Date: 06-26-2015

Case Style: Sioux Pharm, Inc. and Sioux Biochemical, Inc. v. Eagle Laboratories, Inc.

Case Number: 13–1525

Judge: Waterman

Court: Supreme Court of Iowa on appeal from the District Court, Sioux County

Plaintiff's Attorney: Anthony L. Osborn and Jeana L. Goosmann for appellants.

Defendant's Attorney: Matthew J. Connealy and Daniel L. Hartnett for appellees.

Description: In this case involving claims for misappropriation of trade secrets,
we have before us an interlocutory appeal on a discovery issue. In
particular, the plaintiffs ask us to review a district court order requiring
the redesignation of the plaintiffs’ standard operating procedures (SOPs)
from “attorneys’ eyes only” to “confidential.” The underlying protective
order allowed each party to designate highly sensitive proprietary or
trade-secret information whose disclosure to another party in the case
would cause severe competitive damage as “attorneys’ eyes only.” Under
this designation, only court personnel, attorneys, and outside experts
could review the material. The district court removed the “attorneys’
eyes only” designation for any of plaintiffs’ SOPs alleged to have been
misappropriated, converted, or used without authorization by the
defendants. With the modification, these materials would remain
confidential and not disclosed to the public, but would be disclosed to
the defendants themselves.
Plaintiffs urge that the district court abused its discretion in
issuing the order. On appeal, we agree that the court abused its
discretion. The defendants did not argue below that the plaintiffs
improperly designated materials under the order and did not provide any
basis for modifying the order other than conclusory assertions and a
statement that they, unlike the plaintiffs, had elected not to hire an
expert in order to save money. On this record, these grounds are not
enough. We conclude that while the district court may have had other
valid grounds for ordering redesignation, this is not apparent from the
terms of the order, and therefore, we must reverse and remand. In short,
removing the “attorneys’ eyes only” designation may be appropriate, but
the court’s rationale for doing so is insufficient. Accordingly, we reverse
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the district court’s ruling and remand for further consideration in light of
a number of factors discussed in this opinion, including (1) the
standards set forth in the stipulated protected order for designation of
material as “attorneys’ eyes only”; (2) the need for defendants, in addition
to their attorneys and experts, to have access to the materials to properly
defend the plaintiffs’ claims; and (3) the potential harm to the plaintiffs
that would result from disclosure of the materials to the defendants.
I. Background Facts and Proceedings.
This litigation involves a battle between the two domestic
producers of chondroitin sulfate, Sioux Pharm, Inc. and
Eagle Laboratories, Inc., and other individuals and entities named in the
litigation, hereinafter referred to collectively as Sioux Pharm and
Eagle Labs, respectively.
Chondroitin sulfate is a component of dietary supplements for joint
health. Sioux Pharm, located in Sioux Center, makes the product from
bovine trachea and other ingredients. Its manufacturing processes
utilize chemical and biological research, unique procedures, specialized
tools, machinery, hardware, and software. Sioux Pharm restricts access
to its manufacturing facilities and requires its employees to sign
confidentiality agreements. Sioux Pharm’s expert testified Sioux Pharm’s
processes differ substantially from the processes known in the public
domain, its proprietary methods are worth approximately $4.4 million,
and its processes have changed significantly since 2003 when two
individuals at the center of this dispute resigned.
Robert Den Hoed and Dana Summers are former employees of
Sioux Pharm. Den Hoed left his job with Sioux Pharm in 2001 and
launched Eagle Labs in 2003. Den Hoed is the president, CEO, and
majority owner of Eagle Labs. Summers left his position with
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Sioux Pharm in 2003 and became the secretary for Eagle Labs.
Eagle Labs began producing chondroitin sulfate in 2005 and is
Sioux Pharm’s only domestic competitor.
Eagle Labs is a small business with no more than four employees,
including Den Hoed and Summers, operating out of a small building
behind Den Hoed’s family home. By contrast, Sioux Pharm occupies a
40,000-square-foot facility and estimates that its operation is ten times
larger than Eagle Labs’.
On March 1, 2012, Summers contacted Sioux Pharm and asked to
visit the plant, but his request was refused. Two nights later,
Sioux Center police received a call reporting a suspicious red truck
parked by the Sioux Pharm facilities. Officers investigating the call
found the truck outside and an exterior door propped open with a
wrench. The officers caught Summers breaking into Sioux Pharm.
Summers had a set of six keys to Sioux Pharm in his pocket, including a
master key, and the officers found another master key in the parking lot
near Summers’s truck. The officers searched Summers’s truck and
found a white binder that turned out to be an SOP manual. After
changing his story several times, Summers admitted that he had stolen
the manual that night. He was charged with burglary in the third degree
in violation of Iowa Code sections 713.1 and 713.6A (2011).
Sioux Pharm alleges that the break-in was an act of deliberate corporate
espionage, while Eagle Labs claims that Summers acted on his own,
without its knowledge or authorization.1
1Evidence regarding the break-in, including a police report and the judgment
entry in Summers’s criminal case, was submitted in the course of the subsequent
litigation between Sioux Pharm and Eagle Labs and relied upon by the district court in
various pretrial rulings. As the district court found,

