Bridgestone Americas Holding v. Mayberry, 48S02-0703-CV-120.

• Docket Nº: No. 48S02-0703-CV-120.
• Citation: 878 N.E.2d 189
• Case Date: December 18, 2007
• Court: Supreme Court of Indiana

878 N.E.2d 189 BRIDGESTONE AMERICAS HOLDING, INC., Bridgestone/Firestone, Inc., Bridgestone Firestone North American Tire, LLC, and Bridgestone/Firestone Manufacturing Operations Division, Appellants (Defendants below),
v.
Violet MAYBERRY, Personal Representative of Harmony B. Wigley, and Audrey E. Wigley, As Mother of Harmony B. Wigley, Deceased, Appellees (Plaintiffs below). No. 48S02-0703-CV-120. Supreme Court of Indiana. December 18, 2007.

[878 N.E.2d 190]

Mark J.R. Merkle, Marc T. Quigley, Indianapolis, IN, Attorneys for Appellants.

Peter Campbell King, Columbus, IN, Attorney for Appellees.

Jon Laramore, April E. Sellers, Indianapolis, IN, Attorneys for Amicus Curiae Indiana Legal Foundation.

On Petition to Transfer from the Indiana Court of Appeals, No. 48A02-0504-CV-368.

SHEPARD, Chief Justice.

We encounter here a question of first impression: how should an Indiana court analyze a request to protect a trade secret from pre-trial discovery? We conclude that the test prevailing in other jurisdictions is suitable for application under Indiana Trial Rule 26(C).

In this case, the demanding party did not demonstrate the necessity of disclosing the secret. Hence, the trial court erred in ordering it produced.

Facts and Procedural History

On August 7, 2001, Harmony Wigley lost control of her 1992 Ford Escort while driving on Interstate 69 in Madison County. Her car struck another vehicle, resulting in her own death. Appellees Violet Mayberry, personal representative of Harmony's estate, and Audrey Wigley, Harmony's mother, filed a product liability action

878 N.E.2d 191

against several Bridgestone and Firestone companies (collectively "Bridgestone") alleging that a tire's tread separation caused the accident.

During pre-trial discovery, appellees sought, among other things, the formula for the steel belt skim stock on the tire in question, identified by appellees as Bridgestone's P175/70R13 FR721 steel-belted radial tire.¹ Bridgestone objected to these requests and moved for a protective order covering all trade secrets used to produce FR721 tires, including the skim stock formula.

After hearing arguments regarding issuance of a protective order, the trial court directed Bridgestone to disclose the skim stock formula. The court briefly explained:

[Bridgestone] has argued that the "skin [sic] stock" information is a confidential or secret formula, which [Bridgestone] protects from its competitors. Plaintiff has argued that such information is necessary in the effective preparation and presentation of its case. The Court finds that after considering all of the evidence and arguments of counsel, that [Bridgestone] has failed to establish why this information should not be made available as part of the discovery process.

(Appellants' App. at 13-14.) The court restricted the use and dissemination of the skim stock formula to those individuals who are "an employee, litigant, or expert employed by the parties," with any violation subject to "severe punishment for contempt of court." (Id. at 14.)

Bridgestone petitioned for an interlocutory appeal, which was initially denied by the Court of Appeals but then granted after rehearing.² Bridgestone argued that the skim stock formula deserved protection as a trade secret and that appellees had not shown that their need for the formula outweighed the harm of disclosure. Appellees contended that the trial court did not abuse its discretion by ordering disclosure. The Court of Appeals affirmed. Bridgestone Americas Holding, Inc. v. Mayberry, 854 N.E.2d 355 (Ind.Ct. App.2006). We granted transfer.

Trade Secret Protective Orders under Trial Rule 26(C)

Our review of discovery matters is limited to determining whether the trial court abused its discretion. Terre Haute Reg'l Hosp., Inc. v. Trueblood, 600 N.E.2d 1358 (Ind.1992). "An abuse of discretion may occur if the trial court's decision is clearly against the logic and effect of the facts and circumstances before the court, or if the trial court has misinterpreted the law." McCullough v. Archbold Ladder Co., 605 N.E.2d 175, 180 (Ind.1993).

