.N.Y. 1977)..................................................................................................... 16
Coca-Cola Bottling Co. of Shreveport, Inc. v. Coca-Cola Co.,
107 F.R.D. 288 (D. Del. 1985)........................................................................................................... 13
Culligan v. Yamaha Motor Corp.,
110 F.R.D. 122 (S.D.N.Y. 1986)........................................................................................................ 16
Dart Indus., Co. v. Westwood Chemical Co.,
649 F.2d 646 (9th Cir. 1980).............................................................................................................. 15
Dove v. Atlantic Capital Corp.,
963 F.2d 15 (2d Cir. 1992)................................................................................................................ 13
F.T.C. v. Exxon Corp.,
636 F.2d 1336 (D.C. Cir. 1980)......................................................................................................... 13
Heublein, Inc. v. E & J Gallo Winery, Inc.,
1995 WL 168846 (S.D.N.Y. April 4, 1995)........................................................................................ 13
In re Independent Serv. Org. Antitrust Litig.
1995 WL 151739 (D. Kan. March 9, 1995)......................................................................................... 22
Jochims v. Isuzu Motors, Ltd.,
145 F.R.D. 499 (S.D. Iowa 1992)....................................................................................................... 19
Levy v. Weksel,
143 F.R.D. 54 (S.D.N.Y 1992)........................................................................................................... 25
Maryland Cas. Co. v. W. R. Grace & Co.,
1994 LEXIS 11141 (S.D.N.Y., August 10, 1984)................................................................................ 19
Quotron Systems v. Automatic Data Processing,
141 F.R.D. 37 (S.D.N.Y. 1992).......................................................................................................... 16
Richard Wolf Medical Instruments Corp. v. Dory,
Page iv
130 F.R.D. 389 (N.D. Ill. 1990)......................................................................................................... 19
Safe Flight Instruments Corp. v. Sundstrand Data Control, Inc.,
682 F. Supp. 20 (D. Del. 1988)..................................................................................................... 15- 16
Stratagem Dev. Corp. v. Heron Int'l. N.V.,
153 F.R.D. 535 (S.D.N.Y. 1994)........................................................................................................ 21
United States v. CBS, Inc.,
103 F.R.D. 365 (C.D. Cal. 1984)........................................................................................................ 15
United States v. IBM,
No. 72-344 (AGS), slip op. (S.D.N.Y. June 16, 1993)........................................................................... 9
United States v. GAF Corp.,
596 F.2d 10 (2d Cir. 1979)................................................................................................................ 15
United States v. Microsoft, Corp.,
No. C-95-139 WHO (N.D. Calif., May 11, 1995)................................................................................ 16
Statutes
Antitrust Civil Process Act, 15 U.S.C. ｧｧ 1311-1314........................................................................... 20
Federal Records Act, 44 U.S.C.ｧ 3101, et seq..................................................................................... 20
Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. ｧ 18a.............................................. 21
Rules/Miscellaneous
Fed. R. Civ. P. 26(b)(4)(B)................................................................................................................ 24
Fed. R. Civ. P. 26(c)................................................................................................................ 13, 24, 25
H.R. Rep. No. 94-1343, 1976 U.S. Code Cong & Admin News 2596.................................................... 21
Local Rule 46(c)............................................................................................................................... 24
Statement of Basis and Purposes,
43 Fed. Reg. 33,450 (July 31, 1978)................................................................................................... 21
U.S. Dep't of Justice Antitrust Division
Directive ATR 2710.1 (revised April 17, 1992)................................................................................... 20
The United States submits this Memorandum in support of its motion for a protective order and in
Page 2
opposition to defendant International Business Machine Corporation's ("IBM") motion for a protective
order.
I. OPEN ISSUES
The undersigned certifies that the Government and IBM have negotiated in good faith to agree on
all aspects of a confidentiality stipulation and protective order, but despite our best efforts, three principal
issues divide the parties:
A. IBM's business employees and in-house counsel should not obtain confidential information
The parties have been unable to agree on the appropriate designation of confidential information
and the scope of disclosure. IBM's proposed protective order contains a two-tiered designation system.
IBM would classify research and development information and trade secrets as "confidential" and would
classify other information that, if disclosed, would "materially affect the producing party's business,
commercial or financial interests" as "highly confidential." The Government's proposed protective order
protects the identical information, but combines the information into a single "confidential" classification.
(Compare Gov't Protect. Ord., Ex.1 at ｶ 1(a) with IBM Protect. Ord., Ex. 2 at ｶ 1(a) & (b).) Under IBM's
two-tiered classification system, nonparty research and development information and trade secrets
designated "confidential" could be disclosed to an unknown and potentially unlimited number of IBM
"directors, officers, and employees." Information designated "highly confidential" could be disclosed to an
unknown number of unidentified IBM in-house litigation counsel.
To prevent competitive injury that would flow from disclosing another person's commercially-
sensitive information to IBM, the Government's proposed protective order would deny IBM's business
employees and in-house counsel access to all confidential information, whether classified "confidential" or
"highly confidential" under IBM's proposal. The Government's proposed protective order, however,
permits IBM's outside counsel and independent experts to have access to such confidential information.
(Compare Gov't Protect. Ord., Ex. 1 at ｶ 7(c), (d), and (g) with IBM Protect. Ord., Ex. 2 at ｶｶ 6(c)-(f) and
7(c)-(e).) The Government's proposed protective order strikes the appropriate balance between IBM's need
for access to another person's confidential information against the risks and consequences of disclosure of
Page 3
such information to IBM's business employees and in-house counsel.
Resolution of IBM's motion to terminate the judgment will require an assessment of the likely
competitive effect of judgment termination in markets for AS/400 and System/360 ... 390 products and
services. This assessment will require the production of highly-sensitive commercial information from
IBM and from IBM's competitors, customers and other persons who are not parties in this litigation.
(Brown Decl. Ex. 3 at ｶ 2.)
The Government has initiated efforts to obtain relevant commercial information from IBM. Under
the terms of an interim confidentiality agreement, IBM has produced a handful of its recent AS/400 and
System/360 ... 390 marketing plans. IBM has characterized these plans as "constitut[ing] some of the most
sensitive commercial information in the IBM company." (IBM's Memorandum in Support of its Motion
for Entry of an Appropriate Protective Order to Govern Confidential Information ("IBM Protect. Memo.")
at 1.) The Government's August 4, 1995, discovery request seeks from IBM additional information,
including sales, marketing, advertising and research and development plans and strategies; price, profit and
cost analyses and data; and customer information and other competitive information. IBM has
characterized this additional information as "highly sensitive commercial information." Id.
The Government has informed third parties that it will need to obtain similarly "highly sensitive
commercial information" from IBM's competitors, customers and other third parties. (Brown Decl. Ex. 3
at ｶ 2.) IBM's one-sided proposed protective order fails to adequately protect the rights and needs of those
nonparties.
