Judges order consideration of discovery demands

The 7th Circuit Court of Appeals ordered a Northern Indiana District Court to reconsider a German company’s discovery demands made in relation to a lawsuit pending in Germany over the alleged theft of trade secrets.

Heraeus Kulzer, maker of bone cement for orthopedic surgery, is suing Biomet, which has its corporate headquarters in Warsaw, Ind., claiming Biomet’s bone cement incorporates Heraeus’ trade secrets without authorization. Heraeus had a contract for many years with another German company to distribute Heraeus’ bone cement. In 1998, that company entered into a joint venture with Biomet, which began making a close substitute for Heraeus’ product.

German law only allows discovery of documents that can be specifically identified individually whereas American law allows for much broader discovery. Heraeus can seek discovery in U.S. federal court because of 28 U.S.C. Section 1782. District Judge Robert L. Miller in the Northern District of Indiana denied the discovery, and by doing so, committed two errors, wrote Judge Richard Posner for the 7th Circuit.

District Courts that receive these kinds of requests must be careful of potential abuses that would warrant a denial and Judge Posner spelled out several examples. But Heraeus’ requests weren’t an attempt to abuse the American discovery system and Judge Miller was incorrect in concluding that the company was seeking to circumvent German law, wrote Judge Posner in Applications of Heraeus Kulzer, GmbH, for orders compelling discovery for use in a foreign proceeding v. Biomet Inc., et al, Nos. 09-2858, 10-2639.

“Heraeus cannot obtain even remotely comparable discovery by utilizing German procedures and there is nothing to suggest that the German court would be affronted by Heraeus’s recourse to U.S. discovery or would refuse to admit any evidence, or at least any probative evidence (German judges can disregard evidence that would waste the court’s time), that the discovery produced,” he wrote.

The District Court also erred in turning down the company’s discovery request flat out on the ground that compliance would be burdensome to Biomet. The District Court didn’t require Biomet to negotiate with Heraeus over cutting down the request and Biomet didn’t ask to limit the scope of discovery.

“Heraeus’s discovery demands are broad, in part because they reach back fifteen years, to before the joint venture between Biomet and Merck. For all we know, they are too broad. But if so, it doesn’t follow that Heraeus is not entitled to any discovery. It’s not as if its demands were frivolous; it obviously needs a good deal of discovery in order to prepare its case against Biomet,” he wrote. “If it’s asking for too much, the district court can and should cut down its request, but not to nothing, as it did. That was unreasonable, and therefore reversible.”

The judges remanded for further proceedings consistent with the opinion.