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On March 8, Sioux Pharm filed this civil action claiming tradesecrets
violations against Eagle Labs, Bio-Kinetics Corporation,
Summers, Den Hoed, and John Ymker, a partner in Eagle Labs.
Sioux Pharm’s petition alleged that Eagle Labs misappropriated trade
secrets, intentionally interfered with contracts and prospective business
advantage, and engaged in civil conspiracy. In later amendments to the
petition, Sioux Pharm added claims of unfair competition.
With respect to its trade-secret claims, Sioux Farm broadly alleged
in Count I that it
utilize[s] trade secrets in the form of secret chemical and
biological research, secret systems, secret procedures, secret
software programs, secret specialized hardware, and secret
specialized tools, machinery and production processes, all of
which allow Plaintiffs to produce a variety of unique, highly
specialized products . . . with efficiency and precision.
Sioux Pharm further alleged that the above trade secrets were the result
of significant efforts and expenditures by the plaintiffs, they provide
substantial advantages over competitors, and plaintiffs own the trade
secrets. According to the petition, Sioux Pharm undertook “very
deliberate steps” to ensure that outsiders such as the defendants had no
access to Sioux Pharm facilities and SOPs, including limiting access to
the facilities and requiring plaintiffs’ employees to sign confidentiality
agreements. The petition alleged that the defendants obtained the trade
secrets through physical intrusion into the plant and through
theft/review of Sioux Pharm’s SOP manual and trade secrets.
Upon the filing of the petition, Sioux Pharm obtained an ex parte
order from the district court authorizing Sioux Pharm to seize the
Defendant Summers is an officer and employee of the defendant Eagle
Laboratories and was . . . caught [burglarizing] the plaintiff’s place of
business and had a notebook of the plaintiffs’ SOPs in his pickup truck.
_________________________
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computer and telephone equipment of Eagle Labs and to engage in a
walk-through of the Eagle Labs facility. Pursuant to the court order,
Sioux Pharm seized the equipment, engaged in the “walk through,” and
took various photographs on March 13, 2012. In its answer, Eagle Labs
specifically denied all of Sioux Pharm’s allegations relating to trade
secrets.
The parties also filed discovery motions. First, Eagle Labs sought a
protective order on March 15 to protect any trade-secret information
acquired during the walk-through. The district court ruled that all such
information could only be reviewed by attorneys for the parties working
together. Sioux Pharm, in turn, filed a motion on June 4 seeking greater
access to the material, but agreeing that a protective order was necessary
to protect the trade secrets of each party. The parties subsequently
agreed to, and the district court entered, a stipulated protective order on
August 6.
The stipulated protective order allows each party to designate
materials as “confidential” or “attorneys’ eyes only” (AEO):
The designation of ‘CONFIDENTIAL’ by the Producing Party
constitutes the representation that it reasonably and in good
faith believes the Discovery Material constitutes or discloses
confidential, non-public, and/or protective information
under Iowa law. The designation of ‘ATTORNEYS’ EYES
ONLY’ by the Producing Party constitutes the representation
that it reasonably and in good faith believes the designated
material constitutes or discloses confidential, non-public,
and/or proprietary information containing highly sensitive
proprietary, financial, or trade secret information, which
would cause severe competitive damage if disclosed to
another party to this action.
Under the terms of the order, confidential information may be disclosed
only to attorneys, court personnel, parties, experts, and witnesses—with
the latter three groups required to execute a prior agreement to be bound
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by the terms of the order. AEO material—unlike confidential material—
may not be disclosed to the parties themselves. The order also restricts
use of confidential and AEO “to the purposes of this litigation and . . .
not . . . any other purpose.”
The stipulated protective order defines AEO information as follows:
“Attorneys’ Eyes Only” information means confidential,
non-public, and/or proprietary information containing highly
sensitive proprietary, financial, or trade secret information,
which would cause severe competitive damage if disclosed to
another party to this action, provided in any form
whatsoever in this action . . . .
Additionally, the stipulated protective order allows any party to
challenge an AEO or confidential designation and seek redesignation.
The party must first ask the producing party in writing to redesignate. If
that request is not granted within five days, the requesting party may
seek redesignation from the court. The order states, “In connection with
any such motion, the burden shall be [on] the Producing Party to defend
the appropriateness of the designation as Confidential or Attorney’s Eyes
Only. Any such objections to such designations shall be made in good
faith.” The order further provides:
If the Court upon motion finds that the challenged
document or deposition testimony is improperly designated
and the Producing Party was not acting in good faith in
refusing consent to disclosure, voluntary withdrawal of
designation or voluntary re-designation, the Court may grant
relief as appropriate under Iowa Rule of Civil Procedure
1.517.
The stipulated protective order also contains a general provision
allowing amendments:
This Protective Order may be amended with respect to
specific Discovery Materials without leave of Court by the
agreement of counsel for the Producing Party and Receiving
Party in the form of a Stipulation filed in this case. This
Protective Order shall remain in full force and effect
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indefinitely until modified, superseded or terminated on the
record by written agreement of the Parties or by order of this
Court. This Court shall retain jurisdiction during the
pendency of this action and thereafter to enforce this
Protective Order and to grant relief for any violation thereof.
Nothing contained in this Protective Order shall be
construed to affect or govern the scope of discovery in this
action, or to preclude any Party from moving this Court for
further order or relief.
The district court entered a scheduling order that required
Sioux Pharm to designate experts no later than 210 days before trial or
by March 15, 2013, and Eagle Labs to designate experts no later than
150 days before trial or by May 17, 2013. Trial was scheduled for
October 15, 2013.
Sioux Pharm’s petition initially alleged that Eagle Labs
misappropriated trade secrets solely in the break-in of March 3, 2012.
Eagle Labs chose not to designate any experts, concluding that Den Hoed
and Summers could adequately explain the origin of their SOPs and no
experts were necessary to defend the allegations based on the break-in.
Both parties produced their SOPs under the AEO designation, and
Sioux Pharm heavily redacted portions of its SOPs.2 In a second
amended petition filed April 23, 2013, Sioux Pharm added claims against
Summit Nutritionals International, Inc. and Federal Laboratories
Corporation for unfair competition and related claims.
On May 10, 2013, Eagle Labs moved for leave to file counterclaims
against Sioux Pharm. Eagle Labs asserted that Sioux Pharm trespassed
on its property when its representatives entered the property of
Eagle Labs pursuant to an ex parte temporary restraining order issued in
the case. According to Eagle Labs, while the court authorized a “short
walk-through,” the Sioux Pharm representatives, including its principal
2Eagle Labs also made redactions to its SOPs.

