Applications of Heraeus Kulzer v. Biomet Inc.

• Decision Date: 24 January 2011
• Docket Number: Nos. 09–2858,10–2639.,s. 09–2858
• Citation: 633 F.3d 591
• Parties: Applications of HERAEUS KULZER, GmbH, for Orders Compelling Discovery for Use in a Foreign Proceeding, Applicant–Appellant,v.BIOMET, INC., et al., Respondents–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

633 F.3d 591

97 U.S.P.Q.2d 1652

Applications of HERAEUS KULZER, GmbH, for Orders Compelling Discovery for Use in a Foreign Proceeding, Applicant–Appellant,

v.BIOMET, INC., et al., Respondents–Appellees.

Nos. 09–2858

10–2639.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 1, 2010.Decided Jan. 24, 2011.

Lawrence D. Rosenberg (argued), Attorney, Jones Day, Washington, DC, for Applicant–Appellant.William N. Howard (argued), Attorney, Freeborn & Peters LLP, Chicago, IL, for Respondents–Appellees.Before BAUER and POSNER, Circuit Judges, and PALLMEYER, District Judge.^*POSNER, Circuit Judge.

This is an appeal from orders by the district court denying applications to compel discovery for use in a lawsuit pending in a foreign court. (To simplify, we'll pretend there was one application and one order.) Although orders granting or denying motions to compel discovery normally are nonfinal and therefore appealable only in extraordinary circumstances, the orders in this case are final because there is no pending litigation in the district court. The court is finished with the matter—as the only matter is discovery—and when no further proceedings are contemplated, the court's last order, even if it is a discovery order, is an appealable final order. E.g., Kestrel Coal Pty. Ltd. v. Joy Global, Inc., 362 F.3d 401, 403 (7th Cir.2004); Bayer AG v. Betachem, Inc., 173 F.3d 188, 189–90 and n. 1 (3d Cir.1999); In re Letters Rogatory from Tokyo District Prosecutor's Office, 16 F.3d 1016, 1018 n. 1 (9th Cir.1994); cf. Wiwa v. Royal Dutch Petroleum Co., 392 F.3d 812, 815–17 and n. 14 (5th Cir.2004).

Heraeus Kulzer, a German company that has sued Biomet, Inc. and its affiliates in a German court for theft of trade secrets, is seeking discovery in a federal district court in Indiana pursuant to 28 U.S.C. § 1782, which so far as relates to this case authorizes the federal district court “of the district in which a person resides or is found [to] order him ... to produce a document or other thing for use in a proceeding in a foreign ... tribunal.... The order may be made ... upon the application of any interested person.” The order “may prescribe the practice and procedure [for the production], which may be in whole or part the practice and procedure of the foreign country”; but unless otherwise provided in the order, the production shall be “in accordance with the Federal Rules of Civil Procedure.” So a party to litigation in a foreign country can seek discovery relating to that litigation in a federal district court, and, in the discretion of that court, Kestrel Coal Pty. Ltd. v. Joy Global, Inc., supra, 362 F.3d at 406; Schmitz v. Bernstein Liebhard & Lifshitz, LLP, 376 F.3d 79, 83–84 (2d Cir.2004); Four Pillars Enterprises Co. v. Avery Dennison Corp., 308 F.3d 1075, 1078 (9th Cir.2002), can obtain as much discovery as it could if the lawsuit had been brought in that court rather than abroad.

Discovery in the federal court system is far broader than in most (maybe all) foreign countries, and it may seem odd that Congress would have wanted foreign litigants to be able to take advantage of our generous discovery provisions. The stated reason was by setting an example to encourage foreign countries to enlarge discovery rights in their own legal systems. Euromepa S.A. v. R. Esmerian, Inc., 51 F.3d 1095, 1097 (2d Cir.1995); In re Application of Malev Hungarian Airlines, 964 F.2d 97, 99–100 (2d Cir.1992); S.Rep. No. 1580, 88th Cong., 2d Sess. 2, 1964 U.S.C.C.A.N. 3782, 3783–84 (1964); Hans Smit, “Recent Developments in International Litigation,” 35 S. Tex. L.Rev. 215, 235 (1994). That might benefit U.S. litigants in those countries. And since the foreign court could always exclude the fruits of U.S. discovery, it seemed that allowing such discovery could only help, and not hurt, the foreign tribunal, see id. at 235–36, though this point requires qualification, as we'll see. Maybe a further, unstated aim of the statute was to increase the business of American lawyers, but this is just a conjecture.