Because nonparty commercially-sensitive information is critical to the resolution of the issues
raised by IBM's motion, the Government has described and provided copies, when time permitted, of
IBM's and its proposed protective orders to various IBM competitors and other parties from whom we will
need to obtain information. In response, IBM's direct competitors in the United States and abroad in the
following markets provided declarations: (1) large scale mainframe systems which are architecturally
compatible with the IBM System/360 ... 390 (Amdahl Corporation, Hitachi Data Systems Corporation, and
Fujitsu Limited); (2) repair and maintenance of IBM's AS/400 and System/360 ... 390 products (Bell
Page 4
Atlantic Business Systems Services ("BABSS")); (3) the sale of used IBM equipment (Nelco, Ltd.; AT&T
Systems Leasing Corporation ("AT&T"); El Camino Resources; Computer Sales International, Inc.; and
Meridian Leasing Corporation); and (4) financing of both new and used IBM equipment (Nelco, AT&T,
El Camino, Meridian Leasing, and Computer Sales International). Several of these IBM competitors are
also authorized IBM dealers (Nelco and El Camino). The Government also obtained a declaration from
Computer Lessors and Dealers Association ("CDLA") and a letter outlining the expected testimony, after
her recovery from illness, of the Executive Director of Independent Service Network International
("ISNI"), two industry trade associations. (Brown Decl. Ex. 3 at ｶ 3.) 1
The nonparty declarants are unanimously opposed to IBM's proposal to allow IBM's business
employees and in-house lawyers to have access to their commercially-sensitive information, whether
classified "confidential" or highly confidential," and unanimous in their support of the Government's
proposed protective order that limits disclosure to IBM's outside counsel and independent experts.
(Handschuh Decl. Ex. 4 at ｶ 7; Recker Decl. Ex. 5 at ｶｶ 6-7; Felice Decl. Ex. 6 at ｶｶ 10-12; Poisson Decl.
Ex. 7 at ｶｶ 12-13; Steinback Decl. Ex. 8 at ｶｶ 7-8; Harmon Decl. Ex. 9 at ｶｶ 10-11; Yamaji Decl. Ex. 10 at
ｶ 7; Hansen Decl. Ex. 11 at ｶｶ 11-12; Polster Decl. Ex. 12 at ｶｶ 8-9; Nelson Decl. Ex. 13 at ｶｶ 10-11; see
also Letter from Eiszner to Brown of 8/15/95, Ex. 14 at 2.) Gregory Handschuh, Amdahl's Vice President
and General Counsel, succinctly states the position of all declarants:
Amdahl has been advised that the Government has proposed a protective order in which
disclosure of any information provided by Amdahl and designated as confidential and
proprietary would be limited to outside counsel and outside experts, and has seen a copy
of the proposed protective order as provided to IBM on August 4, 1995. Amdahl strongly
Page 5
endorses the limitations on disclosure contained in the proposed protective order as
necessary to the adequate protection of any information provided by Amdahl which it
considers to be proprietary and confidential.
(Handschuh Decl. Ex. 4 at ｶ 7.)
All declarants state that they expect the Government to request the production of information
relating to sales and customers; business plans and strategies; research and development information and
technology assessment studies; and sales, price and cost analyses and data. (See, e.g., Felice Decl. Ex. 6 at
ｶ 5; Harmon Decl. Ex. 9 at ｶ 4.) The Government will indeed seek this information. (Brown Decl. Ex. 3
at ｶ 2.) Each declarant indicates that this type of information is "highly sensitive" or "highly confidential"
and that disclosure to IBM would give IBM a significant competitive advantage and severely jeopardize its
ability to compete in relevant AS/400 and System 360 ... 390 markets. (See, e.g., Recker Decl. Ex. 5 at ｶｶ
4-5; Felice Decl. Ex. 6 at ｶｶ 5, 8; Nelson Decl. Ex. 13 at ｶｶ 4, 6-7.) The danger of competitive harm is
especially acute here because IBM is the dominant competitor in the manufacture of System/360 ... 390
compatible processors (Handschuh Decl. Ex. 4 at ｶ 3); the provision of repair and maintenance service for
the AS/400 and System/360 ... 390 (Felice Decl. Ex. 6 at ｶ 2); the sale of used AS/400 and System/360 ...
390 equipment (Nelson Decl. Ex. 13 at ｶ 3); and the provision of financing for AS/400 and System/360 ...
390 equipment (Id.).
The concerns expressed by Stephen J. Felice, Vice President of Sales and Operations of BABSS,
are representative:
BABSS is opposed to disclosure of its confidential information to any employees of IBM,
even if there were provisions in the applicable protective order that required the IBM
employees to use BABSS confidential information solely for purposes of the consent
decree termination proceedings. Assuming the bona fides intentions of IBM employees to
comply with such a requirement, BABSS nevertheless believes that employees of IBM
will be unable to comply with the order. As a practical matter, it is difficult for a person,
who is given highly confidential information that is to be used for one purpose, not to use
that information -- even if unintentionally or subconsciously -- for another purpose.
Moreover, should this happen, enforcement of the protective order is nearly impossible.
(Felice Decl. Ex. 6 at ｶ 11.)
Page 6
The declarants offer concrete examples of the competitive harm that could flow from disclosure of
commercially-sensitive information to IBM business employees. David E. Harmon, President of El
Camino, correctly surmises that the Government may ask for bid documents and explains that such
documents appear to be the type of document IBM would classify as "confidential" and, therefore, be
subject to disclosure to IBM business employees. (Harmon Decl. Ex. 9 at ｶ 6.) These documents, when
viewed as a whole, will reveal El Camino's targeted customer base, its overall bidding strategy and pricing,
and disclosure of this information "to the dominant market participant, IBM would be disastrous." (Id.)
Similarly, research and development information appears to be the type of information IBM might classify
as "confidential." Research and development information might include BABSS' proprietary advanced
diagnostics services and tools and methodologies for use in servicing IBM equipment. This information,
in the hands of IBM business employees, could be used to neutralize BABSS' attempts to differentiate its
service from IBM's. (Felice Decl. Ex. 6 at ｶ 7.) Disclosure to IBM business employees might also place in
jeopardy nonparty relationships with their customers because customer confidential information contained
in nonparty documents might be disclosed. (Recker Decl. Ex. 5 at ｶ 5.) Certain competitors, such as
Amdahl and Hitachi, are particularly susceptible to serious competitive injury because their customers are
dependent on the System/360 ... 390 operating system and related software, which are controlled by IBM.
(Handschuh Decl. Ex. 4 at ｶ 6; Hansen Decl. Ex. 11 at ｶ 7.)
