September 25, 2008

Protective Orders in Pretrial Discovery Phase Keep Journalists Unplugged

By Townsend, Virgie

Millions of pages of documents have been hidden from the public in a high-profile federal court antitrust case between two computer giants, illustrating how parties are able to essentially secretly litigate disputes in public courts. A model holds an Intel chip In 2006. Intel has been accused of unfair trade practices.

In September 2006, Delaware District Court Judge Joseph Farnan Jr. approved a protective order in AMD v. Intel, a long-running case in which the computer hardware behemoth Intel is being sued by its chief microprocessor rival over alleged anti-trust practices. With the protective order, Farnan effectively vaulted vast portions of evidence in the case. Predicting that "hundreds of millions of pages of documentation" would accumulate, Farnan moved to safeguard the companies' trade secrets, and make discovery documents easier to produce to the litigants.

Two years later, some reporters and lawyers say it's one of the most sweeping protective orders they've seen. So much so that many basic details of the allegations against Intel are still scant - even though AMD filed suit against Intel in 2005, and two foreign trade commissions have ruled against Intel in the last several years for violating antimonopoly or antitrust regulations.

What is known: AMD claims Intel monopolized the microprocessor industry by providing exclusivity agreements and rebates rewarding only loyal customers. Courts have generally decided loyalty rebates are exclusionary and a violation of anticompetitive practices when a competitor would have to price the product below their cost of production to be able to compete with the seller.

AMD is Intel's only competitor In the PC processor market.

In a November 2005 letter, the Reporters Committee urged Farnan to ensure that the AMD v. Intel protective order included a swift, transparent process for the companies' employees, customers, and shareholders to access relevant information.

But as it turns out, because or the order, journalists have struggled to get information on the case and have found little to share with the public.

"It's been very hard to cover this case because almost everything's been under seal. There hasn't been anything to report for months," said Roger Parloff, a senior editor who covers legal affairs at Fortune magazine. "Basically, nothing's getting out at the moment."

"This protective order prevents journalists from writing complete stories," said George Freeman, vice president and assistant general counsel of The New York Times.

So much secrecy in the name of trade

The protective order was issued under Federal Rule of Civil Procedure 26, which allows discovery documents to be sealed or restricted when a court finds good cause to protect a party or person from annoyance, embarrassment, or undue burden or expense. The rule also specifies that courts are allowed to seal documents to protect trade secrets.

Between the protective order and the limited information from the foreign commissions that dealt with Intel on similar claims, several reporters said they're hamstrung covering the AMD case. For instance, under Farnan's order, documents that are filed publicly often come heavily redacted. Reporters describe sections of court papers that begin to talk about allegations against Intel and then go blank right as they delve into specifics.

Intel and AMD processors sit side by side at a computer store. AMD sued over the pricing plans Intel offered to retailers.

"The [American] trial isn't until 2010," Parloff said, and whatever information the parties want to use at trial will become public then, anyway. "We're talking about events that occurred a couple of years ago, and it's time we knew the basic facts."

It's unclear to Parloff why some key information in AMD v. Intel is sealed at all. It seems implausible that each of the sealed documents contain trade secrets, or that all the information touted as trade secrets really are.

"I don't understand why the terms of a rebate are a sensitive piece of competitive business information," Parloff said. "Is the claim that the terms are so clever that they're like a patent? If people are just embarrassed about the deals they struck, then that's all the more reason that they should be forced into the daylight."

When judicial proceedings are as closed as AMD v. Intel, Parloff said, they begin to resemble arbitrations more than public proceedings. The key difference is that taxpayers don't fund arbitrations.

Freeman underscored the costs of keeping so much of the case under wraps: "The public has an interest in this case because it pays for the judicial system, this is a big case with complicated antitrust implications that will come up again, and the public buys this product." Furthermore, if Intel's business practices hurt competition, that could have seeped down to consumers in the form of unduly expensive computers.

No better luck abroad

But much as the secrecy of the AMD v. Intel case may frustrate, it's been a pattern in Intel's legal dealings around the world. Two foreign trade commissions have found that Intel violated antitrust regulations. Neither ruling shed much light on the issue for journalists.

The Korean Fair Trade Commission in June 2008 fined Intel $25.6 million for antitrust violations. It also issued a report on its findings. According to reporters who cover Intel, however, the report hasn't yet been translated from Korean. And it's unlikely to reveal anything related to AMD, anyway.

In Japan, the Fair Trade Commission QFTC) ruled in March 2005 that Intel breached Japan's Antimonopoly Act. The JFTC found that some manufacturers were required to buy all of their processors from Intel and that Intel gave exclusivity rebates for Intel processors in specific product lines or brands in an attempt to eliminate competitor products from key lines. The JFTC recommended that Intel dump the rebates, tell customers they'd no longer be offered, and teach its employees not to set up programs that illegally distort competition.

But the JFTC didn't produce a report.

Finally, the European Union took up the case in 2007, also alleging that Intel had paid customers in an attempt to get them to delay or cancel launching products that used AMD chips. David Lawsky, the European Union correspondent for Reuters, has been covering the European Commission's proceedings for several years. He said the European Commission was also secretive about specific allegations against Intel.

"In Europe, everything is closed," Lawsky said. "The only thing we get is press releases at certain major steps. For example, we were notified when the Commission sent formal charges known as a statement of objections. A few paragraphs summarized the charges, but the document itself, probably running 80 to 200 pages, was closed to us."

"I don't understand why the terms of a rebate are a sensitive piece of competitive business information...Is the claim that the terms are so clever that they're like a patent? If people are just embarrassed about the deals they struck, then that's all the more reason that they should be forced into the daylight."

-Roger Parloff, Fortune magazine

Copyright Reporters Committee for Freedom of the Press Summer 2008

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