Diamond Servs. Mgmt. v. C&C Jewelry Mfg.

1

DIAMOND SERVICES MANAGEMENT COMPANY, LLC and FREDERICK GOLDMAN, INC., Plaintiffs, v. C&C JEWELRY MANUFACTURING, INC and ROBERT G. CONNOLLY, Defendants.

No. 19 C 7675

United States District Court, N.D. Illinois, Eastern Division

December 9, 2021

John F. Kness, District Judge

MEMORANDUM OPINION AND ORDER

GABRIEL A. FUENTES, UNITED STATES MAGISTRATE JUDGE

Before the Court are two discovery motions: (1) Plaintiffs' Second Motion to Compel (“Second Motion”; D.E 192); and (2) Defendant C&C Jewelry's Fourth Motion to Compel (“Fourth Motion”; D.E. 194). This matter is before the magistrate judge on discovery referral (D.E. 116). The Court has reviewed the briefing on these two motions (D.E. 192, 193, 200, 194, 199, 212), in which each party seeks to compel the other to produce documents being withheld on claims that the documents are shielded from discovery by the common-interest doctrine.

BACKGROUND

Although the Court has been over the background facts in earlier opinions, see 4/8/21 Order (D.E. 133) at 2-3, these facts are complicated and warrant a brief regurgitation. The Complaint (D.E. 1) roughly alleges as follows: Plaintiff Frederick Goldman, Inc. (“Goldman”), a large jewelry manufacturer, created plaintiff Diamond Services Management Co. LLC as a separate legal entity for licensing purposes. On October 7, 2007, an inventor named Trent West who is not a party to this suit, licensed Diamond and Goldman (collectively, “Diamond”) exclusively to sell a certain type of jewelry, known as tungsten carbide (finger) rings, based on West's owning various patents (“the Licensor Patents”) including the 6, 928, 734 Patent (“the ‘734 Patent”). The Complaint refers to this agreement between West and Diamond as “the 2007 Agreement.” Complt. (D.E. 1) ¶ 16. Defendant C&C Jewelry Manufacturing, Inc. (“C&C”), is a competitor to Diamond. C&C's principal is defendant Robert G. Connolly (“Connolly”). C&C was involved in patent infringement litigation of its own with West, and Diamond alleges in this lawsuit that a settlement of the patent litigation between West and C&C resulted in a license agreement between C&C and Diamond, effective December 14, 2011 (“the 2011 License Agreement”) Id. ¶¶ 23-25.

The 2011 License Agreement forms much of the basis for the instant litigation. Under the 2011 License Agreement, Diamond alleged, Diamond granted C&C a non-exclusive license to make, use, import, offer for sale, and sell certain tungsten carbide jewelry finger rings (“the Licensed Products”) to several specific, named customers. Id. ¶¶ 25, 27. The parties disagree over whether, as Diamond contends, the 2011 License Agreement barred C&C from selling to other retailer customers and from challenging the validity, enforceability, or scope of the licenses under the relevant patents. First Amended Answer (D.E. 117), ¶¶ 29, 34. The parties appear to agree that the 2011 License Agreement was to expire upon the expiration of the Licensor Patents, which Diamond contends (at least as to the ‘734 Patent) will not expire until August 13, 2023, whereas Defendants contend that the ‘734 Patent and the 2011 License Agreement already have expired. Id. ¶¶ 35, 36. The question of whether patent expiration occurred or was to occur on December 24, 2018, as C&C contends, is an important issue in the lawsuit. Expiration of the patent(s) and/or the 2011 License Agreement was a relevant consideration for C&C and any prospective retailer to which C&C might wish to sell tungsten carbide rings, insofar as Diamond contends that the ‘734 Patent and the 2011 License Agreement have not expired and that the 2011 License Agreement prohibits C&C from selling to any retailer except those named in the 2011 License Agreement:

the Army, Air Force Exchange Service; Home Shopping Network; JC Penney & Co.; and Walmart Stores, Inc. (“the Named Retailers”).

The instant litigation centers on allegations that Defendants breached the 2011 License Agreement by failing to pay royalties after December 24, 2018, and by selling or attempting to sell tungsten carbide finger rings to retailers other than the Named Retailers. Diamond also accuses Defendants of misrepresenting, to the prospective customers other than the Named Retailers, the status of the ‘734 Patent as expired and the status of the 2011 License Agreement as terminated. See Complt. ¶ 83. Those retail jewelers with whom Diamond alleges that Defendants wrongly did business or sought to do business include Jared, Kay, and Zales (collectively, “Sterling” or “the Sterling Retailers, ” each of which operates under a parent company known as Sterling Jewelers, Inc., better known as “Signet”). Another retailer not listed in the 2011 License Agreement, and also off-limits to C&C as a customer during the life of that agreement, according to Diamond, is Helzberg Diamonds (“Helzberg”).