The competitive concerns are not eliminated even if a nonparty's confidential information is
disclosed only to IBM's in-house counsel. Several declarants expressed concern that IBM intends to grant
an unknown number of unnamed in-house litigators access to their confidential information. (Poisson
Decl. Ex. 7 at ｶ 10; Harmon Decl. Ex. 9 at ｶ 8; Nelson Decl. Ex. 13 at ｶ 8.) Others expressed concern that
IBM has failed to provide any assurance that IBM in-house litigators "will not later act in a business
capacity for IBM or will not provide counsel in transactional matters at a later date." (Nelson Decl. Ex. 13
at ｶ 8; accord, Felice Decl. Ex. 6 at ｶ 12; Handschuh Decl. Ex. 4 at ｶ 8; Poisson Decl. Ex. 7 at ｶ 10;
Steinback Decl. Ex. 8 at ｶ 6; Harmon Decl. Ex. 9 at ｶ 8; Polster Decl. Ex. 12 at ｶ 7.) Simply curing these
defects, however, will not remove the risk that disclosure of confidential information could alter the current
Page 7 .
playing field on which the declarants compete with IBM. Several declarants have legally obtained IBM-
related transactional data from IBM customers who have entered into confidentiality agreements with IBM.
If this information were disclosed to IBM's in-house litigators, they would be in a better position to
recommend the drafting of stricter or different confidentiality agreements, to the detriment of IBM's
competitors. (Harmon Decl. Ex. 9 at ｶ 9; Polster Decl. Ex. 12 at ｶ 7; Nelson Decl. Ex. 13 at ｶ 9.)
Declarants also note that IBM is represented by outside counsel with vast experience in handling
IBM's antitrust litigation in the computer industry, thus minimizing any need for IBM's in-house litigators
to review the confidential information of third parties. (Felice Decl. Ex. 6 at ｶ 12; Poisson Decl. Ex. 7 at ｶ
10; Harmon Decl. Ex. 9 at ｶ 8; Nelson Decl. Ex. 13 at ｶ 8; see also Brown Decl. Ex. 3 at ｶ 17.)
Most nonparty declarants have indicated their willingness to respond to reasonable requests for
information to aid the Government's and the Court's consideration of IBM's motion to terminate if, at a
minimum, any protective order restricts disclosure of their confidential information to IBM's outside
counsel and independent experts. If such safeguards are not in place, these same declarants state that they
may each separately intervene to prevent disclosure of their confidential information to IBM's business
employees and in-house lawyers. (Handschuh Decl. Ex. 4 at ｶ 9; Recker Decl. Ex. 5 at ｶｶ 6-7; Felice
Decl. Ex. 6 at ｶｶ 9-10; Poisson Decl. Ex. 7 at ｶｶ 12-13; Steinback Decl. Ex. 8 at ｶｶ 7-8; Harmon Decl. Ex.
9 at ｶｶ 10-11; Yamaji Decl. Ex. 10 at ｶｶ 6-7; Polster Decl. Ex. 12 at ｶｶ 8-9; Nelson Decl. Ex. 13 at ｶｶ 10-
11.) Moreover, two declarants with relevant information located outside the United States state that,
without adequate safeguards, they will be less inclined to provide such information that may be beyond the
Court's power to compel. (Handschuh Decl. Ex. 4 at ｶ 9; Felice Decl. Ex. 6 at ｶ 9.) Thus, IBM's proposed
order would impede discovery and force the Court to act on numerous individual requests for additional
protection. (Brown Decl. Ex. 3 at ｶ 4.)
B. The protective order should provide a mechanism to allow third parties
to provide meaningful assistance
IBM's proposed protective order fails to provide a mechanism to allow third parties to gain access
to IBM confidential information to assist the Government and the Court in analyzing the competitive
Page 8
effects of terminating the Final Judgment. 2
The Government's proposed protective order expressly provides for the possibility that IBM's
confidential information may have to be disclosed to third parties to allow them to assist the Government
and permit their meaningful participation as amicus curiae. (Gov't Protect. Ord., Ex. 1 at ｶ 7(i).) Just as
the protective order must prohibit the inappropriate disclosure of nonparty confidential information to
IBM, the Government is mindful that adequate safeguards must be in place to protect against the
inappropriate disclosure of confidential information of IBM or other persons to any third parties who may
assist the Government in this action. Accordingly, any disclosure of confidential information to third
parties would be subject to the same terms as apply to IBM and, thus, would be limited to a third party's
outside counsel and independent experts. (Id. at ｶ 7; Brown Decl. Ex. 3 at ｶｶ 9-10.) To further minimize
any risk, no disclosure will be made to any third party assisting the Government or the Court as amicus
curiae without first giving the protected party notice and the opportunity to object. (Gov't Protect. Ord.,
Ex. 1 at ｶｶ 7(i), 8; see Brown Decl. Ex. 3 at ｶ 10.) If the protected party objects, the Government's
proposed protective order would prohibit disclosure until after the Court has ruled. (Id.) 3 This is the same
procedure that currently exists under the Interim Confidentiality Agreement. (Brown Decl. Ex. 3 at ｶ 14;
Barbur Decl. Ex. F.)
The Government, in opposing intervention in this case, argued that some third parties may
nonetheless assist in developing evidence on the competitive effects of judgment termination and might
also assist the Court as traditional amicus, or in a more active role as "litigation amicus curiae."
(Consolidated Opposition of the United States to Motions to Intervene and Preliminary Recommendations
Regarding Participation by Amicus Curiae at 3, 18-20.)
Page 9 . .
The Government continues to believe that third-party assistance will be useful to development of
an adequate record, in view of the complexity and unusual posture of this case and IBM's objections to an
investigation with meaningful discovery. (Brown Decl. Ex. 3 at ｶｶ 5-8.) The Government has sought in
the past, and anticipates it will continue to seek, information and analysis from at least two third parties,
ISNI and CDLA. (Id. at ｶ 8.) The Government also anticipates that it may seek to disclose IBM
confidential information to ISNI and CDLA to obtain their assessment of it. (Id.) ISNI and CDLA stand
ready to participate in any way appropriate and, if granted access to IBM confidential information, agree to
be bound by the terms of any protective entered by the Court. (Poisson Decl. Ex. 7 at ｶ 6; Eiszner Letter,
Ex. 14 at 2.)
ISNI and CDLA also indicate that they will seek leave of the Court to participate in this case
beyond the role traditionally exercised by amicus curiae and will seek access to IBM's confidential
information in order to present expert testimony. (Poisson Decl. Ex. 7 at ｶｶ 2, 4; Eiszner Letter, Ex. 14 at
1-2.) Such expert testimony could facilitate the development of a more complete record for the Court, and
ISNI's and CDLA's outside counsel and independent experts may need access to IBM confidential
information to participate in a meaningful way. (Brown Decl. Ex. 3 at ｶ 11.)
The Court, in denying intervention, indicated that it would consider applications to participate in
this action as amicus curiae and noted that the Government contemplated a more substantial role for some
third parties as "litigating amici." United States v. IBM, No. 72-344 (AGS), slip. op. at 6-7 (S.D.N.Y. June
16, 1995) (Ex. 17). The Court mentioned "the Government's position because it further confirms that
status other than that of formal intervenor will adequately protect the interests of the Proposed
Intervenors." Id.
The Government's proposed protective order does not confer any rights on any third party, nor
does it grant them access to confidential information. It simply establishes a procedure through which the
Government or the Court may at some future date seek the assistance of third parties, in anticipation that
some third parties may need access to confidential material to offer meaningful assistance. The propriety
of any disclosure can be considered at the time a disclosure request is made. In contrast, IBM has refused
Page 10 . . .
even to include a mechanism in its proposed protective order for third parties to request access to
confidential information.
