A federal judge from the Western District of Washington has delivered a partial victory to X2 Impact, Inc., which is embroiled in a discovery dispute with another concussion technology company, Bite Tech, Inc.
Specifically, the court sided with X2 and granted protective orders involving a Bite Tech request that was deemed overly broad, as well as several third-party subpoenas involving Arrow Electronics, Inc., Kodiak Financial Group, LLC and Microsoft Corp. However, Bite Tech did salvage a small victory when the court denied another X2 protective order motion, finding that Bite Tech’s discovery request embraced the requisite specificity.
In May 2011, Bite Tech and X2 entered into a Technology License Agreement that provided Bite Tech with an exclusive worldwide license on X2’s impact sensing technology. Under the Agreement, Bite Tech was to develop, market and manufacture an impact-sensing mouth guard that would enable real-time monitoring of impact forces for athletes, military troops and others at risk of concussions or similar harms.
In January 2012, Bite Tech completed $2 million in-advance royalty payments to X2. Then in March 2012, X2 sent Bite Tech a notice of termination alleging that Bite Tech was insolvent. The Agreement provides for rightful termination if Bite Tech becomes insolvent or institutes bankruptcy proceedings. Bite Tech has denied the allegations of insolvency and X2 has declined to reimburse Bite Tech’s $2 million royalty payment. Consequently, Bite Tech sued X2 for breach of contract.
Eight months later, Bite Tech submitted requests for production of documents to X2. The defendant objected to the request. X2 claimed that two of the requests, No. 16 and No. 17, were “overly broad, confidential and proprietary.”
They were:
No. 16: All documents relating to any or potential investment by any source of capital, including but not limited to venture capital funds or firms, in X2.
No. 17: All documents relating to the License Agreement between X2 on the one hand and any source of capital, including but not limited to venture capital funds or firms.
X2 moved for a protective order restricting the plaintiff’s access to the documents, pursuant to Federal Rules of Civil Procedure 26(b)(1).
In considering the requests, the court wrote that it “must balance two competing interests. On the one hand, X2 has shown good cause, alleging that disclosure of confidential investment sources to its competitors will result in harm to its business. On the other hand, the plaintiffs are entitled to seek information that is relevant to their claim that X2’s termination of the Agreement was pretextual and premised on a lack of investment opportunities while bound by the Agreement. While some of X2’s investment information may be publicly available, the plaintiffs’ broad request for all actual and potential sources of capital includes confidential information as well. The damaging effect of releasing this information to a competitor outweighs its relevance to the extent it reaches beyond the Agreement’s scope and duration. Nonetheless, financing information pertaining to the Agreement and the parties’ respective obligations carries greater weight, as it is directly relevant to the plaintiffs’ claims and underlying litigation.
“As such, the court finds that the plaintiffs’ request No. 16, which simply seeks all documents relating to any actual or potential sources of X2’s capital, is overbroad on its face. The request is not limited in time or scope to the instant litigation. In contrast, No. 17 specifically seeks documents between X2 and any source of capital as it relates to the Agreement. The request is narrow in scope and does not seek information beyond the context of the parties’ Agreement. Therefore, a protective order on No. 16 is granted and No. 17 is denied.”
As mentioned above, the court also favored X2 on the third-party subpoenas.
Bite Tech, INC. and Biometrics, INC. v. X2 Impact, INC.,; W.D. Wash.; CASE NO. C12-1267RSM, 2013 U.S. Dist. LEXIS 7316; 1/17/13
Attorneys of Record: (for plaintiffs) Brett M. Schuman, Dennis J Sinclitico, Jr, Howard Holderness, LEAD ATTORNEYS, PRO HAC VICE, MORGAN LEWIS & BOCKIUS (SF), SAN FRANCISCO, CA; David C Spellman, Tiffany Scott Connors, LEAD ATTORNEYS, Paul Douglas Swanson, LANE POWELL PC, SEATTLE, WA. ( for defendant) Bryan C Graff, Robert J Curran, RYAN SWANSON & CLEVELAND, SEATTLE, WA.
