Re: Sprint Nextel Corporation, et al. v. Simple Cell Inc., et al Case No. CCB-13-0617 (D. Md. 2015) United States District Court, D. Maryland Filed October 05, 2015 Counsel Noam B. Fischman, Polsinelli PC, Washington, DC, Brisa Izaguirre Wolfe, Pro Hac Vice, Jay E. Heidrick, Russell S. Jones, Jr., Pro Hac Vice, Polsinelli PC, Kansas City, MO, John M. Challis, Polsinelli PC, St. Louis, MO, John David Wilburn, Margaret Melissa Glassman, McGuireWoods LLP, Tysons, VA, for Sprint Nextel Corporation. Noam B. Fischman, Steven A. Pozefsky, Polsinelli PC, Washington, DC, Brisa Izaguirre Wolfe, Pro Hac Vice, Jay E. Heidrick, Pro Hac Vice, Russell S. Jones, Jr., Pro Hac Vice, Polsinelli PC, Kansas City, MO, John M. Challis, Pro Hac Vice, Polsinelli PC, St. Louis, MO, John David Wilburn, Margaret Melissa Glassman, McGuireWoods LLP, Tysons, VA, for Sprint Communications Company, L.P. Charles R. Price, Pro Hac Vice, Tandem Legal Group LLC, Washington, DC, for Wireless Buybacks Holdings, LLC, Wireless Buybacks, LLC. Joshua A. Levy, Pro Hac Vice, Cunningham Levy LLP, Washington, DC, Kathryn J. Wozny, Medtronic, Minneapolis, MN, for Marsha Lavaige 1911 NE 8th Court, Apt. # 130 Fort Lauderdale, FL 33304, Melissa Lavaige 2379 Briarwest Blvd # 55 Houston, TX 77077-3263. Charles R. Price, Tandem Legal Group LLC, Washington, DC, for Kevin A. Lowe, Kevin Edward Salkeld, Brendan T. Skelly Sullivan, Timothy J., United States Magistrate Judge LETTER TO COUNSEL *1 Pending before the Court is the Motion to Compel Re-Designation of Documents Marked Attorneys’ Eyes Only (“Motion”) (ECF No. 201) filed by Plaintiffs Sprint Nextel Corporation, et al. (collectively “Sprint”). Defendants Wireless Buybacks, LLC, Wireless Buybacks Holdings, LLC, Brendan Skelly, Kevin Salkeld, and Kevin Lowe (collectively “Defendants”) oppose the Motion. (ECF No. 212.) Having considered the submissions of the parties (ECF Nos. 201, 212 & 219), I find that a hearing is unnecessary. See Loc. R. 105.6. For the reasons set forth below, Sprint’s Motion is GRANTED IN PART and DENIED IN PART. Rule 26(c) of the Federal Rules of Civil Procedure allows parties to move for a protective order “to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.” Fed. R. Civ. P. 26(c)(1). Local Rule 104.13 outlines a mechanism for parties to stipulate to orders of confidentiality, effectively alleviating the need for the parties to move for a protective order under Rule 26(c) for material it designates as confidential, and advancing the interest of judicial economy. See In re Alexander Grant & Co. Litig., 820 F.2d 352, 356 (11th Cir. 1987). “Under the provisions of such umbrella protective orders, the burden of proof justifying the need for the protective order remains on the movant,” but the burden of raising the issue of confidentiality with respect to individual documents shifts to the other party. In re Alexander Grant & Co. Litig., 820 F.2d at 356; see also Longman v. Food Lion, Inc., 186 F.R.D. 331, 333 (M.D.N.C. 1999) (“If the parties agree to a protective order and it is entered without a showing of good cause, the party who later seeks to keep information confidential will bear the burden of showing good cause.”). The Local Rules require that proposed confidentiality orders contain four basic parts: (a) a definition of confidentiality consistent with Fed. R. Civ. P. 26(c); (b) a method for challenging particular designations of confidentiality with the burden remaining on the party seeking confidentiality to justify it under Rule 26(c); (c) a provision that whenever materials subject to the confidentiality order (or any pleading, motion or memorandum referring to them) are proposed to be filed in the Court record under seal, the party making such filing must simultaneously submit a motion and accompanying order pursuant to L.R. 105.11; and (d) a provision permitting the Clerk to return to counsel or destroy any sealed material at the end of the litigation. Loc. R. 104.13. On January 6, 2014, the Court approved the parties’ Stipulated Protective Order (“Protective Order”). (ECF Nos. 120 & 121.) The Protective Order governs the “production, use, and disclosure of all information and materials produced by the Parties in response to any discovery request in this action ..., all information contained in those materials, and all copies, excerpts or summaries of those materials.” (ECF No. 120 ¶ 1.) It provides a method for the parties to designate certain discovery material as “confidential” or “attorneys’ eyes only” (“AEO”), and in the case of such designation, places certain restrictions on the use, disclosure and return or destruction of the discovery material. (Id. ¶¶ 2-10, 17.) The dispute now before the Court concerns whether