C. Government's right to retain and use confidential information for law enforcement purposes
Guided by strong public policy, standard Department practice is to seek protective orders
containing provisions that expressly grant the Government the right to use and maintain confidential
information for law enforcement purposes. Thus, the Government proposes the inclusion of a savings
clause to permit disclosure of confidential information, after taking appropriate steps to preserve the
confidentiality of such information, to authorized representatives of the Executive Branch, in the course of
legal proceedings to which the Government is a party, for securing compliance with the final judgment,
and for law enforcement purposes or as otherwise required by law. (Gov't Protect. Ord. Ex. 1 at ｶ 10(b).)
In any legal proceeding (other than this action or a grand jury proceeding) in which the Department intends
to disclose confidential information, the Department will provide advance notice. ( Id. at ｶ 11.)
Additionally, the Government could retain confidential information after termination of these proceedings
for law enforcement purposes or as otherwise required by law. (Id. at ｶ 15.)
IBM would limit the Department's use of confidential information to final judgment proceedings
or where expressly authorized by law. (IBM Protect. Ord. Ex. 2 at ｶｶ 10 & 15.) IBM offers no reasoned
basis for opposing the Government's proposal, nor does it explain how its confidentiality concerns are not
fully protected under that proposal.
The provisions proposed by the Government are essential to permit the Department to carry out its
law enforcement mission of protecting competition. (Brown Decl. Ex. 3 at ｶ 18.)
D. IBM's remaining objections to the Government's proposed
protective order are without merit
1. Inadvertent waiver of attorney-client privilege
The parties disagree as to whether the Court should enter a protective order that overrules
established Second Circuit law regarding the inadvertent production of privileged documents. The
Government agrees to be bound by the law of the Second Circuit and has proposed an appropriate
Page 11 . .
mechanism to allow a producing party expeditiously to obtain the return of any inadvertently produced
document without resort to the Court. The Government proposes that, upon receiving notice that a
privileged document has been inadvertently produced, the receiving party thereafter will make no use of it
and will preserve the status quo. If the producing party can establish that the document was inadvertently
produced, for example, by providing an affidavit explaining the circumstance of the production, the
document will be returned. IBM, on the other hand, demands the return of any document claimed to have
been inadvertently produced and would deny the receiving party and the Court the right to inquire into the
possibility of waiver based on the circumstances of the disclosure. 4 (Compare Gov't Protect. Ord., Ex. 1 at
ｶ 14 with IBM Protect. Ord., Ex. 2 at ｶ 14.)
2. Advance disclosure of economic experts and persons who have
had prior access to confidential information
IBM's proposed protective order would require the Government to give IBM notice before
disclosing confidential information to independent economic experts or to any person whom counsel for
any party in good faith believes to have been a participant in the confidential communication. The
Government will not stipulate to requiring advance notice in these two situations, because such notice is
not necessary to protect IBM's legitimate interests and serves only to give IBM an unfair litigation
advantage. (Compare Gov't Protect. Ord. Ex. 1 at ｶ 7(d), (f) with IBM Protect. Ord. Ex. 2 at ｶｶ 6(f), (h)
and 7(e), (g).)
3. Confidentiality designations
The Government's proposed protective order contains two provisions to ensure that the producing
parties are not over-inclusive in their designation of confidential information and that the public will have
the greatest possible access to the proceedings consistent with the need to protect confidential information.
Page 12 . .
The Government would require that all confidential designations be made in good faith. IBM refuses to
make this commitment. (Compare Gov't Protect. Ord., Ex. 1 at ｶ 2 with IBM Protect. Ord., Ex. 2 at ｶ 2.)
The Government also would require that confidential portions of documents be specifically marked where
the entire document is not confidential. Again, IBM refuses to make this commitment. (Compare Gov't
Protect. Ord., Ex. 1 at ｶ 4 with IBM Protect. Ord., Ex. 2 at ｶ 3.)
4. Separate ESO/TUO Investigation
IBM seeks entry of an "appropriate protective order" governing the handling of materials it
produces in response to the Government's request for information and documents issued in an independent
investigation of whether IBM has violated the judgment with its marketing practices for its Enterprise
Server Offering (ESO) and Technology Upgrade Option (TUO). (IBM Protec. Memo. at 4 n.3.) This
request should be denied for several reasons. First, Section XVIII of the Final Judgment contains
provisions to which IBM has already consented for treatment of the information IBM produces in the
ESO/TUO investigation. Second, making discovery in the ESO/TUO investigation a part of the discovery
in this proceeding will needlessly interfere with and delay the independent ESO/TUO investigation. IBM
has made it clear that it opposes unilateral Government investigative discovery and will refuse to produce
additional information or allow any depositions in this proceeding unless it is able to conduct
simultaneously equivalent bilateral discovery of the Government. (IBM Protect. Memo. at 3; Brown Decl.
Ex. 3 at ｶｶ 6 & 7.) This would substantially delay the ESO/TUO investigation. Finally, the separate
ESO/TUO investigation is not properly before this Court. If IBM seeks to have the Government's
ESO/TUO judgment violation investigation collapsed into this proceeding, the Court should require that
IBM file a motion that would permit a full briefing on the issues. The Government respectfully requests
that the Court refrain from reaching any decision on the scope or conduct of the ESO/TUO investigation
on the basis of claims tangentially raised by IBM in its papers in this proceeding.
II. DISCUSSION
A. To prevent the harm that would result from disclosure, the Court should deny IBM's business
employees and in-house lawyers access to nonparty confidential information
Page 13 . . . . . .
IBM's proposed protective order exploits the fact that its competitors, who must produce
commercially-sensitive information in this action, are not now before the Court to protect their interests.
Entry of IBM's protective order will chill third-party participation and give IBM a competitive advantage
because its directors, officers, employees, and in-house litigators would have access to competitively
sensitive nonparty information, while its competitors would be denied equal access to IBM's competitively
sensitive information. This would be an ironic result in an action that is intended to ensure that
competition is not suppressed in the AS/400 and System/360 ... 390 markets that are now dominated by
IBM.
IBM seeks to justify disclosure of confidential information to IBM personnel with the conclusory
and unsupported statement that it needs to disclose nonparty confidential information to its directors,
officers, employees, and in-house litigators to pursue its pending motion to terminate. (IBM Protec.
Memo. at 10-11.) Balanced against these self-serving remarks by counsel are declarations from 10
nonparties who may be called upon to provide confidential information that IBM would then have the right
to disclose to its business employees and in-house counsel. Each declarant objects to IBM's proposed
protective order on the ground that disclosure to IBM employees would cause irreparable competitive
harm. Each strongly endorses the Government's proposed protective order that would limit disclosure to
IBM's outside counsel and independent experts.