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officers, trespassed on the property by engaging in an examination of
property and facilities that far exceeded the scope of the district court’s
order. Eagle Labs also claimed that if trade secrets were in fact involved
in the process of the manufacture of chondroitin sulfate, as Sioux Pharm
alleged, then Sioux Pharm misappropriated Eagle Labs’ trade secrets
through its inspection of Eagle Labs’ facilities that exceeded the scope of
the district court’s order.
On June 7, the district court ordered two separate trials—one for
Sioux Pharm’s trade-secrets claim and one for its unfair competition
claim. The unfair competition component of the case is not at issue in
this appeal.3 The court also denied Eagle Labs’ motion for leave to file a
counterclaim. Subsequently, the district court denied Sioux Pharm’s
August 7 motion to file another amended complaint, adding allegations
that Eagle Labs had copied Sioux Pharm’s SOPs before the March 3,
2012 break-in. On October 4, the district court granted summary
judgment dismissing trade-secret claims against Den Hoed and Ymker
individually.
Although both sides produced SOPs under the AEO designation,
Eagle Labs contests the trade-secret status of Sioux Pharm’s SOPs. In
particular, Eagle Labs contends at least some of Sioux Pharm’s SOPs
lack trade-secret status based on disclosures made and positions taken
by plaintiff Sioux Biochemical, Inc. in prior litigation against Cargill, Inc.4
3In a separate appeal, we affirmed the district court’s ruling that Summit is
subject to personal jurisdiction in Iowa. Sioux Pharm v. Summit Int’l, 859 N.W.2d 182,
197 (Iowa 2015).
4Approximately, a decade before, plaintiff Sioux Biochemical, Inc. had sued
Cargill for misappropriation of trade secrets. See Sioux Biochem., Inc. v. Cargill, Inc.,
410 F. Supp. 2d 785 (N.D. Iowa 2005). In the lawsuit, Sioux Pharm’s president and coowner,
Dr. Allen Kramer, attested that Cargill had converted and disclosed “step-bystep
details” of his company’s manufacturing method. Sioux Pharm responds that its
SOPs evolved after that and were not the same in 2012 as the SOPs in the earlier Cargill