Defendants should have designated certain documents as confidential rather than AEO. *2 The pertinent portion of the Protective Order regarding the designation of discovery material as confidential is as follows: Designation of Confidential Discovery Material. A Party may, in good faith, designate as “CONFIDENTIAL” and therefore subject to the protections and requirements of this Order, Discovery Material that consists of or includes non-public information that would reasonably be subject to protection under applicable statute, rule or precedent, or personal or competitive considerations, including: a. Information and materials that a Party reasonably believes contain: (i) personal information protected by a statute, rule or regulation; (ii) trade secrets; or (iii) other confidential research, development or commercial information; b. all training policies, procedures, or documents related to security practices; c. Discovery Material reflecting or relating to financial data, including but not limited to documents concerning revenues, costs, and profits; and d. Discovery Material that, if disclosed to a business competitor, would tend to damage the Party’s competitive position. (Id. ¶ 2.) A party may designate discovery material as AEO if it is material that the party “reasonably and in good faith believes contains highly sensitive confidential proprietary commercial information or trade secrets.” (Id. ¶ 4.) Because discovery material designated as AEO is more sensitive than material marked confidential, its permitted disclosure is more limited. Generally, the Protective Order provides that confidential material may be disclosed to the parties and their attorneys, but AEO material may only be disclosed to outside counsel for the parties and the experts and service providers that they retain. (Id. ¶ 6.) The key distinction between the two designations is that material designated as AEO may not be disclosed to the parties themselves or their in-house counsel. (Id.) A party who designates material as confidential or AEO must do so only after engaging in a good faith review of the material. A party’s failure to conduct a good faith review may result in sanctions against the designating party, in addition to the party’s confidentiality designation being overruled. See Minter v. Wells Fargo Bank, N.A., WMN-08-1642, 2010 WL 5418910, *4 (D. Md. Dec. 23, 2010) (imposing $10,000 sanction against party that designated documents as confidential without conducting a “ ‘good faith’ document-by-document review”). Here, Sprint does not directly challenge Defendants’ good faith review of the materials designated as AEO.[1] Instead, Sprint challenges the AEO designations themselves, shifting the burden of proving confidentiality to Defendants. Sprint insists that Defendants cannot establish good cause for the designated material to remain AEO. To establish that a document is confidential, a designating party must show that it contains information within the scope of Fed. R. Civ. P. 26(c) and that there would be an identifiable harm from its disclosure. See Waterkeeper Alliance, Inc. v. Alan & Kristin Hudson Farm, 278 F.R.D. 136, 140 (D. Md. 2011); see also In re Wilson, 149 F.3d 249, 252 (4th Cir. 1998) (“To obtain a protective order under Rule 26(c), the party resisting discovery must establish that the information sought is covered by the rule and that it will be harmed by disclosure.”) (citing 8 Charles Alan Wright & Richard L. Marcus, Federal Practice and Procedure § 2043 at 555-57 (2d ed. 1994)); Cippollone v. Liggett Group, Inc., 785 F.2d 1108, 1121 (3d Cir. 1986) (“Broad allegations of harm, unsubstantiated by specific examples or articulated reasoning, do not satisfy the Rule 26(c) test.”). *3 Even though two-tiered protective orders are not uncommon in commercial litigation, AEO designations should “only be used on a relatively small and select number of documents where a genuine threat of competitive or other injury dictates such extreme measures.” Global Material Technologies, Inc. v. Dazheng Metal Fibre Co., No. 12 CV 1851, 2015 WL 5611667, at *3 (N.D. Ill. Sept. 23, 2015) (quoting Team Play, Inc. v. Boyer, No. 03 C 7240, 2005 WL 256476, at *1 (N.D. Ill. Jan. 31, 2005)). An overuse of the AEO designation imposes a significant burden on opposing parties conducting discovery and preparing for trial. Id. A party seeking to justify the AEO designation must “show that the disclosure of the particular AEO-designated materials to even a small number of the other party’s personnel would risk the disclosure of sensitive competitive information.” Id. at 3-4. It is not sufficient to show that the designating party “is a competitor of the receiving party or that the documents in