American Standard Inc. v. Pfizer Inc.

• Decision Date: 31 August 1987
• Docket Number: No. 86-1550,86-1550
• Citation: 3 USPQ2d 1817,828 F.2d 734
• Parties: , 3 U.S.P.Q.2d 1817 AMERICAN STANDARD INC., Appellant, v. PFIZER INC. and Howmedica, Inc., and Biomet, Inc., Appellees. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 734

828 F.2d 734

56 USLW 2163, 3 U.S.P.Q.2d 1817

AMERICAN STANDARD INC., Appellant, v. PFIZER INC. and Howmedica, Inc., and Biomet, Inc., Appellees.

Appeal No. 86-1550.

United States Court of Appeals, Federal Circuit.

Aug. 31, 1987.

Jules P. Kirsch, Cooper, Dunham, Griffin & Moran, New York City, argued for appellant. With him on the brief, was Robert D. Katz, of counsel.

Donald E. Knebel, Barnes & Thornburg, Indianapolis, Ind., argued for appellee Biomet, Inc. With him on the brief, was Brian J. Martin.

Gidon D. Stern, Pennie & Edmonds, New York City, argued for appellees Pfizer Inc. and Howmedica, Inc. With him on the brief, were Stephen J. Harbulak and Paul R. Juhasz. Also on the brief, was John E. Kidd, Anderson Russell Kill & Olick, P.C., New York City, of counsel.

Before MARKEY, Chief Judge, SMITH and NEWMAN, Circuit Judges.

MARKEY, Chief Judge.

Appeal from an order of the United States District Court for the Northern District of Indiana granting Biomet, Inc.'s (Biomet's) motion for a protective order to limit the scope of discovery sought by American Standard Inc. (American Standard), and denying in part American Standard's motion to compel discovery. No. S 86-216 (N.D.Ind. July 8, 1986). We affirm.

Background

American Standard owns U.S. Patent No. 3,605,123 ('123 patent), entitled "Bone Implant," issued September 20, 1971 to Henry Hahn. The claimed invention relates to prostheses, and discloses an implant for bone tissue having a dense metal base coated with a porous metallic surface layer. American Standard does not manufacture the claimed invention, but has licensed others to do so.

Pfizer Inc., its subsidiary Howmedica, Inc. (collectively Pfizer), and Biomet manufacture orthopedic devices, including bone implants. American Standard unsuccessfully offered Pfizer and Biomet licenses to make the bone implant claimed in the '123 patent.

On December 2, 1983, American Standard sued Pfizer in the District of Delaware, Civil Action No. 83-834 (LON) (Delaware action), alleging infringement of the '123 patent. On the same day, American Standard filed a similar complaint against DePuy, Inc. (DePuy), a bone-implant distributor, in the Northern District of Indiana, Civil Action No. S 83-0552 (Indiana action). Pfizer and DePuy counterclaimed that the '123 patent was invalid because, among other things, the claimed invention lacked utility under 35 U.S.C. Sec. 101 and would have been obvious under 35 U.S.C. Sec. 103. American Standard has also sued Stryker Corp. and Osteonics Corp. in the District of New Jersey, Civil Action No. 85-2428, for infringement of the '123 patent. All three suits are pending. American Standard has not sued Biomet.

On a date undisclosed in the record, Biomet's outside counsel prepared a validity opinion on the '123 patent. Biomet's outside counsel shared that opinion, in confidence, with inside counsel for DePuy's parent company in May 1984. Sometime later, without consulting Biomet, DePuy produced the opinion to American Standard during discovery in the Indiana action.

On November 4, 1985, in connection with the Delaware and Indiana actions, American Standard sought discovery from Biomet in the Northern District of Indiana. That court issued to Biomet and two of its officers subpoenas for testimony and documents. The twenty numbered categories of documents sought included those related to:

1. [T]he design, development, testing or analysis of any bone implant made, used or sold by Biomet.

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3. [T]he fabrication or manufacture of each different bone implant manufactured by or for Biomet, including ... specifications and manufacturing techniques.

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6. (a) Biomet's first sale of a bone implant; (b) Biomet's annual sales of each different bone implant ever manufactured by or for Biomet, including annual, quarterly and other periodic summaries which identify by name, part number or other designation the unit and dollar sales of each different implant manufactured by or for Biomet; and (c) the initial decision by Biomet to market each of its bone implants.

7. [M]arketing plans....

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14. [I]mplant trials, tests or experiments of any kind whatsoever conducted by or on behalf of Biomet.

