|
STEPHEN D.
SUSMAN MAX D. WHEELER
(A3439) |
PARKER C. FOLSE
III RALPH H.
PALUMBO |
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
CALDERA,
INC.,
MICROSOFT
CORPORATION,
Defendant Case No. 2:96CV
0645B
Judge Dee V.
Benson
CALDERA, INC.'S MEMORANDUM IN
SUPPORT OF THE SAN JOSE MERCURY NEWS, THE SALT LAKE
TRIBUNE, AND BLOOMBERG L.P. MOTIONS TO INTERVENE
AND UNSEAL COURT FILE
FILED UNDER SEAL
I. INTRODUCTION
The
San Jose Mercury News, The Salt Lake Tribune, and Bloomberg
L.P. seek relief that is long overdue. Microsoft has abused
the Protective Order in this case by designating virtually
all its documents as "confidential," despite the fact that
few, if any, meet the criteria for confidentiality
established under Federal Rule 26.
Ironically,
the magnitude of Microsoft's over-designation - literally
hundreds of thousands of documents marked "confidential" and
"highly confidential" -- has prevented this Court from
performing its proper function in limiting a party's
self-designation of confidential documents. In its response
to the San Jose Mercury News, Microsoft continues to assert
that all documents it has designated "confidential" and
"highly confidential" contain trade secrets or proprietary
business information that is properly protected under Rule
26. There is only one way to test Microsoft's assertion: The
Court must review Microsoft's documents, on a
document-by-document basis.
Understandably,
the Court has been reluctant to undertake the examination of
hundreds of thousands of documents marked confidential by
Microsoft. Caldera suggests a practical solution. First, we
request that the Court review the small number of
"confidential" documents attached hereto, and determine
whether they are properly designated confidential. We are
confident the Court will find that the attached documents do
not meet the Rule 26 criteria for confidentiality.
Second,
Caldera will provide Microsoft's counsel with copies of
documents it intends to attach to its responses to
Microsoft's nine summary judgment motions. If, having
received the Court's guidance with respect to the documents
attached hereto, Microsoft continues to assert the
confidentiality of any document Caldera will use in its
summary judgment responses, Microsoft should be required to
make the requisite Rule 26 showing, on a
document-by-document basis and under penalty of sanctions if
it over-designates documents. Finally, Microsoft should be
required to make the same showing with respect to every
document that has been marked as an exhibit to depositions
taken in this case - again, on a document-by-document basis
and under penalty of sanctions.
As
the Court will note, Caldera filed this memorandum under
seal because it quotes and attaches documents Microsoft
designated as "confidential," and because the protective
order requires that such documents be filed under seal.
Nonetheless, Caldera believes there is no basis for filing
under seal since none of the attached documents are
legitimately confidential. This is, of course, precisely
what the newspapers are complaining of.
The
American judicial system provides for free and open public
access to information, except in extraordinary
circumstances. Microsoft is not seeking to protect trade
secrets or proprietary business information. Rather,
Microsoft is using the protective order to prevent public
disclosure of the predatory business practices it used to
eliminate DR DOS as a competitor and unlawfully maintain its
desktop operating system monopoly. Indeed, if its business
practices were fair and legal, why would Microsoft go to
such great lengths to prevent them from being
disclosed?
The
Court's attention to this issue is necessary and timely.
Caldera will use many of Microsoft's confidential documents
to prove its claims at trial. The Court must determine
whether this case is going to be tried behind closed doors
or in an open public forum. The answer is obvious and it
compels the relief requested by the newspapers and
Caldera.1
______________________
1.
The United States and Microsoft are currently in trial in a
case involving predatory practices similar in nature to, but
more recent than, the predatory practices involved in this
case. The Court in the government case has not permitted
Microsoft to keep the majority of its e-mails and other
internal documents secret. There is even less reason to
maintain the secrecy in this case. In responding to San Jose
Mercury News' motion, Microsoft argues that the Protective
Order has been used correctly because "Micosoft has a
compelling, constitutionally-protected interest in
maintaining the confidentiality of its trade secrets and
business contracts with other companies". Microsoft
Memoranda at vi. While that may be true, very few of the
documents Microsoft does not want to see the light of day,
fit into these categories.