Fed. R. Civ. P. 26(c) (7) provides, in pertinent part, that, upon motion by a party or by the person
from whom discovery is sought and for "good cause" shown, the court "may make any order which justice
requires to protect a party or person" so "that a trade secret or other confidential research, development, or
commercial information not be disclosed or be disclosed only in a designated way." The grant or denial of
a protective order rests within the sound discretion of the trial court. Dove v. Atlantic Capital Corp., 963
F.2d 15, 19 (2d Cir. 1992).
In exercising its discretion, the Court must balance the need of IBM's business employees and
inside counsel for the information against the injury that might result if disclosure is ordered. Brown Bag
Software v. Symantec Corp., 960 F.2d 1465, 1470 (9th Cir.) cert. denied sub nom. BB Asset Management
Page 14 .
v. Symantec Corp., 113 S. Ct. 198 (1992); Coca-Cola Bottling Co. of Shreveport, Inc. v. Coca-Cola Co.,
107 F.R.D. 288, 293 (D. Del. 1985); Heublein, Inc. v. E & J Gallo Winery, Inc., 1995 WL 168846 at 2
(S.D.N.Y. April 4, 1995). The Government recognizes that courts sometimes allow in-house counsel
access to confidential information. Where disclosure would present risks of competitive harm, however,
courts have not hesitated to deny in-house counsel access to confidential information. See, e.g., F.T.C. v.
Exxon Corp., 636 F.2d 1336, 1349-51 (D.C. Cir. 1980); Brown Bag Software, 960 F.2d at 1471;
Heublein, Inc., 1995 WL 168846 at 3. Courts are cautious when granting in-house counsel access to
confidential information because they frequently interact with business attorneys and other employees
outside the litigation setting. Courts do not question the integrity of in-house counsel, but recognize that
an in-house lawyer cannot "lock-up trade secrets in his mind, safe
from inadvertent disclosure to his employer once he had read the [confidential] documents." Brown Bag
Software, 960 F.2d at 1471. 5
IBM's proposed protective order and Mr. Rosenberg's declaration would permit IBM to disclose
confidential information to a "group" of unnamed in-house litigators. (IBM Protect. Ord., at ｶｶ 6 (c), 7(c);
Rosenberg Decl. at ｶ 3.) Moreover, IBM fails to describe in detail any specific attorney's past, current and
anticipated future duties and activities. IBM simply asserts that all IBM's in-house litigators are not
involved in "competitive decision making." (Rosenberg Decl. at ｶ 3.) IBM offers no explanation of this
term or any factual basis on which this Court can evaluate the claim. IBM does state that in-house
litigators "serve as liaison between IBM's outside litigation counsel and IBM management." ( Id.) This
phrase, without explanation, raises a concern of inadvertent disclosure.
Even if IBM were belatedly to identify a specific attorney and fully detail the attorney's duties, the
Page 15 . . . .
risk of inadvertent use or disclosure of confidential information remains a major concern. During
negotiations to narrow our differences, IBM identified Anthony Clapes and Donald Rosenberg as two
in-house attorneys who might receive nonparty confidential information. Although IBM indicates that
these gentlemen represent the company in litigation matters (Rosenberg Decl. at ｶ 3), one competitor
believes Mr. Clapes, who supervises Mr. Rosenberg, may play a broader role, including "advocating
business and legal policy on behalf of IBM, particularly as they relate to intellectual property and antitrust
matters." (Handschuh Decl. Ex. 4 at ｶ 8.) The Government is further concerned if IBM's in-house counsel
obtained confidential information from a competitor and then the two companies became involved in
litigation. IBM's in-house counsel would be placed in a serious conflict situation if counsel had obtained
confidential information that could be used to defend the company.
Three factors support the conclusion that the risk of injury to the producing party outweighs IBM's
need to disclose confidential information to its business employees and inside counsel: (1) the confidential
information sought to be disclosed belongs to nonparties; (2) IBM's role as the dominant competitor in the
relevant AS/400 and System/360 ... 390 markets; and (3) the lack of prejudice to IBM due to the
availability of experienced outside experts and counsel.
In exercising its discretion, the Court should recognize that nonparties are the real parties in
interest with respect to this information and it is their interests that the Court must protect. See United
States v. GAF Corp., 596 F.2d 10, 14 (2d Cir. 1979) ("real party in interest" in protecting disclosure of
documents is the party who provided the documents). Courts routinely provide greater protection to
confidential documents and information obtained from nonparties than that afforded to a party's own
confidential information. In Dart Indus., Co. v. Westwood Chemical Co., 649 F.2d 646, 649 (9th Cir.
1980), the Court stated:
While discovery is a valuable right and should not be unnecessarily restricted, Kyle
Engineering Co. v. Kleppe, 600 F.2d 226, 232 (9th Cir. 1979), the "necessary" restriction
may be broader when a nonparty is the target of discovery. As one district court has
noted, "[t]here appear to be quite strong considerations indicating that . . . discovery would
be more limited to protect third parties from harassment, inconvenience, or disclosure of
confidential documents." Collins and Aikman Corp. v. J.P. Stevens & Co., Inc., 51 F.R.D.
219, 221 (D.S.C. 1971).
Page 16 . . . . . .
Nonparties are entitled to even greater protection where, as here, a nonparty's confidential
information will be disclosed to a direct competitor. United States v. CBS, Inc., 103 F.R.D. 365, 368 (C.D.
Cal. 1984). As we described earlier, the declarants offered numerous ways in which competitive harm
could flow from the disclosure of nonparty confidential information.
Disclosure of confidential information to IBM's business employees poses even greater concerns.
Initially, IBM's proposal for a two-tiered confidentiality system is irrational because the tiers are
ambiguous and provide less protection for trade secrets than other commercially sensitive business
information. In Safe Flight Instruments Corp. v. Sundstrand Data Control, Inc., 682 F. Supp 20, 22 (D.
Del. 1988), the Court cites a long list of federal and state cases for the proposition that courts "often afford
fuller protection to technological information than that extended to ordinary business information." The
great weight of precedent favors heightened protection of trade secrets because "of the threat of serious
economic injury to the discloser of scientific information." Id.
For this reason, courts routinely deny a party's business employees access to confidential
information. Safe Flight Instrument Corp., 682 F. Supp at 22; Chesa Inter., Ltd. v. Fashion Assoc., Inc.,
425 F. Supp. 234, 237 (S.D.N.Y. 1977); Quotron Systems v. Automatic Data Processing, 141 F.R.D. 37,
40 (S.D.N.Y. 1992); Culligan v. Yamaha Motor Corp., 110 F.R.D. 122, 125-26 (S.D.N.Y. 1986).
Furthermore, IBM makes no evidentiary showing that its "need" to disclose confidential information to its
business employees outweighs the competitive risk.
