Kimberly-Clark Worldwide, Inc. v. First Quality Baby Products, LLC

NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
__________________________
KIMBERLY-CLARK WORLDWIDE, INC.,
Plaintiff-Appellant,
v.
FIRST QUALITY BABY PRODUCTS, LLC, FIRST
QUALITY PRODUCTS, INC., FIRST QUALITY
RETAIL SERVICES, LLC, AND FIRST QUALITY
HYGIENIC, INC.,
Defendants-Appellees,
__________________________
2011-1157
__________________________
Appeal from the United States District Court for the
Middle District of Pennsylvania in Case No. 09-CV-1685,
Senior Judge William W. Caldwell.
____________________________
Decided: November 15, 2011
____________________________
CONSTANTINE L. TRELA, JR., Sidley Austin, LLP, of
Chicago, Illinois, argued for plaintiff-appellant. With her
on the brief was RACHEL H. TOWNSEND, of Washington,
DC. Of counsel on the brief were MARC S. COOPERMAN
and JANICE V. MITRIUS, Banner & Witcoff, Ltd. of Chi-
cago, Illinois.
KIMBERLY-CLARK v. FIRST QUALITY 2
D. MICHAEL UNDERHILL, Boies Schiller & Flexner
LLP, of Washington, DC, argued for defendants-appellees.
With him on the brief were ERIC J. MAURER and MICHAEL
A. BRILLE. Of counsel on the brief were KENNETH P.
GEORGE and IRA E. SILFIN, Amster, Rothstein & Eben-
stein, LLP, of New York, New York.
__________________________
Before LOURIE, BRYSON, and REYNA, Circuit Judges.
LOURIE, Circuit Judge.
Kimberly-Clark Worldwide, Inc. (“K-C”) appeals from
the district court’s orders compelling discovery relating to
three alternative dispute resolution agreements and the
proceedings that occurred pursuant to those agreements.
Order, Kimberly-Clark Worldwide, Inc. v. First Quality
Baby Prods., LLC, No. 1:09-CV-1685 (M.D. Pa. May 21,
2010) (“Order”), ECF No. 208; Order, Kimberly-Clark
Worldwide, Inc. v. First Quality Baby Prods., LLC, No.
1:09-CV-1685 (M.D. Pa. July 2, 2010), ECF No. 236 (“Or-
der on Reconsideration”). In this appeal, K-C challenges
the district court’s holding that the sought information is
not privileged. Because the district court did not abuse
its discretion in finding that K-C had failed to show that a
privilege shielded the requested information from discov-
ery, we affirm.
BACKGROUND
I.
This patent case relates to disposable absorbent prod-
ucts, such as diapers. K-C competes in that market with
First Quality Baby Products, LLC; First Quality Products,
Inc.; First Quality Retail Services LLC; and First Quality
Hygienic, Inc. (collectively, “First Quality”). The issue in
3 KIMBERLY-CLARK v. FIRST QUALITY
this appeal, however, does not relate to the underlying
technology, but the discoverability of information relating
to three alternative dispute resolution proceedings be-
tween K-C and Proctor & Gamble (“P&G”) that involved
patents at issue in this case.
Prior to filing suit against First Quality, K-C was in-
volved in patent infringement disputes with a number of
companies, including P&G. Initially, the parties filed
patent infringement claims in federal court. See, e.g.,
Kimberly-Clark Corp. v. P&G Distrib. Co., 973 F.2d 911
(Fed. Cir. 1992). Subsequently, between 1994 and 2003,
K-C and P&G entered into a series of agreements that
constructed a dispute resolution process to help resolve
the parties’ disputes.
Three of these agreements, each entitled Dispute
Resolution Agreement, are at issue here, and each agree-
ment contains similar terms relevant to this appeal. 1
First, the Dispute Resolution Agreements provided a
dispute resolution framework. Under the Agreements, a
panel of arbitrators would issue a “clear and concise
decision.” However, the decision would be non-binding
and each party retained the right to seek de novo judicial
resolution. The decision would issue after the parties
presented their cases at a hearing. Generally, the pro-
ceedings would be governed by federal law on procedure,
burdens of proof, and substantive patent issues. At all
1 The parties had marked the Dispute Resolution
Agreements as Confidential. At oral argument, however,
the parties agreed to waive the confidentiality restriction
to allow the court to discuss the Agreements’ terms in an
opinion. Oral Arg. at 0:11–1:20, available at
http://oralarguments.cafc.uscourts.gov/default.aspx?fl=20
11-1157.mp3. We discuss the terms of the Agreements
only to the extent necessary to resolve the parties’ dis-
putes.
KIMBERLY-CLARK v. FIRST QUALITY 4
times, the parties were prohibited from communicating ex
parte with the arbitrators.
Second, the Dispute Resolution Agreements detailed
pre-hearing, hearing, and post-hearing procedures. The
Agreements provided for limited discovery, including
document requests, depositions, and exchanges of claim
charts and other disclosures. The Agreements appointed
an arbitrator to resolve discovery disputes, and the par-
ties were prohibited from communicating ex parte with
the arbitrator. The Agreements also allowed the parties
to file briefs. At the hearing, the parties would present
argument and testimony, and submit other forms of
evidence. The panel would then issue a decision. The
Agreements required the initial panel decision to contain
specific findings of fact and conclusions of law in compli-
ance with the Federal Rules of Civil Procedure. After the
issuance of the decision, the losing party could appeal to a
second panel of arbitrators who would review the decision.
Third, the Agreements contained fee-shifting provi-
sions. The party that did not prevail at the hearing was
responsible for paying the arbitrators’ fees for the pro-
ceeding. In addition, if a party’s appeal from the initial
decision was not justified, the losing party was responsi-
ble for the opposing party’s attorney fees.