Plaintiffs' causes of action are for breach of contract, tortious interference with prospective economic relations violation of the Illinois Unfair Trade Practices Act. In addition to denying that the ‘734 Patent and the 2011 License Agreement remain in force, and that Defendant agreed not challenge the ‘734 Patent, C&C^[1] denies breaching the 2011 License Agreement. C&C also denies Plaintiffs' allegation that Defendants caused a filing with the U.S. Patent and Trademark Office (“USPTO”) in April 2019, requesting that USPTO issue a “certificate of correction” which would have rendered the ‘734 Patent expired. The unsuccessful requested certification of correction, Plaintiffs allege, sought to persuade the USPTO that it had improperly issued earlier patent certificates of correction on September 25, 2018, and January 8, 2019. Those certificates of correction are at the center of C&C's counterclaim for a declaratory judgment that the 2011 License Agreement expired on or before December 24, 2018. C&C contends that Plaintiffs improperly sought and obtained the September 2018 and January 2019 certificate of correction to extend wrongly the life of the ‘734 Patent to August 2023. Plaintiffs contend Defendants were behind the April 2019 request for a correction (ultimately not granted by the USPTO) of the September 2018 and January 2019 certificates of correction. C&C's Counterclaim seeks a judgment declaring the ‘734 Patent invalid and unenforceable, thereby invalidating the 2011 License Agreement at least as of December 24, 2018.

Meanwhile, in another development pertinent at least to Defendants' Fourth Motion to Compel, the inventor West initiated a separate federal lawsuit against Plaintiffs in May 2019 in the Northern District of California, claiming that Plaintiffs owed West unpaid royalties under the 2007 agreement between West and Plaintiffs. C&C Jewelry Mfg., Inc's Memorandum in Support of Its Fourth Motion to Compel (“Def. Mem.”; D.E. 195), Exh. A. Defendant asserts that West's 2019 lawsuit, No. 19-cv-2472 in the Northern District of California (“the 2019 West Royalty Suit”), since has settled. Id. at 4. Defendant also calls to the Court's attention a second, more recent West lawsuit against Plaintiffs, alleging that Plaintiffs paid West their outstanding royalty balance due under the 2019 West Royalty Suit but then resumed not paying royalties in July 2019; West filed this lawsuit in August 2021 in the Northern District of California, No. 21-cv-5329 (“the 2021 West Royalty Suit”), again to collect the allegedly unpaid royalties. C&C Jewelry Mfg., Inc's Reply in Support of Its Fourth Motion to Compel (“Def. Reply”; D.E. 212), Exh. B.

DISCUSSION

Under Federal Rule of Civil Procedure 37(a), when a party does not respond properly to a discovery request, the party that issued the request may file a motion to compel a proper response. Fed.R.Civ.P. 37(a); Eternity Mart, Inc. v Nature's Sources, LLC, No. 19 C 2436, 2021 WL 4894701 at * 2 (N.D. Ill. Oct. 10, 2021). The court then must independently determine the proper course of discovery. John Wiley & Sons, Ltd. v. McDonnell Boehnen Hulbert & Berghoff LLP, No. 12 C 1446, 2013 WL 505252, at *2 (N.D. Ill. Feb. 12, 2013). When doing so, the court has significant discretion. Gile v. United Airlines, Inc., 95 F.3d 492, 496 (7th Cir. 1996). Ultimately, the party objecting to discovery bears the burden to show the requested discovery is improper. Life Spine, Inc. v. Aegis Spine, Inc., No. 19 C 7092, 2021 WL 5415155 at *4 (N.D. Ill. Nov. 19, 2021). Where one party seeks to compel the other to produce a responsive document, and the other party objects by asserting a privilege, the withholding or objecting party bears the burden of establishing that the asserted privilege applies to each withheld document, as to which the objecting party must present “‘an explanation sufficient for the court to determine whether the party has discharged its burden.'” Baxter Int'l, Inc. v. AZA Versicherung, 320 F.R.D. 158, 161-63 (N.D. Ill. 2017), quoting Lislewood Corp. v. AT&T Corp., No. 13 C 1418, 2015 WL 1539051, at *3 (N.D. Ill. Mar. 31, 2015).

Here, the Court already conducted an in camera review of the withheld emails, in the interest of efficiency. See Fed. R. Civ. P. 1. During its review, the Court could not help but note that the logs themselves raised a few issues involving the adequacy of the parties' Rule 26(b)(5) disclosures to each other. More specifically, several of the withheld documents are email chains, and only the most recent of those emails were logged. See, e.g., Plaintiffs' Privilege Log (D.E. 195-3, Entry Nos. 38, 39, 47, 49, and 63); Defendant's Privilege Log (D.E. 193-3, Entry Nos. 130, 151).

Without having identified all the senders, recipients and subject matters of the components of these email chains, the parties have made it difficult for each other and for the Court to assess each other's privilege...