Tuesday, March 10, 2020

discovery of trade secrets in a false advertising case

Monster Energy Co. v. Vital Pharm., Inc., 2019 WL 8112506, No. 5:18-cv-01882-JGB (SHKx) (C.D. Cal. Oct. 16, 2019)

I don’t cover many discovery disputes, but this one has some passing interest for the substance of false advertising law. Monster & Vital filed a stipulated protective order providing two tiers of protection, allowing a producing party to designate documents or information it provides as either “Confidential” or “Highly Confidential – Attorney’s Eyes Only.” The latter was to be “limited to such documents, testimony, information or other things that the Designating Party believes, in good faith, contain information the disclosure of which is likely to cause substantial harm to the competitive position of the Designating Party, contain information subject to the right of privacy of any person, or contain information alleged to be a trade secret. None of the restrictions set forth in this Stipulated Protective Order shall apply to any documents or other information that are or become public knowledge by means not in violation of the provisions of this Stipulated Protective Order, or any law or statute.”  Unless otherwise ordered by the court or permitted in writing by the Designating Party, a Receiving Party could disclose such material only to outside counsel, experts/consultants to whom disclosure was reasonably necessary and who had signed a confidentiality agreement, court- or mediation-related people, and people who already had the information.

Now the parties disputed what should be disclosed. “There is no absolute privilege for trade secrets and similar confidential information,” but trade secret status is to be weighed in the analysis. Monster sought disclosure of VPX’s energy drink formula, including the amount of each ingredient.  The core dispute is about claims about creatine, an ingredient (or creatyl-L-leucine, the ingredient in VPX’s BANG products, known as Super Creatine—previous blogging on the case). VPX refused on the grounds that the formula was a trade secret and noted that Monster just introduced a competitive energy drink.

At this stage of the case, the court wasn’t going to make a judicial finding that the formulation for BANG was a trade secret, but did consider the extent to which VPX treated it as one.  VPX apparently disclosed the entire ingredient list and quantities of ingredients in its Red Line beverage, and the amount of CoQ10 in BANG, it didn’t seem to have publicly disclosed the entire ingredient list or their quantities for BANG. That was enough to meet VPX’s burden at this stage.

Monster argued that the formulations of BANG were relevant and necessary to prosecute several of its claims, specifically that, even if creatyl-L-leucine were potent, “there is not enough of it in BANG for it to materially impact the body.” VPX rejoined that Monster didn’t allege that customers chose BANG over Monster products because VPX claimed any particular quantity of any ingredient. But that goes to the merits, not to relevancy in discovery. The formulations of at least those BANG drinks advertised to contain “creatine” or “Super Creatine” were relevant because “relevancy should be construed ‘liberally and with common sense’ and discovery should be allowed unless the information sought has no conceivable bearing on the case.” In addition, the information being sought appeared “necessary” for Monster to prove its case that VPX was misrepresenting the contents of BANG drinks advertised to contain “creatine” or “Super Creatine.”

This need had to be balanced against the need for protection against injury caused by disclosure; the balance “virtually always” tilts in favor of disclosure once relevance and necessity have been shown. However, “courts have routinely recognized that disclosure to a competitor is more harmful that to a noncompetitor.” But the court had no reason to believe that counsel would disregard the restrictions in the “letter and spirit” of the protective order. Although it wasn’t expressly stated in the protective order, the court understood that “this type of information received by outside counsel cannot be used in any way to assist Plaintiff in formulating or otherwise advising Plaintiff with respect to any current or future products.”

Nor was it sufficient to tell Monster to engage in reverse engineering instead. “Defendants do not claim and do not provide any information to show that producing this information, under strict controls, would be difficult, time consuming, or expensive. Comparatively, the testing, and any likely subsequent questioning of that testing, would be unnecessarily time consuming and is not warranted, with the controls that are in place.”

In return, VPX sought the formulation of Monster’s competing REIGN in order to evaluate Monster’s claims and VPX’s defenses, including unclean hands and a lack of damages. But merely reciting “unclean hands” in an answer doesn’t put a plaintiff on notice that a defendant intends to raise unclean hands allegations regarding plaintiff’s labeling as a whole. The “misconduct that forms the basis for the unclean hands must be directly related to plaintiff’s use or acquisition of the right in suit.” Here, the relevant allegations were about creatine and “Super Creatine.” VPX didn’t show that the overall formulation, not having to do with that ingredient, was relevant or necessary. Thus, VPX’s motion to compel was denied. [I am somewhat persuaded by VPX’s argument that, if Monster is arguing that there are ingredients whose presence in an energy drink is too minimal to justify advertising their benefits, then Monster’s own practices with respect to touting ingredients versus the reality of their amounts in Monster’s products are relevant, but I see the court’s point in terms of proper notice. Something for the next defendant to keep in mind.]

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