The protective orders entered in Amsted Indus. Inc. v. National Castings, Inc., 1988 WL 90022
(N.D. Ill. 1988) and United States v. Microsoft, Corp., No. C-95-139 WHO (N.D. Calif., May 11, 1995)
(Ex. 20) are instructive. In Amsted Industries, a patent infringement case involving two direct competitors,
the plaintiff sought provisions in a protective order to allow disclosure of defendant's confidential
information to two of its business employees and one in-house lawyer. The defendant objected on the
ground that disclosure of confidential materials to its competitor's employees would result in irreparable
harm. Amsted Indus. Inc, 1988 WL 90022 at 1. In rejecting the plaintiff's request, the Court stated that
"the need for disclosure of even highly relevant information to a competitor may be outweighed by the
Page 17
irreparable harm that can result to the disclosing party." Id. The Court further recognized that, while the
plaintiff might benefit from the assistance of its own employees, its outside counsel "should be able to gain
the technical advice it needs from outside experts (to whom the parties agree disclosure may be made)."
Id. at 2.
In the litigated protective order entered in Microsoft, the Court reached the identical result in a
case involving nonparty confidential information. In Microsoft, the parties agreed to an Interim
Confidentiality Stipulation and Protective Order dated May 2, 1995, which prohibited disclosure of
confidential information except to outside counsel and independent experts. (Ex. 21 at ｶ D.2, 7; Brown
Decl. Ex. 3 at ｶ 15.) Thereafter, Microsoft moved for a permanent protective order that would have
established two categories of confidential information, permitting disclosure of all nonparty confidential
information to two designated inside counsel, and "less" confidential trade secrets to certain business
employees of the two defendant companies. (Brown Decl. Ex. 3 at ｶ 16.) Numerous nonparties who had
produced confidential information to the Government intervened, seeking to prevent disclosure to
defendants' business employees and inside counsel. (Id.) After considering these third-party complaints,
the Court rejected Microsoft's proposal and entered a protective order limiting disclosure to outside counsel
and independent experts. (Id.; Microsoft Pretrial Order Number 3, Confidentiality and Protective Order
(Ex. 20).) 6
IBM's proposal contains no useful criteria for distinguishing between the various levels of
confidentiality and that ambiguity presents the risk that third parties will make the wrong designation.
Further, IBM proposes no safeguards for the confidential information that it would disclose to an
unspecified number of unidentified business persons and in-house lawyers. It offers no explanation as to
Page 18 .
how it plans to bar recipients of confidential information from later participating in matters in which the
information may be relevant. Under these circumstances, third parties who produce confidential materials
could have no confidence that the information will not be inappropriately or inadvertently disclosed to their
disadvantage. We have shown earlier how these problems would impede discovery.
Finally, IBM is well represented by a prominent firm who has been representing IBM in this case
since before the complaint was filed in 1952. The individual outside counsel for IBM's outside law firm
who have appeared in this case have significant experience with the products and competitive issues that
are the subject of these proceedings. (Brown Decl. Ex. 2 at ｶ 17.) Under the Government's proposed
order, IBM's more detailed work with nonparties' confidential information would be handled by able and
informed outside counsel and independent experts. Of course, under the order, IBM's inside counsel and
business employees would still be able to advise and strategize; they just would be unable to review the
confidential information of IBM's competitors and customers.
For the foregoing reasons, disclosure to IBM's business employees and in-house counsel should
not be permitted. IBM has failed to make any showing of need for the information that outweighs the
competitive damage that would result from disclosure. Such disclosure is unnecessary and would
undermine competition in the AS/400 and System/360 ... 390 markets involved in the litigation, an ironic
consequence, if permitted by the Court.
B. Third party requests for access to confidential information are foreseeable and therefore the
protective order should include a mechanism to consider such requests
IBM objects to the Government's proposal that a protective order contain a mechanism to allow
third parties who assist the Government access to IBM protected material on the grounds that it would
create a "loophole" in the protective order and would permit the Government to freely disclose IBM
confidential information. (IBM Protect. Memo. at 21-22.) IBM offers the seemingly simple solution that
the order be left silent on the issue, thus allowing the Government to later seek a modification to allow
disclosure to third parties. (Id. at 22.)
But, no "loophole" is created. The Government's proposal simply creates a mechanism to permit
third parties to seek access to confidential material (produced by IBM or any other person). Confidential
Page 19 . . . . .
information can be disclosed only with the permission of the producing party or by order of the Court.
Should access to confidential information be granted, any third parties will be bound to the terms of the
protective order and therefore be subject to the same conditions as are applicable to IBM. This hardly
strips the protective order of "any meaning" or allows disclosure to "unidentified third persons." (Id. at 21-
22.)
Moreover, the Government may not later be able to obtain a modification of the protective order
under the stricter standards that govern changes, as opposed to the inclusion of initial provisions, in such
orders. Courts place a heavy burden on a party who seeks to modify a stipulated provision of a protective
order. Richard Wolf Medical Instruments Corp. v. Dory, 130 F.R.D. 389, 392 (N.D. Ill. 1990). Courts
consider whether the need for the modification was foreseeable at the time the parties negotiated the
original protective order. Jochims v. Isuzu, 145 F.R.D. 499, 502 (S.D. Iowa 1992) ("[n]ot surprisingly, a
party's oversight in not negotiating a provision . . . concerning a matter which should have been reasonably
foreseeable at the time of the agreement has been held to not constitute good cause for relief from the
protective order.") 7
ISNI and CDLA have stated that they intend to seek leave of the Court to participate as amicus
curiae, to present expert testimony to aid the Court, and to obtain access to confidential information.
(Poisson Decl. Ex. 7 at ｶｶ 2, 4, 6; Eiszner Letter, Ex. 14 at 1-2.) In addition, the Government may ask
ISNI and CDLA for analysis or information responsive to an IBM submission that will require disclosure
of confidential information. (Brown Decl. Ex. 3 at ｶ 8.) Although the Government has not firmly decided
to disclose IBM confidential information to ISNI or CDLA, the possibility is clearly foreseeable and
indeed has been foreseen. It is preferable that this issue be resolved now so that all concerned, including
IBM, know that disclosure of their confidential information to third parties is conceivable and understand
Page 20 . . .
the procedures governing such disclosures and for objecting thereto.
Finally, the issue of whether ISNI or CDLA should be given access to confidential information is
not now before the Court need not be addressed now. In the absence of agreement of the parties, that
question is best presented to the Court in the context of a specific request to disclose confidential
information to a third party. At that time, the parties and the Court will be able to devote their attention to
the merits of the request without a needless digression into issues surrounding modification of a protective
order.
C. Established Department practice and statutes recognize the Department's right to use and documents for law enforcement purposes
IBM objects to the provision of the Government's protective order that specify additional
conditions under which the Government may use and disclose confidential information, subject to taking
appropriate steps to preserve the confidentiality of the information. (Gov't Protect. Ord., Ex. 1 at ｶ 10(b).)
These provisions permit the Government to preserve its ability to retain and use pertinent information for
law enforcement purposes and to make reports to appropriate Executive Branch officials. (Brown Decl.
Ex. 3 at ｶ 18.)
The provisions serve to implement U.S. Department of Justice Antitrust Division Directive ATR
2710.1 (revised April 17, 1992) (Ex. 23), promulgated pursuant to the Federal Records Act, 44 U.S.C. ｧ
3101, et seq. Section 13.b(2) of the directive sets out five criteria under which government attorneys are
required to retain documents after the completion of an investigation or case. Two of those provisions
contemplate that the Government will use retained materials for other law enforcement purposes:
(b) The documents are relevant to a current or actively contemplated Department
investigation or case ...
