Dmarcian, Inc. v. DMARC Advisor BV

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
ASHEVILLE DIVISION
CIVIL CASE NO. 1:21-cv-00067-MR
DMARCIAN, INC., )
)
Plaintiff, )
)
vs. ) O R D E R
)
DMARC ADVISOR BV, )
f/k/a dmarcian Europe BV, )
)
Defendant. )
________________________________ )
THIS MATTER is before the Court on the Plaintiff’s Motion to Compel
and Motion for Entry of Protective Order [Doc. 154].
I. BACKGROUND
The Plaintiff dmarcian, Inc. filed its Complaint for copyright and
trademark infringement and related state claims on March 12, 2021. [Doc.
1]. On March 25, 2021, the Plaintiff submitted a motion for a temporary
restraining order and preliminary injunction. [Doc. 6]. The Plaintiff’s
Complaint was later amended, with the most recent amendment made on
June 23, 2021. (Doc. 51].
On April 19, 2021, the Defendant DMARC Advisor BV, formerly known
as dmarcian Europe BV, filed a motion to dismiss based on a lack of personal
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jurisdiction and forum non conveniens. [Doc. 22]. On May 26, 2021, this
Court issued an Order enjoining the Defendant and its agents and attorneys
and denying the Defendant’s motion to dismiss. [Doc. 39]. On June 25,
2021, the Defendant appealed the Preliminary Injunction. [Doc. 52].
On May 13, 2022, the Court issued an Order allowing discovery to
proceed despite the pendency of the appeal. [Doc. 123]. On August 16,
2022, the Plaintiff issued requests for production seeking source code and
related documents. [See Doc. 154-1]. Although the Defendant served
written responses to the Plaintiff’s requests, the Defendant has refused to
produce any source code, or any documents related thereto, absent the entry
of a protective order. The parties met and conferred multiple times about the
wording of such an order, but were unable to come to any mutually
acceptable language. Even with a protective order, the Defendant objects
to producing the source code and related documents for its purportedly new
platform. Specifically, the Defendant contends that this source code is
written in a different language and is not subject to discovery. [Docs. 154-1,
154-6, 154-7].
In light of the Defendant’s position, the Plaintiff filed the present motion,
seeking the entry of a protective order as well as an order compelling the
Defendant’s responses to the Plaintiff’s requests for production of
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documents. [Doc. 154]. The Defendant filed a response in opposition to the
Plaintiff’s motion, and the Plaintiff filed a reply. [Docs. 156, 162]. Following
a status conference on March 15, 2023, the parties again conferred about
the wording of a protective order and submitted their final proposed
protective orders to the Court for consideration. [Docs. 178, 179].
II. STANDARD OF REVIEW
A. Motion to Compel
Rule 26 of the Federal Rules of Civil Procedure provides, in pertinent
part, as follows:
Parties may obtain discovery regarding any
nonprivileged matter that is relevant to any party's
claim or defense and proportional to the needs of the
case, considering the importance of the issues at
stake in the action, the amount in controversy, the
parties’ relative access to relevant information, the
parties’ resources, the importance of the discovery in
resolving the issues, and whether the burden or
expense of the proposed discovery outweighs its
likely benefit. Information within this scope of
discovery need not be admissible in evidence to be
discoverable.
Fed. R. Civ. P. 26(b)(1).
Under Rule 37 of the Federal Rules of Civil Procedure, “a party may
move for an order compelling disclosure or discovery.” Fed. R. Civ. P.
37(a)(1). “[T]he party or person resisting discovery, not the party moving to
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compel discovery, bears the burden of persuasion.” Kinetic Concepts, Inc.
v. ConvaTec Inc., 268 F.R.D. 226, 243 (M.D.N.C. 2010). The decision to
grant or deny a motion to compel is generally an issue within the broad
discretion of the trial court. See Lone Star Steakhouse & Saloon, Inc. v.
Alpha of Va., Inc., 43 F.3d 922, 929 (4th Cir. 1995).
B. Motion for Protective Order
Rule 26(c) of the Federal Rules of Civil Procedure provides that the
court may, for good cause, issue a protective order to protect a party's trade
secrets or other confidential research, development, or commercial
information. Fed. R. Civ. P. 26(c)(1)(G). To obtain a protective order to
protect confidential information, “[t]he proponent must show that the
information is confidential and that its disclosure would create a risk of harm
to the party’s interests,” as well as that the risk of harm from disclosure
outweighs the harm of restricting discovery. Biazari v. DB Indus., LLC, No.
5:16-cv-49, 2017 WL 1498122, at *2 (W.D. Va. Apr. 26, 2017). Generally
speaking, a party seeking a protective order has the burden of making a
particularized showing of why discovery should be denied. Smith v. United
Salt Co., No. 1:08CV00053, 2009 WL 2929343, at *5 (W.D. Va. Sept. 9,
2009). Whether to grant or deny a motion for a protective order is generally
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left within the district court’s broad discretion. Innovative Therapies, Inc. v.