____________________________
1. Microsoft Has Consistently Refused To Remove Confidential Designations From Documents That Do Not Contain Trade Secrets Or Confidential Commercial Information.
Microsoft
initially designated 99% of the documents it produced in
this case as "Confidential" or "Highly Confidential."
Caldera complained - for good reason, as Caldera's factual
investigation was hampered - but Microsoft refused Caldera's
repeated requests that it remove the designations from
documents that are not trade secrets or confidential
commercial information (as required under Fed. R. Civ. P.
26(c)(7)).
On
two prior occasions, Caldera asked this Court to require
Microsoft to stop misusing the Protective
Order.2
______________________
2.
See Caldera's First Status Report (May 28, 1997)(request to
modify the Protective Order); Caldera's Motion to Modify the
Protective Order (February 6, 1998).
______________________
The first such occasion was in connection with Caldera's First Status Report, which came before the Court on May 30, 1997. In its First Status Report, Caldera complained of Microsoft's abuse of both Confidential and Highly Confidential document designations. At the hearing, Microsoft's counsel acknowledged that Microsoft had made no effort to review documents for confidentiality as mandated by the protective order, but had merely left in place confidentiality stamps that were placed on its documents when they were sent to the Justice Department. While declining to treat Caldera's request as a motion at that time, Judge Benson commented: "[B]ased on what I have seen . . . I would suggest that Microsoft seems to be using the confidentiality issue a little too freely." It was agreed that Caldera's request would be treated as a motion, fully briefed by the parties, and subsequently heard by the Court.3
____________________________
3.
Tr. Motion Hearing, May 30, 1997 at 51-62, attached as
Exhibit 1.
____________________________
At
the subsequent hearing, the Court expressed understandable
reluctance to review millions of pages of documents marked
"Confidential" or "Highly Confidential." Trusting that
Microsoft would be reasonable in removing its improper
designations, the Court instructed the parties to work out
their differences.4
______________________
4.
Tr. Motion Hearing, January 28, 1998 at 22-42, attached as
Exhibit 2.
______________________
Caldera has attempted, without success, to get Microsoft to reclassify a limited number of non-confidential documents that have been marked as exhibits to depositions.5
______________________
5.
On June 26, 1998, Caldera requested that Microsoft remove
its "Confidential" and "Highly Confidential" designation
from 366 documents that had been marked as exhibits to
depositions taken in this case. Letter from Philip McCune to
Richard Pepperman, dated June 26, 1998, attached as Exhibit
3. The Protective Order requires a response within 10 days.
Microsoft took more than 30 days to respond. Letter from
Anthony Candido to Philip McCune, dated July 29, 1998,
attached as Exhibit 4. Microsoft agreed to remove the
confidential designation from some documents, but refused to
remove the designation from may other documents that do not
meet the criteria for confidential treatment under the
Protective Order or applicable law. On September 2, 1998,
Caldera requested that Microsoft remove "Confidential" and
"Highly Confidential" desinations from an additional 67
documents that had been marked as exhibits to depositions.
Letter from Philip McCune to Richard Pepperman, attached as
Exhibit 5. Microsoft again took 30 days to respond. Letter
from Jay Holtmeier to Philip McCune, dated October 2, 1998,
attached as Exhibit 6. Again, Microsoft refused to remove
confidential designations from documents that do not qualify
under the Protective Order.