* * *
(e) Copies of such documents will be of substantial assistance in the Division's
continuing enforcement responsibilities ....
U.S. Dep't of Justice Antitrust Division Directive ATR 2710.1 ｶ 13.b(2)(b), (e).
The provisions are also consistent with statutes governing the Department's right to retain and use
documents. The Antitrust Civil Process Act ("ACPA"), 15 U.S.C. ｧｧ 1311-1314, authorizes the
Page 21 . . . . . .
Department to keep copies of documents obtained during civil investigations. Specifically, the ACPA
provides that the Department's document custodian shall "upon written request of the person who produced
such material, return to such person any such material (other than copies thereof . . . made by the
Department of Justice pursuant to subsection (c) of the section)." 15 U.S.C. ｧ 1313(e) (emphasis added).
The House Committee Report described how the public interest would be harmed if the Department were
required to return copies (as opposed to originals) of documents in its files:
Retention of copies in these instances will avoid needless future "rounds" of CIDs. Such
information is also important for consistent evenhanded enforcement: It details business practices
that have survived scrutiny, as well as those that have not, and by referring to them, the Division
may easily be able to vindicate similar practices that come under investigation at some future time.
Such equitable treatment may be impossible if the Division is immediately stripped of all such
information once it closes an investigation.
H.R. Rep. No. 94-1343, at 15 n.41, 1976 U.S. Code Cong. & Admin. News at 2610.
Similarly, requiring the return of documents is inconsistent with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act"), 15 U.S.C. ｧ 18a. In promulgating the Act's implementing
regulations, the Department and the Federal Trade Commission rejected proposals to require the return of
information submitted pursuant to the HSR Act, finding that
Nothing in the language or legislative history of the act appears to prohibit the use of data
submitted under the act for subsequent challenge to a reported acquisition or, in fact, for any other
law enforcement purposes. . . . To return materials after the waiting period expires could seriously
hinder later enforcement efforts.
Statement of Basis and Purposes, 43 Fed. Reg. 33,450, 33,518 (July 31, 1978) (emphasis added).
IBM has offered no principled explanation for its request that the Court enter an order inconsistent
with established Department policy and Congressional mandates and that would hamper the Government's
continuing law enforcement and reporting obligations.
D. IBM offers no principled basis for objecting to the Government's other proposals
1. The Government will not agree to overrule established Second Circuit law regarding
the inadvertent production of privileged documents
The parties are unable to agree on the treatment of inadvertently produced privileged documents.
The Government agrees that the protective order should contain a process for restoring the privilege for
inadvertently disclosed documents, but will not agree to IBM's proposal to overrule controlling legal
Page 22 . .
principles.
In this District, the inadvertent production of privileged documents does not generally result in a
waiver of the privilege. Stratagem Dev. Corp. v. Heron Int'l. N.V., 153 F.R.D. 535, 542-43 (S.D.N.Y.
1994). Whether a waiver has occurred depends on the circumstances of the production and the
reasonableness of the precautions taken. Id. IBM's protective order would allow it to inundate the
Government with requests for the return of any allegedly inadvertently produced document, not just
privileged documents. (IBM Protect. Ord. Ex. 2 at ｶ 14.) The Government and the Court would be
precluded from inquiring into the facts and circumstances of the alleged inadvertent production as a means
for testing whether the privilege or any other objection to production has been waived. 8
IBM has cited no case where the court, over the other party's objection, entered a protective order
requiring the return of inadvertently produced documents without even allowing an inquiry into the facts
and circumstances of the production. The protective orders entered in Comdisco and Phoenix Computer
Associates (Barbur Decl. at ｶ 12, Exs. I and J) were both entered by stipulation, as was the inadvertent
disclosure provision in the protective order at issue in In re Independent Serv. Org. Antitrust Litig. 1995
WL 151739 at 4 (D. Kan. March 9, 1995), cited in IBM's brief. (IBM Protect. Memo. at 17.)
The Government agrees to be bound by Second Circuit precedent and to establish an appropriate
process for restoring the privilege in the event of truly inadvertent disclosure. The Government will
stipulate to no more, nor should the Court set in place, over the Government's objection, a process that
does not provide for challenge and review of spurious claims of privilege.
2. The Court should deny IBM the unfair advantage it seeks to gain by requiring advance
disclosure of the identity of economic experts and investigative contacts
IBM would require the Government to give notice before disclosing confidential information to
economic experts and consultants and persons who have, or whom counsel "in good faith believes to have
had prior access to confidential information, or who have been participants in a communication that is the
Page 23
subject of the confidential information." (IBM Protect. Ord. Ex. 2 at ｶｶ 6(h), 7(g).) In the case of persons
in the latter group, both protective orders require that counsel verify that the person had access to the
confidential information before making any disclosure. The Government's protective order, however, does
not require advanced notice be given because such notice is not necessary to protect IBM's confidentiality
interests and would give IBM an unfair litigation advantage. (Gov't Protect. Ord. Ex. 1 at ｶ 7(f).)
The parties' inability to reach agreement on this issue stems from our basic disagreement over the
nature of this proceeding. The Government has requested the opportunity to conduct an investigation to
obtain information necessary to take a position on the merits of IBM's motion as it applies to the AS/400
and System/360 ... 390 family of products. Thereafter, the parties could conduct any limited bilateral
discovery that may be necessary to prepare for an expedited hearing on any aspect of the judgment as to
which the Government concludes termination would not serve the public interest in competition. IBM
would force both the Government and the Court into making a hasty decision on the merits of IBM's
motion without the information necessary to assess the competitive issues.
The Government, during any investigation, does not advise the subject of the nature and scope of
its investigative activities. The same rule should apply here because IBM can make no showing that it will
be harmed by the disclosure of confidential information to economic experts and persons who have already
had access to the information. Economic experts and consultants for the Government must execute an
agreement certifying that they understand and agree to abide by the terms of the protective order. As to
any person who has had prior access to confidential information, once that fact is in good faith established
by counsel, there is no confidentiality interest to protect. In contrast, during the parties' discussions to
reach agreement on the terms of a stipulated protective order, IBM argued that in the past
technical/industry experts have misused IBM confidential information. Given this representation, the
Government agreed to give IBM advance notice before disclosure to technical or industry experts. In the
absence of a similar showing, the Government should be permitted to conduct its investigation without
undue interference allowed by IBM's premature discovery of economic experts and investigative contacts.
Moreover, identifying economic experts and consultants will give IBM a litigation advantage.
Page 24 . . . .
Generally, a party is not entitled to learn the identity of the other party's non-testifying experts. See Fed. R.
Civ. P. 26(b)(4)(B). Testifying experts need not be identified until bilateral discovery commences, and the
Local Rules contemplate that discovery of experts take place at or near the conclusion of discovery. Local
Rule 46(c). This Court should not allow IBM to use a protective order as a device to gain a litigation
advantage.
