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Tellabs Operations, Inc. v. Fujitsu Limited and Fujitsu Network

May 1, 2012


The opinion of the court was delivered by: Magistrate Judge Cole

Chief Judge Holderman



In January 2008, Fujitsu Limited ("Fujitsu") filed suit against Tellabs Operations, Inc. ("Tellabs") in the Eastern District of Texas, charging it with infringing three of Fujitsu's patents for optical amplifiers.*fn1 A few months later, in June, Tellabs filed a patent infringement suit in the Northern District of Illinois against Fujitsu, alleging that it infringed Tellabs' Patent No. 7,369,772. Fujitsu filed a counterclaim in that case, claiming that Tellabs had infringed yet another of Fujitsu's patents, No. 7,227,681. Fujitsu's Texas suit was transferred here and consolidated with the Illinois suit for the purposes of discovery.

Before turning to the question raised by the motion for protective order, it is appropriate to express the court's appreciation to counsel for both sides for the extraordinary degree of professionalism with which they have comported themselves. Discovery may well be the bane of modern litigation, Rossetto v. Pabst Brewing Co., Inc., 217 F.3d 539, 542 (7th Cir. 2000)(Posner, J.), but this case shows that it need not be fractious, and that lawyers can fulfill their obligation to participate fully and fairly in discovery without sacrificing in the slightest their obligations to their clients. That there have been so few discovery disputes requiring the court's involvement is a testament to the way in which counsel have dealt with each other.*fn2

The question for resolution is whether Fujitsu is entitled to a protective order prohibiting Tellabs from taking discovery regarding Fujitsu's inspection in 2006 of Tellabs' optical scanner. Fujitsu argues that the inspection was conducted by its own employees, who were specially assigned to that task in anticipation of litigation and, since they will not be testifying at trial, their endeavors are protected by the work product doctrine and Rule 26(b)(4)(D), Federal Rules of Civil Procedure.*fn3

Codified at Rule 26(b)(3) of the Federal Rules of Civil Procedure, the work-product doctrine is designed to protect an attorney's thought processes and mental impressions against disclosure and to limit the circumstances in which attorneys may piggyback on the fact-finding investigation of their adversaries. See Hickman v. Taylor, 329 U.S. 495 (1947); Sandra T.E. v. South Berwyn School Dist. 100, 600 F.3d 612, 621-622 (7th Cir.2010). Rule 26(b)(4)(D) prohibits discovery by one party of "facts known or opinions held by an expert who has been retained or specially employed by another party in anticipation of litigation or to prepare for trial and who is not expected to be called as a witness at trial."

Resolution of the current controversy is complicated by the parties' competing assessments of the underlying facts, their disagreement over application of the relevant legal principles, and the lack of unanimity among the lower courts about the meaning of Rule 26(b)(4)(D).*fn4 Wright and Miller, in their treatise on Federal Practice and Procedure, have said that the number of situations in which the protective provisions of the Rule would come into effect is small. In their view, "[t]here is a legitimate concern that a party may try to immunize its employees who are actors or viewers against proper discovery by designating them experts retained for work on the case," and they warn that "courts should be exceedingly skeptical when employees who have otherwise discoverable information are designated 'experts,' and efforts must be made to preserve the opportunity to discovery that information." 8A Wright, Miller, & Marcus, Federal Practice & Procedure, §2033 at 126 (2010). That caution finds proper application in this case.


THE INSPECTIONS In 2005, Tellabs pulled off what industry commentors called a "surprise upset" over Fujitsu and others in the optical networking world by cutting a deal with Verizon Communications, Inc., for the sale of more than a quarter billion dollars of optical transport equipment. (Tellabs' Response, Ex. C). When Fujitsu's stunned representatives spoke with Verizon to find out what happened, they were told, among other things, that Tellabs ' 7100 optical amplifier was more advanced than Fujitsu's, and that Fujitsu had to innovate to catch up. Fujitsu's amplifier technology was described as "old," and its product "weak." (Tellabs' Response, Exs. E, F). Fujitsu was in a state of what may fairly be called corporate panic.