____________________________
Microsoft's
protective order misuse has not only hindered Caldera's
efforts, but is inimical to the public interest. In Procter
& Gamble v. Bankers Trust Co., 78 F.3d 219, 227 (6th
Cir. 1995), a case well-known to Microsoft's counsel, the
Court commented on the need to limit confidentiality
designations to no more than absolutely necessary and on the
problems inherent in giving the parties free reign to
dictate what is to be treated as confidential:
While District Courts have the discretion to issue protective orders, that discretion is limited by the careful dictates of Fed.R.Civ.P. 26 and "is circumscribed by long-established legal tradition" which values public access to court proceedings. Brown & Williamson Tobacco Corp. v. FTC, 710 F.2d 1165, 1177 (6th Cir.1983), cert. Denied, 465 U.S. 1100, 104 S.Ct. 1595, 80 L.Ed.2d. 127 (1984). Rule 26 (c) allows the sealing of court papers only "for good cause shown" to the court that the particular documents justify court-imposed secrecy. In this case, the parties were allowed to adjudicate their own case based upon their own self-interest. This is a violation not only of Rule 26(c) but of the principles so painstakingly discussed in Brown & Williamson.The District Court cannot abdicate its responsibility to oversee the discovery process and to determine whether filings should be made available to the public. It certainly should not turn this function over to the parties as it did here, allowing them to modify the terms of a court order without even seeking the consent of the court. The protective order in this case allows the parties to control public access to court papers, and it should be vacated or substantially changed.
Removal
of Microsoft's improper designations is necessary so Caldera
is free to confront potentially hostile witnesses with
documents that prove Microsoft's bad acts. Discovery is
over. Yet, trial and the opportunity for cross-examination
of witnesses still lie ahead. Caldera has interviewed many
OEM witnesses and former Microsoft employees who are
unwilling to testify regarding Microsoft's predatory
business practices because they fear retaliation by
Microsoft -- the only remaining supplier of desktop
operating system software. Theo Lieven, the former CEO of
Vobis (Germany's largest computer manufacturer) summed it up
when he said:
They [Microsoft] have one software. It's still - you know, I'm not anymore with Vobis. That's the reason why I dare to say what I'm saying today. If I would be with Vobis, I wouldn't dare to say anything against Microsoft. You know that. Nobody does it, you know.
Lieven Tr. at 223, attached as Exhibit 7.
2. Evidence Of Predatory Conduct Is Not A Trade Secret, Nor Does It Constitute Confidential Commercial Information.
Only
trade secrets and confidential commercial information can be
designated confidential. Rule 26(c)(7) permits the Court
to order "that a trade secret or other confidential
research, development, or commercial information not be
revealed or be revealed only in a designated way." A trade
secret constitutes "information, including a formula,
pattern, compilation, program, device, method technique or
process" that takes independent economic value from not
being generally known to persons who can obtain economic
value from its use. Only Microsoft's source code constitutes
a trade secret.
Confidential
commercial information is material that: (1) contains
sensitive business information, (2) is normally kept
confidential, and (3) is of a nature such that public
disclosure would cause competitive harm. See Federal Open
Market Committee v. Merrill, 443 U.S. 361-63 (1979)
Leucadia, Inc. v. Applied Extrusion Technologies,
Inc., 998 F.2d 157, 167 (3rd Cir. 1993). The only form
of competitive harm that can be protected is harm to
business relationships with specific third parties
identified in the documents at issue, or harm that would
result from instructing competitors on a party's current
business and marketing strategies. Id. Embarrassment or harm
to a party's reputation is not a sufficient justification
for protecting material from disclosure. Welsh v. San
Francisco, 887 F. Supp. 193, 1297 (N.D. Cal. 1995)
United States v. California Medical Review, Inc. 133
F.R.D. 143, 148 (N.D. Cal. 1990). Likewise, a party cannot
protect information regarding its unlawful practices. In any
event, the requisite showings must be made with specific
facts, not mere conclusory allegations of confidentiality
and/or business harm. United States v. Exxon Corp.,
94 F.R.D. 250, 251 (D.D.C. 1981).
Microsoft
has violated the Protective Order by designating evidence of
its predatory conduct as confidential. The Protective
Order limits the categories of information that parties may
designate as confidential. Protective Order at 3 and 4. The
order does not permit a party to designate material as
confidential simply because the material supports the
opposing party's case.