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Sioux Pharm, through affidavit, asserts the SOPs at issue in this case
remain protected trade secrets. The district court, after it entered the
stipulated protective order, has made no findings that the specific SOPs
sought by Eagle Labs either contain trade secrets or do not.
On September 3, Eagle Labs filed a motion to have Sioux Pharm’s
SOPs redesignated from AEO to confidential. In its motion, Eagle Labs
said it would be “impossible for Defendants to adequately prepare their
case for trial unless the above-referenced information [i.e., the SOPs] is
redesignated from AEO to ‘confidential.’ ” Eagle Labs added that
redesignation “would permit Defendants’ counsel the opportunity to
share this information with their clients so that evidence can be
developed to address the allegations being made by Plaintiffs.” In the
same motion, Eagle Labs also offered to redesignate its own SOPs (which
it had previously designated AEO) from AEO to confidential. Eagle Labs
did not submit any affidavit or other evidence in support of its motion.
Sioux Pharm filed a resistance to Eagle Labs’ motion for
redesignation. Sioux Pharm’s resistance also was not supported by any
affidavit or other evidence specific to the motion. The resistance made
the point that Eagle Labs was not contesting the AEO designation under
the protective order. According to Sioux Pharm, since the materials had
been properly designated, and the defendants had stolen from
Sioux Pharm, the protective order should not be modified to drop the
AEO designation. Eagle Labs also filed a motion to compel Sioux Pharm
to produce unredacted SOPs.
Following hearings, the district court granted both motions by an
order entered September 23. The order required Sioux Pharm to identify
litigation. The district court denied Eagle Labs’ request that it grant summary
judgment on the ground that the asserted trade secrets were in the public domain.
_________________________
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which specific SOPs have been misappropriated and produce unredacted
copies of those SOPs designated “confidential” rather than AEO. The
court’s order stated:
The court has determined the plaintiff must identify
which specific SOPs have been misappropriated, converted
or used without authorization. These must be disclosed by
October 1, 2013 after a series of discovery disputes. The
court finds these identified SOP classifications should be
changed to that of “confidential” for purposes of this case
only.
The court in conducting its balancing of the various
priorities, finds that this action is necessary to do justice
and to allow the defendants to appropriately understand and
prepare their trial defense strategy.
Sioux Pharm filed an application for interlocutory appeal and request for
immediate stay as well as a motion for reconsideration on September 27.
On September 30, the district court denied Sioux Pharm’s motions for a
stay and for reconsideration, pointing out that Sioux Pharm “made
several recent efforts to clarify and (in the court’s opinion) efforts to
expand the scope of discovery beyond the pleadings that would add
issues and result in trial being continued.” The district court ordered
Sioux Pharm to produce unredacted copies of every SOP it claimed
Eagle Labs misappropriated, without the AEO designation. This would
allow Den Hoad and Summers to review them. The district court
explained:
Conceivably, if Plaintiffs are making their disclosure in good
faith, there would be few, if any, surprises because Plaintiffs
have had the opportunity to see and compare the SOPs of
both parties prior to its disclosure. This eliminates a generic
allegation of theft or misappropriation and helps the court in
defining what is admissible evidence at trial . . . not a
scattergun approach that may lead to efforts to admit
inadmissible or irrelevant evidence that would result in any
jury verdict being set aside.
This disclosure then allows the defendants to view and
ultimately understand what it is that they have allegedly
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misappropriated, converted or used without authorization.
This method allows them to assist their attorneys in their
defense. Absent disclosures, the defendants do not know
which SOP the plaintiffs will present evidence on as
misappropriated, converted or used without authorization
and essentially would result in “trial by ambush.”
On October 31, we granted Sioux Pharm’s application for
interlocutory appeal, which placed its disclosure obligations on hold. We
retained the appeal.
II. Standard of Review.
As a general proposition, we review a district court’s discovery
ruling for abuse of discretion. Mediacom Iowa L.L.C. v. Inc. City of
Spencer, 682 N.W.2d 62, 66 (Iowa 2004). A district court abuses its