No matter. The law is clear. But district courts must be alert for potential abuses that would warrant a denial of an application to be allowed to take such discovery. One abuse would be for a party to seek discovery in a federal district court that it could obtain in the foreign jurisdiction, thus gratuitously forcing his opponent to proceed in two separate court systems; the inference would be that the party seeking U.S. discovery was trying to harass his opponent. Cf. Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 264, 124 S.Ct. 2466, 159 L.Ed.2d 355 (2004). Another abuse would be to seek discovery of documents or other materials that the foreign court would not admit into evidence, see id.; and again the inference would be that the party seeking discovery was trying to harass the defendant rather than to obtain evidence for use in a trial (and likewise if the foreign suit was frivolous).

A related abuse could arise from the fact that foreign courts, because they almost never use juries in civil cases, have, compared to American courts, loose, permissive—sometimes even no—standards (other than privilege) for limiting the admissibility of evidence. See, e.g., Peter L. Murray & Rolf Stürner, German Civil Justice 269–70 (2004); Kenneth Williams, “Do We Really Need the Federal Rules of Evidence?,” 74 N.D. L.Rev. 1, 14 (1998) (“in contrast to common law systems, there are virtually no exclusionary rules of evidence” in civil law systems, such as that of Germany); Mirjan R. Damas?ka, Evidence Law Adrift 14–25 (1997). There is thus a danger of swamping a foreign court with fruits of American discovery that would be inadmissible in an American court because admissibility is not a criterion of discoverability in our system. A discovery demand in our courts might yield a haul of 30 million emails, few of which would be admissible in evidence. A litigant in a foreign court who had obtained such a haul would be unlikely to dump the whole mass of emails on that court, but if he did try to overwhelm the court with documentation the court might not be well equipped by its procedures to stem the flow. Judge Jacobs has warned against “clog[ging] the French appeals court with the random harvest of the American discovery,” Euromepa S.A. v. R. Esmerian, Inc., supra, 51 F.3d at 1105 (dissenting opinion), and the same danger would be presented if the court were German rather than French.

Still another potential abuse would be a party's seeking discovery that the foreign court would disapprove of because it would impose on his opponent, or perhaps on a third party, what the foreign court would regard as an undue expense of responding to American discovery demands; for that expense can be enormous, especially now that we're deep into the age of electronic discovery. Regan–Touhy v. Walgreen Co., 526 F.3d 641, 649 (10th Cir.2008); Charles A. Wright & Arthur R. Miller, 9A Federal Practice and Procedure § 2459, pp. 456–62 (3d ed. 2008); Steven C. Bennett, “Records Management: The Next Frontier in E–Discovery?,” 41 Texas Tech L.Rev. 519, 519 (2009). Other things to watch out for are a forum-selection clause in a contract, which might indicate the parties' preference for a court system that doesn't contemplate the level of compulsory process available in America; and a party's effort to combine the substantive law of a foreign country with the expansive discovery opportunities available in the United States—a clue would be that the plaintiff had sued in an inconvenient forum while seeking discovery in the United States. Neither is a factor in this case.

A final abuse is proposed by Biomet under the rubric of “parity” (“reciprocity” might be an apter term): if Heraeus is able to use broad U.S. discovery procedures but Biomet is confined to the narrow German procedures, Heraeus may have an arbitrary advantage in preparing its case, though generally and probably in this case the plaintiff in a trade secret case needs more discovery than the defendant.

We shall see that none of these abuses has been shown to be a likely motive for, or effect of, the discovery sought by Heraeus. The discovery sought may be excessive, but excessive under the discovery standards set forth in the Federal Rules of Civil Procedure rather than under section 1782. As indicated in one of the passages we quoted from the statute, discovery sought under section 1782 must (in the absence of a contrary order by the district court) comply with Rule 26 and the other rules governing discovery in federal courts.

Heraeus makes bone cement (basically just Plexiglas—polymethyl methacrylate), which is used in orthopedic surgery. “Bone Cement,” http:// en. wikipedia. org/ wiki/ Bone_ cement (visited on Jan. 18, 2011, as were all the websites cited in this opinion). It sued the defendants, affiliated companies that we're calling Biomet, in 2008, and a month later it applied to the federal district court for the district in which the Biomet corporate family, which is international, has its headquarters, to be permitted by section 1782 to conduct discovery of materials in Biomet's possession. So far as we can determine, the German suit has not progressed to a point at which any facts have been determined or claims ruled on.

The suit makes the following allegations (we recite them; we do not vouch for their accuracy). Until 2005 Heraeus was the world's leading producer of bone cement. See “I'm Feeling Good Again!: Palacos® Bone Cement from Heraeus Has Set Standards in Hip Prosthesis for Almost 50 Years,” http:// corporate. heraeus. com/ en/ innovation/ technology report_ 1/ palacos_ 39168. html. In the early seventies Heraeus made a contract with another German company, Merck KGaA, whereby Merck agreed to distribute Heraeus's bone cement. Pursuant to the contract, Heraeus provided Merck with a great deal of confidential information about its product in order to enable...