Meents, 302 F.R.D. 364, 377 (D. Md. 2014); Fed. R. Civ. P. 26(c).
III. DISCUSSION
A. Motion to Compel
As a preliminary matter, the Defendant argues that the Plaintiff’s
Motion to Compel should be denied as premature, because both parties
agreed to produce sensitive source code and other material only once a
protective order is entered. As no protective order has yet been entered, the
Defendant argues, any motion to compel such sensitive material is
premature. The Defendant further contends that the Plaintiff failed to include
a certification in its motion that the parties have conferred in good faith to
resolve this dispute and are unable to do so, because there simply is no
discovery dispute ripe for the Court’s consideration. [Doc. 156 at 2].
Contrary to the Defendant’s argument, this discovery dispute is more
than ripe. The Plaintiff propounded its discovery requests on August 16,
2022. To date, the Defendant has failed to produce any documents in
response to these requests, asserting that it will not do so until the protective
order issue is resolved. Despite taking this position, however, the Defendant
has not taken any steps to move this Court for the entry of a protective order.
As the party resisting discovery, the burden is on the Defendant to seek a
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protective order. See Infernal Tech., LLC v. Epic Games, Inc., 339 F.R.D.
226, 229 (E.D.N.C. 2021) (citing Fed. R. Civ. P. 26(c)(1)).
The Defendant appears to argue that the present motion to compel is
unnecessary because the parties mutually agreed to suspend the production
of any material involving source code pending the resolution of the protective
order issue. The Defendant has not produced any evidence of specific
discovery requests that the Plaintiff has resisted on the basis of a lack of a
protective order, nor has the Defendant moved to compel any such
production. The only discovery requests that are before the Court are those
requests propounded to the Defendant by the Plaintiff, and the Court will
therefore focus its analysis there.
While the Plaintiff’s motion admittedly does not contain an explicit
certification of a good faith effort to resolve the parties’ dispute without court
intervention, a review of the correspondence between counsel makes it clear
that the Plaintiff has made numerous good faith attempts both to negotiate a
protective order and to obtain the production of documents before filing this
motion. The Plaintiff first circulated a proposed protective order in August
2021, a full year before the Plaintiff even propounded the present discovery
requests. After the Plaintiff propounded its discovery, the parties continued
to exchange numerous drafts of a proposed protective order. When the
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parties reached an impasse on certain issues, particularly with regarding the
manner of production of source code and the use of such code in the Dutch
proceedings, the Plaintiff’s counsel advised the Defendant’s counsel of their
intent to seek a motion to compel production of documents responsive to
their discovery requests. Still, the Defendant refused to either finalize an
agreement or seek a motion for a protective order.
Under these circumstances, the Court finds that the Plaintiff has made
good faith efforts to resolve the discovery issues without court intervention
but has been unable to do so. Accordingly, the Court finds that the Plaintiff
was justified in bringing the present motion.
The Court now turns to the merits of the motion to compel. In its
discovery requests, the Plaintiff sought the production of the following
documents:
1. A copy of Source Code in Defendant’s possession for the
following dates/points in time:
a. The Source Code Plaintiff first provided to/provided access
to Defendant for use in their Contract of Cooperation.1
b. The Source Code on the date that any person employed or
contracted by the Defendant first made any edits to the
Source Code.
1 The “Contract of Cooperation” is defined in the requests as “the cooperative business
arrangement Plaintiff had with Defendant beginning in or about 2016.” [Doc. 154-1 at 2].
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c. The Source Code as it existed on the day that Defendant
began operating its own software as a service platform (in
or around February 2021) separate from and independent
of Plaintiff (which use is subject of Plaintiff’s copyright
infringement claim, among others).
d. The Source Code in Defendant’s possession as it existed
on May 28, 2021.
e. A copy of the Source Code currently used by Defendant.
2. A copy of all change logs to the Source Code.
3. A copy of all change logs to any Source Code used by Defendant
since May 28, 2021.
4. A copy of all records of payment by Defendant to any person for
work performed on any Source Code from January 1, 2015 to
present, including but not limited to any invoices, statements,
communications or other documents identifying the specific
contributions or work for which the payments were made.
5. A copy of any Source code developed by or under the direction
of Defendant provided to any other entity, including but not
limited to any other entity form by Martijn Groeneweg and/or
Herwert Kalkman (i.e., an entity(ies) other than Defendant or
Plaintiff).
6. With respect to the Source Code which is the subject of your
response to RFP #5 above:
a. A copy of any documents identifying any entity which
received a copy of the Source Code.
b. A copy of any communications relating to providing the
Source Code to any such entity.
c. A copy of any communications relating to the development
of Source Code by or for the benefit of any such entity.
