Financial, Research Information Not Used In Apple, Samsung Trial to Remain Sealed

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By Tony Dutra  


The “Patent Trial of the Century” should not have been as open to the press as the district court was prepared to allow, the U.S. Court of Appeals for the Federal Circuit ruled Aug. 23 (Apple Inc. v. Samsung Elecs. Co., Fed. Cir., No. 12-1600, 8/23/13).

Apple Inc. and Samsung Electronics Co. have been locked in a worldwide “smartphone patent war” battle around the world, with Apple's biggest success being a jury's award of over $1 billion--since trimmed--in the U.S. District Court for the Northern District of California. The Federal Circuit here held that the lower court's order to seal only a small number of trial exhibits was an abuse of discretion.

This development in this highly publicized case has nothing to do with its eventual outcome on the merits. The same panel is currently considering the lower court's denial of Apple's motion to enjoin certain Samsung phones and tablets, after oral argument on Aug. 9 (155 PTD, 8/12/13).

The court's decision prevents disclosure of those pre- and post-trial documents Judge Lucy H. Koh had refused to seal, but none of the affected exhibits were used either in trial or for the parties' injunction and willfulness arguments.

Sealing the documents blocks other smartphone patent war participants--Motorola, HTC, and Google, to name a few--from access to the companies' revenue and cost information and some proprietary research on consumer phone and tablet preferences. The prospect of competitive harm from that access was central to the Federal Circuit's analysis.

Press Wants the Documents

Apple filed a complaint in the Northern District of California court in 2011, alleging patent and trademark infringement by 25 different models of Samsung Android-based smart phones and tablets. The seven patent and trade dress claims that went to the jury are embodied in Apple's iPhone and iPad devices. The Wall Street Journal gave it the title, “Patent Trial of the Century,” before the trial began.

The jury verdict was rendered in August 2012 (166 PTD, 8/28/12), Koh denied Apple's request for an injunction in December (246 PTD, 12/26/12), and she reduced the award by more than 40 percent in March (43 PTD, 3/5/13).

Prior to trial, neither party opposed the other's motions to seal, but Reuters America LLC intervened and filed an opposition. Koh denied all the motions to seal and invited renewed motions, but she said, only “exceptionally sensitive information” would be sealed.

Notably, this case came before the same Federal Circuit panel before trial on another matter (93 PTD, 5/15/12), and during oral argument (68 PTD, 4/10/12), that panel questioned the extent of the companies' requests to seal documents at issue on appeal.

Back at the district court and still before trial, both Apple and Samsung filed renewed motions to seal, mostly with the desire only to redact certain passages of documents, citing between them the following reasons:

• confidential financial information;

• confidential source code or schematics;

• proprietary market research reports;

• confidential licensing information;

• future business plans; or

• information disclosing the company's tax accounting procedures.


The court did seal some of the information but denied the motions as to documents disclosing the parties' product-specific profits, profit margins, unit sales, revenues, costs, Apple's own proprietary market research reports and customer surveys, and the non-price terms of licensing agreements.

The parties appealed that order and Koh stayed the order to unseal pending the appeal. The trial proceeded without the jury seeing any of the exhibits at issue.

After trial, the parties produced additional exhibits for purposes of determining damages and willfulness. The documents at issue at this point included further confidential financial information and licensing agreements, with additional exhibits claimed to contain confidential capacity information and third-party consumer research reports.

Again, Koh denied the motions but stayed the order pending appeal. Only Apple appealed the post-trial order.

Neither Apple nor Samsung opposed the other party's appeal. Opposition came from intervenors the Reporters Committee for Freedom of the Press and the First Amendment Coalition.

Error in Applying Ninth Circuit Standards

Judge Sharon Prost first dealt with the court's jurisdiction because the orders appealed were interlocutory. The court invoked the collateral order doctrine, citing a three-condition test from Richardson-Merrell, Inc. v. Koller, 472 U.S. 424, 430-31 (1985).