question disclose information about the designating party’s relationships with other competitors.” Id. Courts considering whether a heightened confidentiality designation is appropriate have weighed the risks of disclosure against a party’s need to view the sensitive information. See id. (citing Autotech Techs. Ltd. P’ship v. Automationdirect.com, Inc., 237 F.R.D. 405, 412 (N.D. Ill.2006). A party’s interests in trial preparation and defense are “important interests ... and great care must be taken to avoid their unnecessary infringement.” Farnsworth v. Procter & Gamble Co., 758 F.2d 1545, 1547 (11th Cir. 1985). The parties refer to the disputed AEO material as the “Fishbowl Data.” (See ECF Nos. 201 at 2 & 212 at 1.) The Fishbowl Data was generated by the Defendants’ inventory management system. It documents Defendants’ transactions (including invoices, purchase orders, and pertinent customer information) in wireless telephones, including Sprint phones. (See ECF No. 201 at 2.) In addition to the Fishbowl Data at issue, Defendants have produced and marked confidential a “redacted version of the December 2012-December 2013 Fishbowl Data.” (ECF No. 212 at 2.) This production allows Sprint access to the Electronic Serial Number s(“ESNs”) of the cell phones at issue. (Id. at 1-3.) In addition, Defendants note that other documents designated as AEO, which are part of Defendants’ ESI production and not the subject of Sprint’s Motion, are by separate agreement permitted to be shared with “necessary personnel from Sprint’s legal, corporate fraud, and security departments in connection with the lawsuit, even though the Stipulated Protective Order would otherwise restrict [their disclosure].” (ECF No. 212 at 2-3 n.2.) Only a portion of Defendants’ discovery production is at issue in the Motion, but the parties indicate that the level of confidentiality accorded to the Fishbowl Data is a matter of significant importance. Defendants argue that the Fishbowl Data contains “highly sensitive confidential proprietary information and trade secrets” that would cause significant harm to Defendants if disclosed to Sprint. (ECF No. 212 at 4-5.) In support of this assertion, Defendants have submitted the declaration of Defendant Brendan T. Skelly (“Mr. Skelly”). (ECF No. 212-4.) Mr. Skelly is the chief executive officer of Wireless Buybacks, LLC (“WBB”). He states that the Fishbowl Data is “highly confidential and includes trade secret information and proprietary commercial information, the disclosure of which would be harmful to WBB.” (Id. ¶ 4.) Specifically, the Fishbowl Data contains a complete and detailed list of WBB’s vendors, the purchase price and number of handset units bought from each supplier, and WBB’s profit margins. (Id. ¶ 5.) The data also includes detailed information about WBB’s customers, including WBB’s “historical and current pricing methods, sales volumes, profit margins, and business strategy.” (Id. ¶ 6.) WBB uses the Fishbowl Data “in virtually all aspects of its business,” and because it is so important, it limits even its own employees’ access to the data. (Id. ¶¶ 8, 10.) Mr. Skelly states that the Fishbowl Data is valuable not only because it is comprehensive, but also because it gives WBB a competitive advantage over other companies in the secondary market for cell phones, including Sprint. (Id. ¶¶ 12-15.) *4 Mr. Skelly states that removal of the AEO designation would harm Defendants. First, Sprint could use the Fishbowl Data as a “roadmap” to compete with WBB and offer better deals to its suppliers and customers. (Id. ¶ 16.) Second, Sprint could use the data to “further disrupt WBB’s business by making further false statements about WBB” to its suppliers and customers. (Id. at 17.) Defendants note that other courts have entered or upheld protective orders with restrictions comparable to the AEO designation in this case. Those protective orders generally restricted disclosure of sensitive information to outside counsel and their experts. (ECF No. 212 at 6-9.) For example, in Stanislaus Food Products Co. v. USS-POSCO Indus., No. 1:09-CV-00560-LJO, 2012 WL 6160468 (E.D. Cal. Dec. 11, 2012), a court denied a party’s request to remove an AEO designation because it found that the designated documents contained sufficiently sensitive commercial information that impacted the privacy concerns of non-parties, in addition to the designating party. Putting aside the fact that decisions regarding the propriety of confidentiality designations are intensely fact-based, Stanislaus has limited application to this case. There, the court found that even though the documents at issue were historical, “the information could be extrapolated to predict future strategies and