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d. A copy of all change logs relating to such Source Codes.
e. A copy of all records (including but not limited to
statements, invoices, accounts payable, accounts
receivable, check or wire records) reflecting payments
relating to work performed on such Source Code.
7. A copy of any Source Code created by or on behalf of Defendant
other than code based on the Source Code provided by Tim
Draegen and/or Plaintiff.
8. With respect to the Source code which is the subject of your
response to RFP #7 above:
a. A copy of any documents identifying any entity which
received a copy of the Source Code.
b. A copy of any communications relating to providing the
Source Code to any such entity.
c. A copy of any communications relating to the development
of Source Code by or for the benefit of any such entity.
d. A copy of all change logs relating to such Source Codes.
e. A copy of all records (including but not limited to
statements, invoices, accounts payable, accounts
receivable, check or wire records) reflecting payments
relating to work performed on such Source Code.
[Doc. 154-1 at 4-10]. These requests generally fall into two categories: (1)
the source code and related documents (such as change logs) under the
Defendant’s control after it obtained access to the Plaintiff’s source code (i.e.,
used during the “contract of cooperation”); and (2) the source code and
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related documentation related to the Defendant’s purportedly new platform.
With respect to the first category of documents, the Defendant objects to the
production of any such documents absent the entry of an appropriate
protective order. As to the second category of documents, the Defendant
objects to the production of its new source code on the grounds that such
code is not relevant to the present proceedings.2 The Court will address
each of these objections in turn.
1. Source Code Used During Contract of Cooperation
The Defendant does not appear to dispute the relevancy of the
requested documents pertaining to the source code used by the Defendant
during the parties’ “contract of cooperation.” Rather, the Defendant asserts
that it will produce such documents only pursuant to a protective order.
While the parties attempted to draft a mutually agreeable protective order
over a period of several months, the parties were unable to reach agreement
as to certain key issues.
2 The Defendant also contends that any discovery in this action should be stayed while
this Court obtains an opinion from the Register of Copyrights about whether the Plaintiff’s
copyright registration is invalid. [Doc. 156 at 2]. For the reasons stated in the Order
referring this matter to the Register of Copyrights, which is entered simultaneously with
this Order, the Court declines to stay this action pending that referral.
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With the entry of a protective order contemporaneously with this order,
the Defendant’s objection to the requested production has been rendered
moot. The Defendant will be directed to produce the requested documents
within fourteen (14) days of this Order.
2. Source Code Related to Defendant’s New Platform
In responding to the Plaintiff’s discovery requests, the Defendant
objected to the production of its new source on the grounds of relevancy, as
not proportional to the needs of this case, and as unduly burdensome. [See
Doc. 156 at 5]. The Defendant also contended that any production of
documents responsive to this request should be made pursuant to a
protective order and limited to outside counsel and experts. [Id.].
In his Declaration, the Plaintiff’s CEO, Tim Draegen, identifies several
specific characteristics of the Defendant’s new platform that are used in the
dmarcian code, as well the inclusion of additional features in the Defendant’s
new platform which had been shared with the Defendant’s principal, Martijn
Groeneweg in dmarcian development meetings. [See Doc. 154-7]. Mr.
Draegen’s testimony calls into question the Defendant’s contention that it
independently designed a new platform separate and apart from the
Plaintiff’s. Accordingly, the Court finds and concludes that the requested
documents are relevant to the Plaintiff’s claims, and thus the Plaintiff should
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be allowed to discover the source code and other documents related to the
Defendant’s new platform. The Defendant will be directed to produce such
materials within fourteen (14) days of the entry of this Order.
3. Costs Related to Motion to Compel
The Plaintiff requests an award of costs related the filing of the motion
to compel. [Doc. 155 at 16-19].
Rule 37 of the Federal Rules of Civil Procedure provides, in pertinent
part, as follows:
If the motion [to compel] is granted—or if the
disclosure or requested discovery is provided after
the motion was filed—the court must, after giving an
opportunity to be heard, require the party . . . whose
conduct necessitated the motion, the party or
attorney advising that conduct, or both to pay the
movant's reasonable expenses incurred in making
the motion, including attorney's fees. But the court
must not order this payment if:
(i) the movant filed the motion before attempting in
good faith to obtain the disclosure or discovery
without court action;
(ii) the opposing party's nondisclosure, response, or
objection was substantially justified; or
(iii) other circumstances make an award of expenses
unjust.
Fed. R. Civ. P. 37(a)(5)(A).