The
Court need do nothing more than read a few of the documents
designated "confidential" by Microsoft to conclude that
Microsoft has violated the Protective Order. These documents
are typical of the documents Microsoft insists remain
"confidential," so they cannot be publicly disclosed. Yet
none of the documents contain trade secrets or confidential
commercial information. All are six to nine years old and
many discuss versions of software products, such as MS-DOS
and Windows 3.x, that Microsoft no longer actively develops,
markets or sells. Moreover, all the documents Caldera
requested Microsoft re-classify contain evidence that
supports the allegations of the Complaint. Here are a few
examples:
Our DOS gold mine is shrinking and our costs are soaring - primarily due to low prices, IBM share and DR-DOS … I believe people underestimate the impact DR-DOS has had on us in terms of pricing.
Bill Gates to Steve Ballmer, May 18, 1989, designated "Highly Confidential," attached as Exhibit 8.
This new contract [per processor license] guarantees MS DOS on every processor manufactured and shipped by Budgetron, therefore excluding DRI.
Microsoft Canada OEM Sales Monthly Report, dated March 1991, designated "Highly Confidential," attached as Exhibit 9.
Hyundai Electronics INC. DRI is still alive. We are pushing them to sign the amendment on a processor-based license. This will block out DR once signed.
Joachim Kempin Status Report, October, 1990, designated "Highly Confidential," attached as Exhibit 10.
It looks like DRI is urging them [Vobis] to focus on DR-DOS … Lieven [Vobis' President] is complaining about the per processor license - he does not want to pay $9 with every computer and thinks about shipping DR-DOS and MS-DOS.
Joachim Kempin (in charge of Microsoft OEM Sales) to Mike Hallman (Microsoft President),
Oct. 29, 1991, designated "Highly Confidential," attached as Exhibit 11.
I took the opportunity to negotiate with him [Lieven] in German, sign our offer as is ... Second option - scratch the DOS clause [refuse Microsoft's demand that Vobis sign a per processor license for MS-DOS] and pay $35 for Windows instead of $15 … I have a bet with Jeff that they will sign as is. In my judgment they will hurt if they do not ship WIN and paying $35 for it is out of the question.
Kempin to Butler, Mar. 26, 1991, designated "Highly Confidential," attached as Exhibit 12.
Microsoft
waived its claim of confidentiality by making public
statements about the subject matter contained in documents
designated confidential. Even if Microsoft's
confidential documents actually did contain confidential
commercial information - and it's clear that they do not -
Microsoft waived its claim of confidentiality by making
public statements about the subject matter of those
documents.
In
the 1995 consent decree between Microsoft and the United
States, Microsoft agreed to discontinue its use of per
processor licenses, minimum commitment terms, license
agreements of more than one year, tying of Windows and
MS-DOS, and related predatory acts. Nonetheless, Microsoft
has consistently maintained that it offered per processor
licenses only because customers requested such licenses and
because such licenses were an effective means of combating
software piracy and that it did not engage in tying of
Windows and MS-DOS. Microsoft has also publicly denied that
it was ever its intent to create incompatibilities between
DR DOS and Windows, and Microsoft has denied publicly that
it tied Windows and MS-DOS together in Windows 95 for the
purpose of excluding competition from DR DOS.
Moreover,
Microsoft has made repeated public statements denying the
truth of Caldera claims in this case:
"There is simply no factual basis for Caldera's claims," said Tom Burt, associate general counsel for Microsoft. "Many of Caldera's allegations merely recycle claims that the Federal Trade Commission and Department of Justice reviewed years ago and decided were groundless … After nearly three more years of investigation, Caldera still has no evidence to support its claims."
Microsoft News Release, Redmond, Wash., Feb. 12, 1999, attached as Exhibit 13.
Microsoft
cannot assert that Caldera has "no evidence," and, at the
same time, insist that internal e-mail and memoranda which
directly contradict Microsoft's public denials of guilt must
be protected from disclosure as "confidential" information.
The Protective Order should not be construed to allow such
an unjust result. Rather, by publicly denying the specific
predatory acts alleged by the United States and Caldera,
Microsoft has placed information relevant to those acts in
the public domain. The Protective Order provides that when
information becomes part of the public domain as has
occurred here, as a result of Microsoft's press release and
other statements, the information is no longer "Confidential
Discovery Material." Protective Order at ¶17.
