Microsoft Corp. v. Motorola, Inc. et al.

In Microsoft Corp. v. Motorola Inc. et al.,, Microsoft Corp. (“Microsoft”) alleges that Defendants (collectively “Motorola”) breached commitments made to the Institute of Electrical and Electronics Engineers Standards Association (“IEEE-SA”) and International Telecommunications Union (“ITU”), as well as those organizations’ members and affiliates, by failing to offer licenses to Motorola’s “essential” patents in the areas of wireless and video-coding technologies, as required by Motorola’s participation in the two organizations, respectively. On November 12, 2012, the court decided a number of motions filed by both parties (as well as some non-parties), seeking Protective Orders to seal various trial exhibits on the basis that the exhibits contained confidential information, the disclosure of which would put the parties at a competitive disadvantage. The court granted in part and denied in part the various motions.

In discussing the applicable legal standard for deciding a motion to seal, the court cited to Kamakana v. City & Cnty. of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006) to explain that while “a strong presumption in favor of [public] access is the starting point,” this presumption can be overcome in cases where “court files might . . . become a vehicle for improper purposes, such as [releasing] trade secrets.” For purposes of deciding motions to seal, the 9th Circuit relies on the Restatement’s definition of a trade secret. However, information need not rise to the level of a trade secret to enjoy protection. The court found that sealing was also appropriate “to prevent judicial documents from being used as sources of business information that might harm a litigant's competitive standing.” The court proceeded to apply this legal standard to the different types of exhibits that each side sought to seal.

Confidential Source Code: The court found that documents containing Microsoft’s confidential source code should be sealed, first because “source code is undoubtedly a trade secret,” and second because the confidential source code had little to do with the underlying issue of the case.

Confidential Settlement Negotiations: The court agreed to seal settlement negotiations between the two parties, based on the strong evidentiary policy against publicizing such agreements, and also because the negotiations had little relation to the underlying issue of the trial.

Technical Product Specifications: Microsoft moved to seal information related to the design and function of computer chips used in the Microsoft Xbox. While not explicitly deeming the information a trade secret, the court explained that the “chips are supplied to Microsoft by a non-party company that considers the design and operation of these chips confidential and proprietary,” and the manufacturer requires a signed non-disclosure agreement in order to access the specification documents. Further the court noted that this information had little relation to the underlying issue of the case.

Confidential Patent License Agreements: Both Microsoft and Motorola, as well as a number of non-parties including IBM and Research in Motion moved to seal patent license agreements between Microsoft, Motorola, and various companies. The movants argued that disclosure of the agreements would erode the companies’ bargaining position in future negotiations. Unlike the previously discussed categories, the court recognized that these agreements relate directly to the central issue of the case, namely the determination of a reasonable royalty rate. To balance the public interest in disclosure of this information against Motorola and Microsoft’s proprietary interest in sealing the record, the court compromised by provisionally sealing these records.
While the settlement agreements will not be broadcast on the courtroom televisions, if witness testimony reveals details of the agreements, or if the court relies on a given license agreement as a basis for its final decision, the agreement (or portions of the agreement) will necessarily be made public. Although the court did not explicitly consider whether the agreements constituted trade secrets, it seems that the court weighed the competitive disadvantage posed by disclosure against the “public’s understanding of the judicial process,” in attempting to craft an intermediate solution.

Strategic Product Planning Documents and Financial Information: Both Microsoft and Motorola moved to seal past and projected future revenue data. While the court found the forward looking projections more worthy of protection—perhaps because of Washington’s reliance on the Restatement definition of trade secrets, which include a use requirement—the court ultimately decided to provisionally seal both future and past revenue forecasts. In applying the same provisional seal as it used for the patent license agreements, the court recognized that this information could help to determine a reasonable royalty rate by shedding light on Microsoft’s actual and forecasted sales of products that relied on patents licensed from Motorola.

Testimonial Evidence: Motorola moved to seal various testimonial statements, on the grounds that the statements include details of otherwise sealed patent agreement negotiations. The court applied the same provisional seal to this information, and noted that any record sealed in a related case would be subject to review again in the present case.

This decision is significant in that it shows that companies can go to court to enforce their rights without necessarily losing trade secret protection in the process. The fact that the court was willing to seal many documents that did not rise to the level of trade secrets shows the willingness of courts to compromise in order to protect sensitive company information. That said, litigation certainly comes with the risk of disclosing at least some of a company’s trade secrets and confidential information, as seen here by through the court’s use of a provisional seal.