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Here, as noted above, the Plaintiff made numerous good faith efforts
to resolve the parties’ discovery disputes without court intervention. Despite
its insistence that a protective order be put in place before any relevant
documents were produced, the Defendant itself took no initiative to move for
the entry of a protective order. Under these circumstances, the Court
concludes that the Defendant’s lack of responsiveness was not substantially
justified. Finally, the Defendant has not identified any other circumstances
that would render an award of expenses in this matter unjust. Accordingly,
the Court will award the Plaintiff its fees and costs incurred in prosecuting
the motion to compel. The Plaintiff will be directed to provide a statement of
its fees and expenses incurred in pursuing this motion within fourteen (14)
days of the entry of this Order.
B. Motion for Protective Order
The Court now turns to the entry of a protective order to govern the
exchange of confidential information in this case. The parties’ sole remaining
substantive dispute regarding the wording of the protective order relates to
the use of protected materials outside of the instant litigation. The Plaintiff
proposes to give the parties’ respective Dutch counsel access to confidential
materials but only for the purposes of settlement discussions and mediation.
[Doc. 178-1]. Further, the Plaintiff has requested that any Dutch counsel
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who is provided access to any confidential materials in the U.S. case must
submit to the jurisdiction of this Court for enforcement of the protective order.
[Id.]. The Defendant, on the other hand, contends that the protective order
should permit the parties to use the confidential materials produced in the
present litigation in the Dutch proceedings. [Doc. 179-1].
The Plaintiff opposes the use of any confidential materials produced in
the present action being used in the Dutch proceedings, citing concerns that
there are insufficient protections available in the Dutch courts to protect the
disclosure of these confidential materials. In so arguing, the Plaintiff relies
on the Declarations of its Dutch counsel, Timo S. Jansen, who states that
Dutch courts have an “open system of evidence” [Jansen 4th Decl.: Doc. 154-
2 at ¶ 3]; that the Dutch courts do not provide any “comparable protective
measures” to protect the disclosure of confidential information, such as
protective orders [id. at ¶ 4]; that there are no means by which a Dutch court
can enforce a protective order entered by a United States court [id. at ¶ 5];
and that it is “possible that a Dutch court will discuss confidential information
. . . in its judgment to support its ruling.” [Jansen 5th Decl.: Doc. 161 at ¶ 2].
The Plaintiff’s concerns, however, appear to be somewhat overstated.
As explained by the Defendant’s Dutch counsel, Alfred Meijboom, the
parties’ filings in the Netherlands “are neither published nor available for
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inspection by the public.” [Meijboom 3rd Decl.: Doc. 157 at ¶ 5]. “The only
written documents which are published or available for public inspection are
the court’s decisions pursuant to Article 27 Dutch Code for Civil Procedure.”
[Id.]. Thus, “confidential information submitted by a party as part of the
litigation can only be perceived by the public if it is part of the hearing, and
therefore presented in an oral form.” [Id. at ¶ 8]. The likelihood of a party
reciting source code in oral testimony or argument before a tribunal appears
to be extremely low. [See id. (noting that in 32 years of practice, counsel
had “never experienced and never heard of source code files being
declaimed in court hearings”)]. If confidential materials are to be discussed
during a hearing, “either party may request the court to hear parties’
arguments in camera (i.e. without [the] public).” [Id. at ¶ 9]. In Mr. Meijboom’s
opinion, a Dutch court would be particularly likely to grant this request if “such
information is subject to a protective order of a United States court.” [Id.].
As for the Plaintiff’s concern that the Dutch court’s judgment could
possibly include confidential information, even Plaintiff’s own Dutch counsel
concedes that a Dutch court would “assess whether including confidential
information is really necessary to support its ruling, as confidential
information should not unnecessarily be revealed in a judgment.” [Jansen
5th Decl.: Doc. 161 at ¶ 4].
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In any event, the Plaintiff’s concerns about what may or may not
happen in the Dutch proceedings is misplaced because this Court’s
protective order will always govern the parties’ use of materials produced in
this litigation. If a protective order were entered restricting the use of
confidential materials only for prosecuting, defending, or attempting to settle
litigation between the parties, and either party violated that instruction—
whether in the United States or in Europe—that party would be accountable
to this Court for the violation.
For all of these reasons, the Court will enter a protective order in this
case allowing the disclosure of confidential materials “only for prosecuting,
defending, or attempting to settle litigation between the Parties.”
O R D E R
IT IS, THEREFORE, ORDERED that the Plaintiff’s Motion to Compel
and Motion for Entry of Protective Order [Doc. 154] is GRANTED as stated
in this Order. The Court will enter a separate protective order
contemporaneously herewith.
IT IS FURTHER ORDERED that the Defendant shall file full responses
to the Plaintiff’s requests for production of documents within fourteen (14)
days of the entry of this Order.
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IT IS FURTHER ORDERED that the Plaintiff shall submit a statement
of its fees and expenses incurred in prosecuting this motion within fourteen
(14) days of the entry of this Order.
IT IS SO ORDERED.
Signed: June 12, 2023
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