practices.” This made the information current rather than stale. Id. at *2-3. Because the opinion in Stanislaus addressed a request for reconsideration of the court’s oral ruling, the facts underlying the court’s decision are not discussed extensively. It is possible that in that case the designating party demonstrated that price elasticity in the market for tin and tin cans (the material that was at issue in Stanislaus) was such that historical prices could readily be extrapolated to predict future prices. But Defendants have made no such showing here. Instead, Defendants rely on “broad allegations of harm ... to show that years-old information poses [an] on-going competitive threat.” Global Material Technologies, Inc., 2015 WL 5611667 at *4. In other words, Defendants have not demonstrated how its pricing strategies in 2011, 2012, and 2013 might be extrapolated to its current pricing strategy. For that reason, I do not find Stanislaus to be very persuasive. Sprint argues that Defendants will not be harmed by the disclosure of the Fishbowl Data under the “confidential” designation because the data is not confidential, Sprint is not a competitor of Defendants, and the staleness of the data makes it commercially useless. (ECF Nos. 201 & 219.) Sprint argues that the Fishbowl Data is not confidential because “Defendants have widely and indiscriminately disclosed this information in a variety of different contexts.” (ECF No. 201 at 6.) For example, Defendants have selectively provided portions of the data “through mass emails, with no label or indication that such information was to be kept confidential.” (Id.) Defendants have also disclosed part of the data in publicly available filings in other cases. (Id. at 6-8.) Defendants concede that certain disclosures of the Fishbowl Data have been made, but the disclosures were always limited, and “represent a small fraction of the information contained” in the data. (ECF No. 212 at 9-10.) Details about Defendants’ “analytics, tracking of purchases and pricing changes over time, profit margins, and business strategy details” have not been disclosed. (Id. at 10.) Defendants have taken steps to protect most of the information contained in the Fishbowl Data from its competitors and the public. These efforts to protect the Fishbowl Data weigh against disclosure. *5 Sprint argues that it is not a competitor of Defendants. (ECF No. 201 at 9-10.) Sprint’s business model is to sell phones to customers “significantly below the wholesale price” and recoup its losses on the phones “through revenue earned on the sale of Sprint service, which customers must use to transmit and receive voice, text, and data” on their phones.” (Id. at 9.) While Defendants sell phones just as Sprint does, they do not sell wireless service. For this reason, Sprint argues that it has a “different customer base” from Defendants. (Id. at 10.) Under this argument, Sprint’s customers buy phones to use on Sprint’s network, but Defendants’ customers buy phones that can be used on Sprint’s network or the network of its competitors. I consider this a specious argument. Sprint and Defendants both sell phones in the secondary market for wireless phones.[2] Even though Defendants’ customers may not use the phones on Sprint’s network, this does not make Sprint a non-competitor to Defendants. Sprint and Defendants compete for some of the same business: customers looking to purchase cell phones. In the context of the issues at stake in Sprint’s Motion, I find that Defendants and Sprint are competitors. Disclosure of the Fishbowl Data to Sprint could harm Defendants’ competitive position. This factor weighs against disclosure. Sprint argues that because the Fishbowl Data is historical, it would be “of little or no utility to a competitor.” (ECF No. 201 at 10.) The data at issue pertains to transactions that took place between 2011 and 2013, but the prices and models of phones have changed since that time. (Id.) Defendants insist that because they derive “significant competitive value” from the Fishbowl Data, the data would also be commercially useful to a competitor like Sprint. (ECF No. 212 at 14.) In addition, the data contains “information on vendors, business strategies, and business planning,” not just information about phone pricing. (Id.) Presumably, Defendants suggest that while prices for phones may fluctuate, the identities of the suppliers of such phones and the nature of Defendants’ business strategy are more constant. I find that Defendants’ Fishbowl Data may be of some commercial use to Sprint, but that Defendants overstate its potential usefulness. Sprint’s argument that “even if prices were not widely known, knowledge of historical pricing would not be a competitive