In a September 2005 document captioned "Post Mortem & Question/Request," Fujitsu expressed an urgent need to catch up to Tellabs, about which the document lamented Fujitsu knew "nothing at all." The document stressed that for the "future recovery on FW 7500 program we must know the details of whom we are competing. ... The best way is to learn it directly from product itself. ... The Fujitsu must seriously study about our AMP philosophy once more time, since it is true that [Verizon] indicated our AMP is behind. ... Therefore we must have serious research of AMP on Market/Competitor. [Fujitsu] needs FNC to support this research. Especially, the Transition response time, the dynamic adjustment can NOT be researched by paper or written document. Only equipment can let us know. [Fujitsu] seriously request FNC to look for the possibility to buy Tellabs equipment. PLEASE!" (Tellabs' Response, Ex. I)(caps emphasis in original). *fn5

In October 2005, Fujitsu sent to six of its engineers an anguished e-mail in anticipation of an "after business hours" discussion. The e-mail repeated what was in the September Post Mortem, saying that Fujitsu "must seriously study about our AMP philosophy once more time, since it is true that [Verizon] indicated our AMP is behind . ... Therefore, we must have serious research of AMP on Market/Competitor. [Fujitsu] needs FNC to support this research", which the e-mail said "can NOT be researched by paper or written document. Only equipment can let us know." The email again implored FNC to try to buy Tellabs' equipment. "PLEASE!" In this way, Fujitsu hoped to "leap frog" Tellabs' technology. (Tellabs' Response, Ex. G)(caps emphasis in original).

Fujitsu's own documents make undeniable the fact that Fujitsu was consumed by the perceived need to acquire the competing product so that it could "learn... directly from the product itself." (Tellabs' Response, Ex. I). One of the six individuals to whom the email was sent was Hiroyuki Itou, one of the three engineers who eventually would inspect the equipment, and who Fujitsu claims was not routinely involved in the examination of competitors' equipment for business purposes. (Tellabs' Response, Ex. G).*fn6 A Tellabs 7100 Optical Scanner was obtained through eBay in August 2006 by Ted Van Ryn, who headed the competitive intelligence group at FNC. (Tellabs' Response, Ex. J). The total weight of the equipment purchased was 1,400 lbs. in two crates and 18 pallets. Van Ryn took the steps necessary to ensure that the identity of the purchaser was unknown to the seller. (Ex. I, J). Three modules, each of which was an optical amplifier was inspected by Fujitsu. Engineers in Japan.

In support of the motion for a protective order, Fujitsu attached an affidavit from FNC's general counsel, Melanie Wright, who swore that the allegations in her affidavit were true and that they were based upon her personal knowledge. Ms. Wright's affidavit made no mention of the email just a few months earlier in which Fujitsu was desperately seeking to purchase a Tellabs optical scanner so that inspections could be conducted for what were obviously business and competitive reasons. She asserted that:

Beginning in the Spring of 2006, I worked with staff members from the Legal and Patent Departments of FNC and Fujitsu and other FNC and Fujitsu employees to investigate the possibility that products sold by the Tellabs defendants (collectively "Tellabs") infringed one or more patents owned by Fujitsu. I oversaw and at times helped to coordinate the activities of these employees in conducting the Tellabs investigation. As part of investigation into Tellabs products, FNC employees, in October 2006, purchased some salvaged Tellabs equipment and supporting documentation advertised on e-Bay'sTM website by an equipment dealer named GaTechSales. The Tellabs equipment, which consisted of various modules from the Tellabs 7100 Optical Transport System, and the supporting documentation were available to any member of the general public willing to pay the "Buy It Now" purchase price listed on the site. (See, Exhibit A hereto.) No confidentiality restrictions of any kind were placed by GaTechSales or eBayTM on the equipment or its sale. (See, Exhibit A.). (Fujitsu's Motion, Wright Decl., ¶ 2)(emphasis supplied).

Thus, while the in-house documents leading up to the purchase evince a concern that Fujitsu had fallen behind Tellabs' technology and that urgent business interests necessitated the purchase and inspection of a Tellabs optical scanner, Ms. Wright states that the purchase and inspection of the Tellabs equipment were driven by the possibility that Tellabs might have infringed Fujitsu's patents. The affidavit is silent on the basis of this conjecture and says nothing about the investigation so desperately sought by Fujitsu after losing the Verizon contract.*fn7

Ms. Wright goes on to state that, when the Tellabs products arrived from e-Bay, a number of the modules were damaged; which ones she conveniently does not say. "FNC scrapped most of these," she claimed, and "a small number were shipped to Fujitsu, along with a single set of technical manuals that accompanied the modules. . . ." (Fujitsu's Motion, Wright Decl., ¶ 2). Ms. Wright submits that: with [her] knowledge and oversight and under the direction of Fujitsu Legal and Patent Department staff members, three Fujitsu engineers were specially commissioned by Fujitsu's legal team to inspect three of the Tellabs modules. This inspection was carried out specifically for the purpose of assisting Fujitsu and FNC in determining whether to enforce Fujitsu's intellectual property rights against Tellabs.