Finally, two of the Agreements contained a stipulation
that allowed P&G to limit its liability if it did not prevail
before the first panel of arbitrators or on appeal. The
provision provided that if P&G ceased making, using, or
selling infringing products in the United States within six
months of the original decision, K-C would not file suit
against P&G and would not seek past damages.
It appears that K-C and P&G conducted proceedings
under the Agreements. Eventually, K-C and P&G settled
their disputes.
5 KIMBERLY-CLARK v. FIRST QUALITY
II.
In 2009, K-C sued First Quality, alleging that First
Quality infringed a number of patents, including patents
that had been at issue in the proceedings conducted under
the Dispute Resolution Agreements. After becoming
aware of the Agreements, First Quality moved to compel
production of discovery relating to the Agreements and
the underlying proceedings. K-C opposed production on
the basis that the materials were privileged and not
discoverable.
The district court granted First Quality’s motion. The
district court concluded that “mediation is not an adver-
sarial process,” but instead is “a procedure by which
parties reach a mutual agreement with the aid of a third-
party who assists in fostering communication between the
parties, and does not act as a decision-maker.” Order at
3. Applying that definition, the court concluded that the
Agreements created an arbitration proceeding, not a
mediation. Id. at 3–4. While the court concluded that a
federal mediation privilege was warranted, it concluded
that the proceedings structured by the Dispute Resolution
Agreements fell outside that privilege. Id. at 4.
K-C moved for reconsideration, and the district court
denied K-C’s motion. Rather than conclude that the
Dispute Resolution Agreements created a mediative
process, the court concluded that the Agreements created
a “quasi-judicial procedure” by which the parties “ob-
tained a decision from a panel of neutral arbitrators.”
Order on Reconsideration at 2. The district court specifi-
cally focused on the adversarial nature of the proceedings
structured in the Agreements—prohibiting ex parte
communications with the arbitrators; providing for formal
pretrial disclosures, discovery, and hearings; requiring
the decision to comply with the Federal Rules of Civil
KIMBERLY-CLARK v. FIRST QUALITY 6
Procedure; providing for an appeals process; and includ-
ing fee-shifting provisions. Id.
The court, however, certified the issue for appeal pur-
suant to 28 U.S.C. § 1292(b). K-C timely appealed, and,
on appeal, we granted K-C permission to pursue an
interlocutory appeal. We have jurisdiction pursuant to 28
U.S.C. § 1292(c)(1).
DISCUSSION
Under Federal Rule of Civil Procedure 26(b)(1), a
party may obtain discovery regarding “any nonprivileged
matter that is relevant to any party’s claim or defense.”
K-C does not question that First Quality has requested
relevant information. Rather, K-C argues that informa-
tion created under the Dispute Resolution Agreements is
privileged. K-C presents a two-step argument. First, K-C
argues that federal courts should recognize a mediation
privilege under the authority provided by Federal Rule of
Evidence 501. Second, K-C argues that the proceedings
under the Agreements were mediations. Thus, concludes
K-C, the district court erred in compelling production of
information that is covered by a federal mediation privi-
lege.
We disagree. The Dispute Resolution Agreements set
up an arbitration proceeding, not mediation. The Agree-
ments set up an adversarial proceeding in which a panel
specifically denoted as “arbitrators” issued formal find-
ings of fact and conclusions of law. As part of the proceed-
ing, the parties would serve briefs and claim charts and
undertake discovery, including depositions. The parties
then, at a formal hearing, would present argument,
documentary evidence, and testimony, including testi-
mony on cross-examination. At all times, ex parte com-
munication with the arbitrators was prohibited. The
arbitrators were to render a “clear and concise decision.”
7 KIMBERLY-CLARK v. FIRST QUALITY
Thus, the process under the Agreements generally resem-
bled an adversarial proceeding in court, not mediation.
Despite the adversarial nature of the arbitration pro-
ceedings delineated in the Agreements, K-C argues that
the proceedings were mediative because the decisions
issued by the arbitrators were “non-binding” and had the
purpose of facilitating settlement. That argument is
unpersuasive. As an initial matter, under the Agree-
ments, the decisions would affect the parties’ legal rights.
The parties stipulated that P&G would avoid liability for
past damages if it ceased infringing activities within six
months of the issuance of an adverse decision. In addi-
tion, an arbitration panel’s decision would trigger fee-
shifting provisions.
In any event, arbitration does not necessarily become
a mediative process simply because an arbitration panel’s
decision is “non-binding.” In addition, under the Dispute
Resolution Agreements, there was no framework to allow
a party and a neutral to openly and freely discuss a
party’s case. In fact, the Agreements discouraged a party
from freely discussing the weak points in its case—the
Agreements barred ex parte communications with the
arbitrators and contain “loser pays” fee-shifting provi-
sions. Thus, even if K-C has correctly characterized the
decisions as “non-binding,” that distinction is not suffi-
cient in this case to rebrand the adversarial arbitration
proceedings as mediations.
Finally, while the designation of the panel as “arbitra-
tors” is not conclusive on the issue before us, the parties
in the prior cases had the opportunity to choose the lan-
guage of their agreement, and that language certainly
carries some weight as it applies to K-C here.
Because we conclude that K-C failed to show that the
district court abused its discretion in concluding that the
KIMBERLY-CLARK v. FIRST QUALITY 8
Dispute Resolution Agreements did not provide for media-
tion, we decline to determine if, in light of reason and
experience, we should recognize a mediation privilege.
CONCLUSION
We have considered K-C’s remaining arguments and
conclude that they are without merit. For the foregoing
reasons, the order of the district court is
AFFIRMED