The issue in this case centers on the burden each party bears and the analysis the trial court must follow when one party seeks discovery of a trade secret. Bridgestone advocates a multi-part, burden-shifting analysis for applying Trial Rule 26(C),

878 N.E.2d 192

which governs discovery protective orders. (Appellants' Br. at 9-19; Amicus Br. at 10-15.) Using its proposed analysis, Bridgestone argues the appellees have not demonstrated sufficient need for the skim stock formula to outweigh the harm of disclosure to Bridgestone. (Appellants' Br. at 17-19.) Appellees contend that the trial court's analysis was adequate and that it properly followed the rubric of Rule 26(C). (Appellees' Br. at 15-28.)

We have not before been asked to interpret Rule 26(C)'s instructions about seeking a protective order covering trade secrets and other confidential information, and we do so now to provide guidance on this issue.

A. The History of Trade Secret Protection

Trade secrets are unique creatures of the law, not property in the ordinary sense, but historically receiving protection as such.³ Unlike other assets, the value of a trade secret hinges on its secrecy. As more people or organizations learn the secret, the value quickly diminishes. For this reason, owners or inventors go to great lengths to protect their trade secrets from dissemination.

The value of trade secret protection to a healthy economy has been widely accepted for some time. Over the last two hundred years, the law has developed mechanisms for accomplishing this end. The first reported English cases appeared in 1817 and involved the misappropriation of formulae for certain medicines. William B. Barton, A Study in the Law of Trade Secrets, 13 U. Cin. L.Rev. 507, 508 (1939). Trade secret misappropriation cases appeared in the United States in 1837, and the Massachusetts Supreme Judicial Court is credited with first articulating the concept of trade secrets as property in 1868. Id. at 511, 513-14 (citing Peabody v. Norfolk, 98 Mass. 452 (1868)). These judicial mechanisms for protecting trade secrets have developed to serve two policy goals: "[t]he maintenance of standards of commercial ethics and the encouragement of invention." Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 481, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974).

This Court has long recognized the importance of protecting trade secrets from inappropriate disclosure. See Keller v. B.F. Goodrich Co., 117 Ind. 556, 19 N.E. 196 (1888) (noting that if a witness' probable answer to a question would disclose a trade secret, the witness may be precluded from answering); Westervelt v. Nat'l Paper & Supply Co., 154 Ind. 673, 57 N.E. 552 (1900) (affirming an injunction for trade secret misappropriation and describing principles of trade secret law). Most trade secret litigation in Indiana has involved allegations of overt misappropriation. See e.g., Infinity Products, Inc. v. Quandt, 810 N.E.2d 1028 (Ind.2004) (employee required to pay $645,000 in damages for using former employer's confidential pricing information to enable his new employer to undercut former employer's prices); Amoco Production Co. v. Laird, 622 N.E.2d 912 (Ind.1993) (oil company's competitor enjoined from further oil exploration after using a confidential map of oil reserves sent by oil company's frustrated employee); Kozuch v. CRA-MAR Video Center, Inc., 478 N.E.2d 110 (Ind.Ct.App. 1985) (video center's competitor enjoined from using video center's customer list

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after competitor acquired computer disks containing list and sent advertisements to video center's customers).

Of course, trade secrets may be valuable during the course of litigation not involving misappropriation claims, and there are moments when justice requires disclosure. Still, courts must proceed with care when supervising the discovery of trade secrets, lest the judiciary be used to achieve misappropriation or mere leverage.

B. Protecting Trade Secrets from Misappropriation during Discovery

For over a quarter century, federal courts have consistently applied a three-part balancing test when a party seeks an order protecting trade secrets from discovery.⁴ See generally 8 Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure § 2043 (2d ed.1994). First, the party opposing discovery must show that the information sought is a "trade secret or other confidential research, development, or commercial information" and that disclosure would be harmful. Fed.R.Civ.P. 26(c)(7). Then the burden shifts to the party seeking discovery to show that the information is relevant and necessary to bring the matter to trial. If both parties satisfy their burden, the court must weigh the potential harm of disclosure against the need for the information in reaching a decision. In re Remington Arms Co., Inc., 952 F.2d 1029 (8th Cir.1991).

The federal approach is widely deployed among the states, with only slight variation. See James J. Watson, Annotation, Discovery of Trade Secret in State Court Action, 75 A.L.R.4th 1009, 1027-30 (1990). For example, a few states require that the party seeking discovery also show that the information sought cannot be obtained elsewhere. See, e.g., Mann ex rel. Akst v. Cooper Tire Co., 33 A.D.3d 24, 816 N.Y.S.2d 45, 52 (2006). Even jurisdictions that recognize a privilege for trade secrets have applied a similar balancing test. See, e.g., In re Cont'l Gen. Tire, Inc., 979...