(Fujitsu's Motion, Wright Decl., ¶ 3 (footnotes omitted)). She claims that the inspection of competitors' products was not among the three engineers' ordinary duties. (Fujitsu's Motion, Wright Decl., ¶ 3 n.1). According to Ms. Wright, [a]s a significant part of the process for determining whether to enforce Fujitsu's intellectual property rights against Tellabs, Fujitsu and FNC both contemplated the distinct possibility that it would be necessary to file suit against Tellabs for infringement of Fujitsu's patents. [She] participated in an intermediate attempt to license Fujitsu's patents to Tellabs, in the hopes that we might be able to settle this dispute and avoid litigation. However, planning for the possibility of litigation continued in the background of our licensing efforts, [she] pointedly d[id] not use the phrase "licensing negotiations" to refer to these efforts, because there were no real negotiations between the parties. Rather, Tellabs made it clear from the beginning that they had no interest in negotiating anything. When it became clear Tellabs would not respect Fujitsu's patents, the decision was made to initiate a patent infringement lawsuit against Tellabs - a decision which, again, legal management from Fujitsu and FNC had all along recognized as a distinct possibility. (Fujitsu's Motion, Wright Decl., ¶ 4). As noted, Fujitsu filed an infringement suit in January 2008, in the U.S. District Court for the Eastern District of Texas. (Fujitsu's Motion, Wright Decl., ¶ 4).

Curiously, Fujitsu initially contended that the attorney-client privilege precluded Ms. Wright from even being deposed on her affidavit. That objection was overruled and the deposition proceeded. It was revealing. As it turned out, much of what Ms. Wright said in her affidavit was not based on personal knowledge, and a good deal of what she said in the affidavit was open to serious question, to say the very least. She had no knowledge of what triggered the inspection, be it concerns over infringement or concerns over falling behind competitors. (Tellabs Response, at 9, Ex. N; Wright Dep., at 14). She had no knowledge whether the Tellabs equipment was originally purchased for a purpose unrelated to litigation. (Id.; Wright Dep., at 61). She didn't select the Tellabs products that were to be inspected. (Id; Wright Dep., at 14)).

Although she claimed to have overseen and coordinated the activities of the employees conducting the inspection, she didn't choose the engineers who performed the inspection, didn't know what their ordinary duties were, didn't have any communications with them, and it appears she never saw whatever report they issued. (Tellabs Response, Ex. P; Wright Dep., at 49-55). Moreover, she had no personal knowledge regarding the claimed destruction of some of the Tellabs equipment -- she only knew what she was later told. And, in some instances, she didn't know who told her. (Tellabs Response, Ex. N; Wright Dep., at 45-47, 67-68); Ex. P; Wright Dep., at 67-71). In fact, it was Hitoshi Fuji, a non-lawyer, from Fujitsu Ltd.'s Patent Division who directed the inspection. (Tellabs Response, Ex. N (Wright Dep., at 63-71, 77-78); Ex. P (Wright Dep., at 67-71). Ms. Wright's affidavit made no mention of Mr. Fuji's involvement.*fn8

These significant deficiencies in Ms. Wright's affidavit were pointed out in Tellabs' response to Fujitsu's motion, which contained a comprehensive and illuminating chart comparing the deposition testimony with the assertions in her affidavit. (Tellabs Response at 9; Ex.N). The response fairly described her affidavit as "misleading." (Response at 11). Given what proved to be the limited nature of Ms. Wright's personal knowledge and Mr. Fuji's pivotal role in the inspections, it is odd that Mr. Fuji's affidavit was not offered along with Ms. Wright's. Nor were the affidavits of any of the three engineers who conducted the actual inspection.

Perhaps recognizing that it could not make out its case based on the Wright affidavit -- a point made in Tellabs' response (at 9) -- Fujitsu attached Hitoshi Fuji's far more expansive affidavit to its reply brief. This, of course, was too late. "A reply brief is for replying" not for raising essentially new matter that could have been advanced in the opening brief. Hussein v. Oshkosh Motor Truck Company, 816 F.2d 348, 360 (7th Cir. 1987)(Posner, J., concurring). Arguments and evidence that could have been raised in the opening brief but are first raised in a reply brief are waived. Judge v. Quinn, 612 F.3d 537, 542 (7th Cir. 2010); Cornucopia Institute v. U.S. Dept. of Agriculture, 560 F.3d 673, 678 (7th Cir. 2009); Massenberg v. A & R Security Services, Inc., 2011 WL 1792735, *6 (N.D.Ill. 2011)(Holderman, C.J.). But when asked at oral argument about the timing of the affidavit, counsel for Tellabs chose not to object. The beneficiary of a waiver can freely surrender the benefit of the waiver. And Tellabs chose to do so. Nunez v. United States, 546 F.3d 450, 452 (7th Cir. 2008). And so, we turn to the Fuji affidavit.