3. The protective order should protect against over-inclusive confidentiality designations
IBM has refused to include in its proposed protective order the requirement that a producing party
make a confidential designation in good faith and has objected to the requirement that portions of a
document be marked confidential where the entire document cannot, in good faith, be designated
confidential. (IBM Protec. Memo. at 19 n.6.)
Fed. R. Civ. P. 26(c) places the burden of establishing "good cause" for protecting confidential
information squarely on the party seeking protection. The Government presumes IBM does not intend to
misuse confidentiality designations and is, therefore, surprised that IBM will not acknowledge its
obligation to make "good cause" designations in good faith. Similarly, IBM cannot meet its good cause
burden if it stamps an entire document confidential where only a portion of that document is entitled to
such designation.
IBM's suggestion that the Government has the right to challenge any confidentiality designation
improperly shifts the burden to the Government. (IBM Protect. Memo. at 19 n.6.) The procedure for
challenging a designation create a means for a party to challenge a designation in violation of the
protective order; it does not relieve a designating party of its initial duty to designate only information that
falls within the scope of the order.
IBM's refusal to include provisions to prevent the over-designation of confidential information is
inconsistent with the strong public interest that designation of confidential information not have the effect
of closing judicial proceedings to public inspection. Levy v. Weksel, 143 F.R.D. 54, 55-56 (S.D.N.Y
1992). The provisions proposed by the Government are necessary to prevent over-designation of materials
as "confidential" and to ensure that these proceedings, which already will be closed in large part to public
Page 25 . . .
scrutiny due to the vast amount of properly designated information likely to be involved, will be as open as
possible. 9
Given the clear directive of Rule 26(c) and the need for open proceedings, the Government can see
no principled reason for IBM's refusal to agree to make only appropriate confidentiality designations in
good faith.
III. CONCLUSION
For the reasons outlined, the Court should reject IBM's protective order and grant the
Government's motion for entry of its proposed protective order.
Respectfully submitted,
_________________________
Kent Brown (KB-5429)
Sanford M. Adler (SA-7428)
Richard L. Irvine (RI-8783)
Ian Simmons (IS-7468)
James J. Tierney (JT-7842)
U.S. Department of Justice
Antitrust Division
555 4th Street, N.W.
Suite 9901
Washington, D.C. 20001
(202) 307-0797
August 21, 1995
Page 26
CERTIFICATE OF SERVICE
This is to certify that, by agreement of the parties, the United States' Memorandum on Protective
Order Issues was made available for pick-up at the Antitrust Division's New York Field Office, 26 Federal
Plaza, Room 3630, New York, New York, on August 21, 1995.
_________________________
James J. Tierney (JT-7842)
.
FOOTNOTES
1 The following persons submitted declarations in opposition to IBM's proposed protective order and in support of the Government's: Gregory Handschuh, Vice President and General Counsel of Amdahl Corporation (Ex. 4); James M. Recker, Vice President and Chief Counsel of AT&T (Ex. 5); Stephen J. Felice, Vice-President of Sales and Operations, BABSS (Ex. 6); David E. Poisson, President and Chief Operating Officer, CDLA (Ex. 7); Kenneth B. Steinback, Chairman and Chief Executive Officer, Computer Sales International, Inc. (Ex. 8); David E. Harmon, President, El Camino Resources (Ex. 9); Katsuro Yamaji, General Manager, Fujitsu Legal and Industry Relations Group (Ex. 10); Frederick W. Hansen, Executive Vice President of Hitachi Data Systems Corporation (Ex. 11); John Polster, Associate General Counsel, Meridian Leasing Corporation (Ex. 12); and Richard Nelson, President, Nelco, Ltd. (Ex. 13). The Government was unable to obtain a declaration from ISNI because of the severe illness of its Executive Director. James R. Eiszner, ISNI's outside counsel, discussed the issue of a protective order with the Executive Director before her illness and submitted a letter (Ex. 14) that reflects his understanding of ISNI's views. (Brown Decl. Ex. 3 at ｶ 3.)
2 IBM has consistently objected to any suggestion that a third party could have access to IBM's confidential information or have an opportunity to discuss the significance of such information with the Government. (Brown Decl. Ex. 3 at ｶｶ 12-13.)
3 The Government's proposed protective order includes within the definition of "party" any third party who may be granted access to protected information pursuant to the terms of the order. Of course, including third parties in the definition does not confer upon them party status. They are included in the definition to make clear that, if they are authorized to review confidential information, they are bound by all of the terms of the protective order.
4 Moreover, IBM's proposed order seeks the return of inadvertently produced materials on any ground and is not limited to privileged information. Thus, it could permit demands for the return of information when further review might reveal that the information initially could have been withheld because, for example, it is not relevant or is merely cumulative of other information.
5 The balance of interests tipped in favor of allowing IBM's in-house litigation support staff access to confidential information. IBM represented that it routinely uses in-house clerical support staff and those individuals are not in a position to inadvertently misuse confidential information. Although IBM's support personnel will have to report to outside counsel, this should not present a hardship because outside counsel maintains offices at IBM's litigation unit in White Plains. (Brown Decl. Ex. 3 at ｶ 17.)
6 The stipulated protective orders cited by IBM (Barbur Decl. ｶ 12, Exs. I and J) provide no support for IBM's broad proposal to disclose confidential information to all IBM in-house litigation counsel in this case. Because the protective orders in those cases were consensual, no decision was made as to the merits of disclosure to any inside counsel. Moreover, the orders in those two cases primarily involved treatment of the parties' confidential information and not treatment of the confidential information that may be produced by third parties. Most importantly, the orders in both cases allowed disclosure to only one designated inside counsel, which presented substantially fewer risks than IBM's current proposal for the right to disclose confidential information to any number of unspecified persons who currently happen to work in its in-house litigation department.
7 The Second Circuit decisions on the standard to be applied for modification by a party or an intervening nonparty are not altogether clear and have caused considerable confusion in the lower courts. See Bayer AG v. Barr Laboratories, Inc., 1995 WL 334727 at 9 (S.D.N.Y., June 6, 1995) (the Court weighed various factors, including whether the order was entered by stipulation and whether the requested modification was foreseeable); Maryland Cas. Co. v. W. R. Grace & Co., 1994 LEXIS 11141 at 3 (S.D.N.Y., August 10, 1984) (the Court applied an "extraordinary circumstances or compelling need" test).
8 The Government gives no weight to IBM's argument that entry of its proposed inadvertent production provision is needed to expedite discovery. (See IBM Protect. Memo. at 16, 18-19.) IBM should expect its outside law firm to institute appropriate and reasonable procedures to protect its privileged information with or without a provision regarding inadvertent disclosure of such information.
9 To ensure public access, the Government insisted, and IBM agreed, to include a provision requiring the parties to publicly file all pleadings with confidential information redacted. (Gov't Protect. Ord., Ex. 1 at ｶ 13; IBM Protect. Ord., Ex. 2 at ｶ 13.)
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U.S. Department
of Justice
