In this case, pending before the Court was a motion by Armstrong Pump Inc. (“Armstrong”) to compel formal production of certain documents that defendant Optimum Energy LLC (“Optimum”) considered the functional equivalent of its proprietary source code. This “formal production” Armstrong sought to compel consisted of 46 documents (305 pages) that Armstrong previously viewed during a “document and source code review” conducted pursuant to a strict protocol. During that review Armstrong was permitted to attend with two outside counsel and two experts. Moreover, Armstrong was able to print – also under strict protocol – certain of those documents.
In support of its motion to compel, Armstrong now argues that the reviewed documents did not contain “actual programming” and thus were able to be produced under the parties’ protective order for discovery without any additional protections designed to protect source code. Optimum argued in response that the documents were “functionally equivalent to source code” and should not be subject to production. Specifically, Optimum contended that the documents contained enough technical information including (in detail) the functions, logic and algorithms implemented in Optimum’s products to “allow a software engineer to build its proprietary source code based on that information.”
Ultimately, the Court reasoned that discovery had “reached the point of diminishing returns” and declined to compel production, with limited exceptions.
In reaching this conclusion, the court first addressed the effects of the 2015 amendments to Federal Rule 26, reasoning that “proportionality has assumed greater importance in discovery disputes” and that the amended rule is intended to encourage more aggressive efforts from the judiciary to discourage discovery overuse. The court continued:
Discouraging discovery overuse does not end with the early stages of a case, however. Implicit in both the language and the spirit of the 2015 Amendments is the obligation, at any stage of a case, to prevent parties from expending increasing time and energy pursuing diminishing returns. Calling a halt to the pursuit of diminishing returns often will overlap with an assessment of duplicate or cumulative discovery. Sometimes the additional discovery sought technically would provide nominally probative information not yet in the parties’ hands. Either way, when adding a few more pages of documents requires five or six inches of motion papers, and when those few more pages would be added to over one million pages of total discovery, numerous pages of expert reports, and transcripts from depositions of all of the relevant players, there exists a point beyond which courts have to tell the parties that if they cannot yet prove their claims then they probably never will. See Alaska Elec. Pension Fund v. Bank of Am. Corp., No. 14-CV-7126 (JMF), 2016 WL 6779901, at *3 (S.D.N.Y. Nov. 16, 2016) (“Rule 26(b)(1)’s proportionality requirement means [that a document’s] ‘marginal utility’ must also be considered.”) (citations omitted); Updike v. Clackamas County, No. 3:15-CV-00723-SI, 2016 WL 111424, at *1 (D. Or. Jan. 11, 2016) (“There is a tension, however, among the objectives of Rule 1. As more discovery is obtained, more is learned. But at some point, discovery yields only diminishing returns and increasing expenses. In addition, as more discovery is taken, the greater the delay in resolving the dispute. Finding a just and appropriate balance is the goal, and it is one of the key responsibilities of the court in managing a case before trial to assist the parties in achieving that balance.”).
The court then turned to the discovery specifics in the underlying case and concluded that discovery had “reached the point of diminishing returns.” Indeed, discovery had been ongoing for six years and the parties exchanged more than 1,600,000 pages of documents. The Court listed a litany of critical case development failures along the 6 year discovery path and concluded it hard to believe that 150 pages of already reviewed but not printed documents would definitively prove what six years of discovery could not.
This case serves as a further reminder that discovery is not limitless. Indeed, there is little tolerance for cumulative discovery and proportionality is the key inquiry under new federal landscape.