In short, all parties agreed that the orders to seal were “wholly separate from the merits of the action,” and the court agreed with Apple and Samsung that “the Unsealing Orders present an important issue because they address the important balance between the public's interest in understanding judicial proceedings and the parties' right to access the courts without being unduly required to disclose confidential information.”

The common law right of access to judicial records controls the result here, the court said. It cited the Ninth Circuit's “strong presumption in favor” of access, with the requirement that the party seeking to seal provide “sufficiently compelling reasons” to do so. Though a court must balance the public's interest and the party's right to secrecy, one compelling reason is clearly the release of a trade secret, the court said. The Ninth Circuit had previously classified pricing terms, royalty rates, and guaranteed minimum payment terms as trade secrets.

The sister circuit further held that judicial records “when attached to a non-dispositive motion” should be sealed upon a party's showing of “good cause.”

The district court's error here, according to the Federal Circuit, was to apply the “compelling reasons” standard to non-dispositive motions. “The district court's reasoning--that the admissibility of evidence was a closely contested issue--does not justify departure from the Ninth Circuit's general rule.”

Public Interest in Financial Information Weak

Nevertheless, the court analyzed the relevant exhibits with an eye to whether a compelling reason applied.

As to the pre-trial order, the court focused on the financial information that the parties contended was confidential. The court said that the compelling reason was clear, whether those exhibits should be considered trade secrets or not: “if Apple's and Samsung's suppliers have access to their profit, cost, and margin data, it could give the suppliers an advantage in contract negotiations, which they could use to extract price increases for components.”

The First Amendment Coalition stated that the counterbalancing public interest was “the case's strategic impact on the companies, including financial risks for shareholders.”

But, the court said, the balance could only be tipped by showing the value in “the public's understanding of the judicial process and of significant public events. … Shareholders' interests in determining financial risks and consumers' interests in manufacturing and pricing decisions simply are not relevant to the balancing test.”

Market Research Reports Have Predictive Value

The court's assessment of the post-trial order focused on Apple's market research reports.

The district court ruled that the reports could be unsealed because Apple's competitors could, in any case, “infer the most significant results by simply observing Apple's product releases and marketing campaigns.” But the appeals court differentiated that view into Apple's past from the information the reports contained to help “predict Apple's future product releases and marketing strategies.”

“Apple obtains a competitive advantage by being the first company to introduce products with new features,” the court said. “Giving Apple's competitors a head-start could provide them with an enormous benefit--to Apple's detriment.”

And again, the court said, the public interest did not outweigh that compelling reason for secrecy. Apple did not seek to seal any information that the parties contested in the injunction and willfulness phase of the case in the lower court. “The other information in these reports is irrelevant to the public's understanding of the judicial proceedings,” the court said.

In closing, the court said that the public's interest in judicial proceedings “does not extend to mere curiosity about the parties' confidential information[.] … While protecting the public's interest in access to the courts, we must remain mindful of the parties' right to access those same courts upon terms which will not unduly harm their competitive interest.”

It thus reversed the orders to unseal and remanded the case.

Judges William C. Bryson and Kathleen M. O'Malley joined the opinion.

William F. Lee of Wilmer Cutler Pickering Hale and Dorr, Boston, represented Apple. Victoria F. Maroulis of Quinn Emanuel Urquhart Oliver & Hedges, Redwood Shores, Calif., represented Samsung.

William R. Stein of Hughes Hubbard & Reed, Washington, D.C., represented the First Amendment Coalition, Washington, D.C. Gregg P. Leslie of the Reporters Committee for Freedom of the Press, Arlington, Va., represented that organization as well as the American Society of News Editors, Bloomberg L.P., Gannett Co., Inc., the New York Times Co., the Washington Post, and the Society of Professional Journalists.

Bloomberg is the parent company of this journal's publisher.


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