15. A sample of each different bone implant made, used or sold by Biomet together with all documents which individually or collectively constitute or contain a complete description of all features of such implant....

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For purposes of the subpoenas, American Standard defined "bone implant" to include only devices "having a porous metal layer on a solid metal base."

The subpoenas also requested, among other things, Biomet's correspondence with the Food and Drug Administration (FDA) relating to bone implants, and documents relating to the scope, validity, infringement, and enforceability of the '123 patent. The subpoenas further contained ten enumerated requests, of similar scope, for deposition testimony.

The subpoenas were served on November 5, 1985. During the next several weeks, counsel for American Standard and Biomet attempted to negotiate an agreement to limit the scope of discovery. Failing that, Biomet moved for a protective order under Fed.R.Civ.P. 26(b)(1) and 26(c) on December 23, 1985. Biomet sought to limit discovery to "nonconfidential information pertaining to Biomet's sales of implant devices and nonprivileged information pertaining to Biomet's assessment of the validity of the '123 patent." Biomet said the remaining requested discovery was "not calculated to lead to the discovery of any admissible evidence," arguing it: (1) was not relevant to any issue in the Delaware or Indiana actions; (2) even if relevant American Standard followed on January 27, 1986 with a cross-motion to compel discovery under Fed.R.Civ.P. 37(a)(1) and for contempt under Fed.R.Civ.P. 45(f). American Standard argued: (1) the requested discovery was relevant to the issue of utility in the Delaware and Indiana actions; (2) Biomet's sales data were relevant to the issue of obviousness in those actions as evidence of commercial success of the invention claimed in the '123 patent; (3) the protective order entered in those actions would adequately protect any confidential information; and (4) Biomet had waived its attorney-client privilege.

would impose an undue burden on Biomet; (3) contained trade secrets and confidential business information; and (4) was privileged. Biomet supported its arguments factually with a nine-page affidavit from its Executive Vice President and Secretary.

The district court held a hearing on the motions on April 4, 1986.

The District Court Opinion

On July 8, 1986, Chief Judge Allen Sharp, who since December 1983 has presided over proceedings in the Indiana action, issued a 14-page Memorandum and Order granting Biomet's motion for a protective order, granting in part and denying in part American Standard's motion to compel discovery, and denying American Standard's motion for contempt.

The district court concluded from Biomet's affidavit and the language of American Standard's subpoenas that the requested discovery encompassed trade secrets under Indiana's Uniform Trade Secrets Act and other confidential information. The court found that Biomet could suffer considerably from disclosure of its trade secrets because disclosure would effectively include most of Biomet's competitors, all parties to the pending lawsuits. Also weighing against disclosure was Biomet's nonparty status.

Against Biomet's potential harm from disclosure the district court balanced American Standard's need for relevant information. The court focused specifically on American Standard's requests for Biomet's confidential sales data and certain clinical data.

The district court concluded that Biomet's confidential sales data were not relevant to the commercial-success issue in the Delaware and Indiana actions because the FDA had authorized the sale of Biomet's porous-metal-coated bone implants for use only with bone cement, a use the court said was not contemplated in the '123 patent. The court also found that American Standard had not shown need for Biomet's confidential sales data because similar information was available from the actual defendants in the pending litigation.

Chief Judge Sharp found Biomet's clinical data on the capacity of porous-coated implants to enhance bone ingrowth relevant to the utility issue. Because such information was available from no other implant manufacturer, the district court found that American Standard needed it to prepare for trial.

Finally, the district court determined that Biomet had not waived any attorney-client privilege, and American Standard could not seek certain discovery on that basis.

In granting Biomet's motion, the district court noted, "In this case, there is a significant potential for abuse and this court refuses to permit abuse of pretrial discovery." The court ordered: "Biomet is protected from disclosing all trade secrets and confidential information, except Biomet must disclose all information relevant to the clinical analysis which was or is conducted to obtain permission from the FDA to manufacture and sell porous coated bone implants in which the porous coat enhances bone ingrowth." The disclosure by Biomet was made subject to the protective order entered in the Delaware action.

In relation to the Delaware action, American Standard appeals from that part of the district court's order granting Biomet's motion for a protective order and denying in part American Standard's motion to compel discovery. American Standard does not appeal from that part of the order denying its motion for contempt.

In relation to the Indiana action, American Standard does not appeal the district court's order because Chief Judge Sharp will continue to preside over all proceedings in that action, and the present order will be reviewable on appeal from a final judgment on the merits.

Issue

Whether the...