The case of the day is In re Application of Biomet Orthopaedics Switzerland GmbH (3d Cir. 2018). It’s an outgrowth of one of the first cases I ever wrote about on Letters Blogatory, Heraeus Kulzer, GmbH v. Biomet, Inc., 633 F.3d 591 (7th Cir. 2011). Time flies. Here was my brief description of the earlier case from way back in January 2011:
Hereaus manufactures “bone cement” used in orthopedic surgery. It claimed that in the 1970s, it gave confidential information to Merck, its distributor, to allow Merck to obtain regulatory approvals for its product. In 1998 Merck and Biomet, another bone cement manufacturer, entered a joint venture. Hereaus’s claim was that Biomet had used the relationship with Merck to steal Hereaus’s trade secrets and create a new bone cement that was comparable to Hereaus’s product. Heraeaus sought discovery under the statute in Indiana, where Biomet was located, [for use in German litigation for misappropriation of trade secrets. It also sought discovery from Esschem, a third party, in separate proceedings in Pennsylvania].
The Seventh Circuit, to make a long story short, allowed discovery, and we learn from today’s decision that the German court accepted the evidence and ruled in Heraeus’s favor in the first of two stages of the litigation, relying in part on some of the documents obtained in the US. Criminal charges were brought against a Biomet official, who was convicted of using Heraeus’s trade secrets to obtain regulatory approval of its own product.
In 2014, after the German judgment, Heraeus sued Esschem in Pennsylvania, asserting claims similar to the claims it had asserted in the German lawsuit against Biomet. Esschem took extensive discovery, and as is customary, Heraeus designated some of the materials it produced as “confidential” or “attorney’s eyes only.” Esschem sought permission to share these documents with Biomet’s outside counsel, but the court refused the request because the German court had found Biomet guilty of trade secret misappropriation.
Biomet, which was preparing to defend the next stage of the German litigation, then brought a § 1782 application seeking to obtain the discovery documents Heraeus had produced to Esschem in the Pennsylvania litigation.The subpoenas were directed to Esschem’s US lawyers, Greenberg Traurig and Fineman Krekstein & Harris, both of which have offices in Philadelphia.
The district judge found that the statutory prerequisites were satisfied, but it exercised its discretion to deny the discovery on the grounds that Biomet had not shown that the German court would be receptive to a large number of documents obtained “on the eve of” the hearing. It also reasoned that the requests were unduly burdensome because the material was protected by a protective order in the US, and that Biomet should not be allowed to obtain Heraus’s proprietary documents “surreptitiously:”
The Court was concerned that enforcement would set a precedent allowing a party to demand that a law firm produce an opposing party’s documents, something it deemed “inherently improper” and akin to collusion.
On appeal, the Third Circuit vacated and remanded. The court began by holding, correctly in my view, that there is no statutory bar to discovery of documents in the hands of counsel and only present in the jurisdiction for purposes of a litigation. The statute has “no express mandate to consider a principal-agent relationship, or whether documents being held by the subpoenaed party belong to a foreign party.”
In its analysis of the Intel factors and the discretionary weighing, the court had some case-specific observations that will be of limited general importance and that I won’t review here. On receptivity, though, it noted that the lower court had erred by putting the burden to show receptivity on Biomet. It held instead that the burden was on the party opposing discovery to show non-receptivity. This is the majority rule, but recall the First Circuit’s recent decision in In re Schlich, which held that it was a mistake to think the parties had burdens of proof on each Intel factor.
The court took seriously Heraeus’s claim of undue burden, but it held that it was erroneous to reject the request without first requiring the parties to negotiate possible limitations to the request. I don’t know that this ruling was right, since it requires the court to hold that the lower court didn’t just act unwisely but actually abused its discretion. But the outcome has practical appeal. The court also questioned whether there was any significant burden in producing the documents, given that the documents were “already packaged for discovery in the Esschem case.” This is a strong point, and one that I have used myself in seeking discovery from a law firm in parallel litigation.
In the end, then, the case was remanded to the lower court for reconsideration in light of the Third Circuit’s discussion.
To me the most concerning aspect of the case is that Biomet sought the documents from Esschem’s counsel rather than, say, from Heraeus’s US counsel. The reason, as the court observed, is that Esschem’s counsel doesn’t have the same incentive to fight the discovery as Heraeus’s counsel would have had. On the other hand, Heraeus intervened in the case. Given that the real party in interest had the procedural opportunity to intervene and to oppose the application, I think on balance that Biomet’s choice of target should not weigh against it in the discretionary calculus.
Compare the Third Circuit’s decision with the Second Circuit’s recent decision in Kiobel v. Cravath, Swaine & Moore LLP (2d Cir. 2018). There the court, in a similar scenario, reversed a grant of a § 1782 application, holding, in short, that you can’t use the statute to get discovery of documents that belong to a foreign litigant by seeking them from its US counsel. (The case here was slightly different, because, as I’ve noted, the subpoenas were not directed to Heraeus’s counsel but to Esschem’s counsel). The two cases are obviously in tension.