For
example, during the FTC/DOJ investigations, Microsoft made
repeated statements to the press that the purpose of the
per-processor license was to combat software piracy. See
"What To Do with the Microsoft Monster," Stuart Taylor,
American Lawyer, November 1993, attached as Exhibit 14.
Microsoft documents quoted above show that Microsoft's
senior executives purposely used per processor licenses not
to stop piracy but rather to "block out DR" - that is, to
make it virtually impossible for DR DOS to make sales to
OEMs.
Microsoft
has done the same thing with respect to the false error
messages generated by the Windows 3.1 beta. The messages -
which were generated if a user tried to run Windows 3.1 in
conjunction with DR DOS - were intended to scare users and
make them switch from DR DOS to MS DOS. The secret,
encrypted code that generated the error message was
uncovered in 1993 by Andrew Schulman. Schulman immediately
sent an e-mail to Microsoft:
I have stumbled across a really awful piece of code (with the initials) "AARD"! in four separate programs in Windows … This AARD code is deliberately obfuscated, encrypted with XORs, attempts to disable a debugger … But after much effort by myself and Geoff Chappell, we have found that the purpose of this code (in Windows!!) is to check for genuine MS-DOS by checking several otherwise-irrelevant things in the DOS data segment. In two beta versions of Windows, this code when run on DR DOS produced error messages….Brad, I am extremely pissed at Microsoft. I have been trying to defend you guys against what I thought were stupid allegations, and now I find out that in fact the company has done something really bad. I have passed my findings on to the FTC.
Andrew Schulman to Brad Silverberg, June 1, 1993, attached as Exhibit 15.
Schulman's
findings were reported in Dr. Dobb's Journal, a software
industry publication. Brad Silverberg, the head of
Microsoft's Systems Division, responded to Schulman, and his
response was published in Dr. Dobbs Journal:
It has never been the practice of this company to deliberately create incompatibilities between Microsoft system software and the system software of other OS (operating system) publishers. … The intended purpose of this disclosure message was to protect the customer and reduce the product support burden from the use of Windows on untested systems.
Letter from Silverberg to Schulman in Dr. Dobb's Journal, (emphasis added), attached as Exhibit 16.
Silverberg's
public statement stands in stark contrast to supposedly
confidential Microsoft e-mail. David Cole, a Windows
developer, wrote Silverberg asking what "the guy [a
user] was supposed to do" when he saw the error message.
David Cole to Silverberg, Feb. 10, 1992, designated
"Confidential," attached as Exhibit 17. Silverberg
responded:
what the guy is supposed to do is feel uncomfortable, and when he has bugs, suspect that the problem is dr dos and then go out to buy ms dos. or decide not to take the risk for the other machines he has to buy for the office.
Silverberg to Cole, Feb. 10, 1992, designated "Confidential," attached as Exhibit 18.
In
short, Microsoft has used the Protective Order to prevent
Caldera from showing OEMs and other witnesses documents that
directly contradict Microsoft's public statements of
innocence. Not surprisingly, Microsoft is not anxious for
witnesses to see documents that support Caldera's case. But
that is not a basis for this Court to restrict Caldera's use
of otherwise non-confidential documents to discover and
prove its claims.
Microsoft
should be ordered to remove the "confidential" and "highly
confidential" designations from all documents that have been
marked as exhibits to depositions in this case unless, on a
document-by-document basis, and under penalty of sanctions,
it can make the requisite showing that the document is
entitled to confidential protection under Rule 26. Moreover,
Microsoft should be required to remove the confidential
designation or make the requisite showing, on a
document-by-document basis, with respect to any additional
documents Caldera so requests in writing.
DATED
this _____ day of March, 1999.
SNOW, CHRISTENSEN & MARTINEAU
By_________________________________
Stephen J. Hill
Ryan E. Tibbitts
Attorneys for Plaintiff, Caldera, Inc.