Mr. Fuji, like Ms. Wright, claimed to have first hand knowledge of the statements in his affidavit. Cf., Rule 602, Fed.R.Evid. But like that representation in Ms. Wright's affidavit, the statement was not wholly accurate. Mr. Fuji worked for Fujitsu Ltd. for over 29 years and was with its Patent Division during the inspection. (Fujitsu's Reply, Fuji Aff., ¶¶2-3). The Patent Division worked with the Legal and Intellectual Property Unit concerning investigations and enforcement of Fujitsu's patents. (Fujitsu's Reply, Fuji Aff., ¶3). Mr. Fuji lists his responsibilities as the drafting and review of patent applications, contracts and license agreements, evaluating allegations of infringement presented by third parties against Fujitsu in preparation for litigation, and investigating potential infringement of Fujitsu's patents by third parties in preparation for potential litigation. (Fujitsu's Reply, Fuji Aff., ¶3). He is not an attorney in any jurisdiction. (Fujitsu's Reply, Fuji Aff., ¶4). Mr. Fuji says that "[o]ther than in [his] role to investigate potential infringement of Fujitsu's patents, [he] was not involved in any investigation or evaluation of any competitor's products" and has "not and do[es] not perform any competitive intelligence analysis for Fujitsu." (Fujitsu's Reply, Fuji Aff., ¶4).

In 2003, Fujitsu Limited's General Counsel, Masanobu Katoh, asked Mr. Fuji to ramp up his "efforts to investigate potential infringement of Fujitsu's patents by third parties for purpose of enforcement and licensing of Fujitsu patents." (Fujitsu's Reply, Fuji Aff., ¶5). Mr. Fuji was "involved with special teams that investigated several third party companies. . . .investigat[ing] both the patent portfolio of the third party companies as well as their products in view of Fujitsu's patent portfolio." (Fujitsu's Reply, Fuji Aff., ¶5). He said such investigations "were independent of any business-related investigations, [such as] 'post-mortem' bid evaluations, [see e.g., Tellabs' Response, Exhibit I],or competitive analysis investigations conducted by Fujitsu Business Units for Optical Communications." (Fujitsu's Reply, Fuji Aff., ¶5).*fn9

Mr. Fuji related how the inspections came about:

In 2006, I was on a team that investigated Tellabs' potential infringement of Fujitsu patents and determined that there were patents within Fujitsu's portfolio that may be relevant to or infringed by Tellabs' products. A thorough infringement analysis could not be conducted initially, because of the lack of specific information describing Tellabs' products. In Spring 2006, the investigative team, including some members of the Industry Relations Division and myself, held conferences with Fujitsu Limited's management and FNC's legal department to seek guidance, assistance and instruction as to what to do from a legal perspective to determine whether Tellabs infringed one or more of Fujitsu's patents. Members of the Industry Relations Division and FNC's legal department, including Melanie Wright, provided us with legal guidance, including legal strategy and advice, regarding what information was needed, and why this information was needed, to complete the infringement analysis. As a result of these conferences, it was concluded that physical samples of the Tellabs products should be obtained for inspection, so we could get the information needed to complete our infringement analysis and prepare for discussions with Tellabs regarding Fujitsu's enforcement of its patents through licensing and/or litigation.

(Fujitsu's Reply, Fuji Aff., ¶6).

Mr. Fuji explained that the equipment was purchased in an eBay auction in August 2006 by FNC, and a "subset" of it was sent to his attention by Mr. Van Ryn. (Fujitsu's Reply, Fuji Aff., ¶7). Ms. Wright, and others within the Industry Relations Division of Fujitsu Ltd., and FNC, requested Mr. Fuji to "controll[] the logistical aspects of the inspection and [take] . . . responsib[ility] for having the inspection performed and for reporting the results of the inspection to them." (Fujitsu's Reply, Fuji Aff., ¶7).

Mr. Fuji selected "three Fujitsu Limited engineers - Hiroyuki Itou, Tomoaki Takeyama, and Haruhiko Tabuchi. . . to conduct, under [his] supervision, an inspection of the Tellabs optical amplifier modules received from FNC." (Fujitsu's ...

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