advantage” is persuasive. (ECF No. 291 at 9.) This factor weighs against disclosure, but only slightly. Defendants next argue that Sprint will not be prejudiced if the Fishbowl Data maintains its AEO designation. (ECF No. 212 at 15.) Defendants note that Sprint already has access to the ESNs that allow it to “check a particular phone and determine its status within Sprint’s network.” (ECF No. 212 at 16.) In addition, to the extent that Sprint wishes to identify when Defendants gained “unauthorized access to Sprint’s protected computer networks,” Defendants suggest that Sprint could examine its own networks, which would show when such access occurred. (Id.) Finally, Defendants state that Sprint has outside counsel capable of investigating Sprint’s claims and preparing for trial without the assistance of Sprint’s employees. (Id. at 17-18.) Sprint disputes Defendants’ contentions that the ESN information is sufficient for this litigation. According to Sprint, Defendants have obtained Sprint phones from “companies who performed the function of a middle man between Wireless Buybacks and the original purchaser of the Phone from Sprint.” (ECF No. 219 at 12-13.) Although the ESNs yield some information about the phones, they do not give Sprint access to the identities of the “middle man” companies. These identities are important to Sprint because Defendants deny having knowledge of phones acquired by others through fraud, theft, or burglary. (Id. at 13.) If Sprint is able to show that Defendants procured phones from companies that have been implicated in other fraudulent transactions, this would “substantially undercut” Defendants’ claim that they believed all of the phones they purchased “had been obtained legitimately.” (Id.) Sprint also points out what is obvious to this Court: the AEO designation limits Sprint’s ability to provide needed assistance to counsel, especially considering the large volume of data produced. (Id. at 14.) I consider Sprint’s arguments regarding the prejudice they will suffer to be persuasive. This factor weighs in favor of disclosure. *6 In considering how much weight to give to each of the factors outlined by the parties, I give significant weight to the prejudice that Sprint will suffer if the AEO designation is maintained. As other courts have noted, and as Sprint argues, such a designation should only be made for the most sensitive and protected information. Here, the AEO designation has been used by Defendants to limit Sprint’s access to what is essentially a summary of information that it can access in ESI disclosed under the less restrictive “confidential” designation. (See ECF No. 219 at 8.) This is nearly dispositive in my consideration of this dispute. While I consider Defendants’ concerns about an indiscriminate disclosure of confidential information to Sprint to be important, I do not give them as much weight. A protective order can be fashioned that will protect Defendants from the commercial harm they seek to avoid. Accordingly, the Court will not order the “wholesale, unrestricted disclosure of this information” to Sprint. (See ECF No. 212 at 5.) The Court is sensitive to Defendants’ interests in protecting its commercial information. Instead, the Court will direct that Defendants change the designation of the Fishbowl Data from “attorneys’ eyes only” to “confidential,” with the additional restriction that the Fishbowl Data may only be disclosed to “necessary personnel from Sprint’s legal, corporate fraud, and security departments in connection with this lawsuit.” (See ECF Nos. 212 at 2-3 n.2 & 219 at 8.) Even if Sprint has retained experts to assist in its review of the Sprint phones purchased and sold by Defendants, the ability of these experts to consult with these limited personnel from Sprint will give Sprint a better ability to “complete its investigation” and prepare for trial without unnecessarily threatening Defendants’ competitive position. (See ECF No. 219 at 13.) Sprint’s Motion (ECF No. 201) is GRANTED IN PART and DENIED IN PART. If the parties believe that some further order is necessary to accomplish what I have directed, the parties should submit a jointly proposed order by October 13, 2015. Despite the informal nature of this letter, it will constitute an Order of the Court and will be docketed accordingly. Footnotes [1] Sprint suggests that Defendants’ designation of the material is a “sharp practice[ ] calculated to forestall Sprint’s investigation,” but does not argue that Defendants’ designation of the material as AEO was done in bad faith. (ECF No. 201 at 2.) [2] Defendants note “Sprint is a participant [in the secondary market for wireless phones] through its buybacks program.” (ECF No. 212 at 12.)