discretion “when the grounds underlying a district court order are clearly
untenable or unreasonable.” Id. “ ‘ “A ground or reason is untenable . . .
when it is based on an erroneous application of the law.” ’ ” Office of
Citizens’ Aide/Ombudsman v. Edwards, 825 N.W.2d 8, 14 (Iowa 2012)
(quoting In re Gianforte, 773 N.W.2d 540, 544 (Iowa 2009)).
In the context of trade-secret litigation, from the beginning, the
cases have stressed the role of the district court judge in balancing the
interests of the parties when determining the circumstances of
disclosure. Justice Oliver Wendell Holmes in one of the leading early
trade-secret cases emphasized that “it will rest in the judge’s discretion
to determine whether, to whom, and under what precautions, the
revelation should be made.” E.I. du Pont de Nemours Powder Co. v.
Masland, 244 U.S. 100, 103, 37 S. Ct. 575, 576, 61 L. Ed. 1016, 1019
(1917); see also Centurion Indus., Inc. v. Warren Steurer & Assocs., 665
F.2d 323, 326 (10th Cir. 1981). More recently, it has been said that the
nature of disclosure in a trade-secret case “ ‘is singularly within the
discretion of the district court,’ ” Dove v. Atl. Capital Corp., 963 F.2d 15,
13
19 (2d Cir. 1992) (quoting Galella v. Onassis, 487 F.2d 986, 997 (2d Cir.
1973)), and that “[t]he unique character of the discovery process requires
that the trial court have substantial latitude to fashion protective
orders,” Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36, 104 S. Ct. 2199,
2209, 81 L. Ed. 2d 17, 29 (1984). According to authorities, the balancing
of competing rights of the parties poses “a very difficult decision,” see
Peter F. Daniel, Protecting Trade Secrets from Discovery, 30 Tort & Ins.
L.J. 1033, 1042 (1995), that requires “liberal discretion” in the hands of
the trial judge, see Robert A. Matthews Jr., 6 Annotated Patent Digest
§ 41:120, at 41-258 (2008).
III. Analysis.
A. Production of Unredacted SOPs. We begin by addressing a
preliminary matter. The order that Sioux Pharm has appealed requires
Sioux Pharm to produce unredacted SOPs. Sioux Pharm has appealed
this issue, but just barely. Its total briefing on this issue consists of the
following paragraph:
Believing it had no other option, and in a desperate
attempt to avoid the full disclosure of its SOPs to
Defendants, Sioux Pharm reluctantly offered during oral
argument to produce unredacted SOPs (which could not be
viewed by Defendants themselves, because they would
remain AEO). However, Sioux Pharm only offered to do so if
absolutely necessary to avoid producing redesignated
“Confidential” SOPs (which Defendants could view). To be
clear, Sioux Pharm does not want to be forced to unredact
its SOPs, either, even if such redactions might hinder
Sioux Pharm’s prosecution of this lawsuit.
To the extent this is an argument against producing unredacted SOPs,
we are not persuaded. Sioux Pharm must produce complete, unabridged
versions of the SOPs to allow the defendants to defend the case fairly.
Because Sioux Pharm contends its case turns at least in part on
similarities between each party’s SOPs in content, font, margins, and
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formatting, counsel for Eagle Labs cannot fairly prepare a defense
without seeing the SOPs allegedly misappropriated. When claims hinge
on a close textual comparison of each side’s SOPs containing detailed
technical information and alleged trade secrets, there is simply no
alternative to the production of unredacted SOPs. Although both sides
apparently made redactions, the stipulated protective order makes no
provision for redaction of documents produced with the AEO designation.
Redactions under these circumstances violate the basic principle that
“our discovery rules are to be liberally construed to effectuate the
disclosure of relevant information.” Farnum v. G.D. Searle & Co., 339
N.W.2d 384, 389 (Iowa 1983).
We now turn to the fighting issue on appeal: whether the district
court abused its discretion in ordering the SOPs (which would be
unredacted) reclassified from AEO to confidential.
B. AEO Designations in Protective Orders—Some Relevant
Principles. “[T]here is no true privilege against discovery of trade secrets
or other confidential information.” Mediacom Iowa, 682 N.W.2d at 66.
Yet, once a trade secret is disclosed to a competitor and litigation
adversary, it may be too late to grant an adequate remedy to the holder
of the secret—the disclosure destroys the value of the secret data. See
Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1011, 104 S. Ct. 2862,
2877, 81 L. Ed. 2d 815, 838 (1984) (“Once the data that constitute a
trade secret are disclosed to others, or others are allowed to use those
data, the holder of the trade secret has lost his property interest in the
data.”); Air Prods. & Chems., Inc. v. Johnson, 442 A.2d 1114, 1129 (Pa.
Super. Ct. 1982) (noting that disclosure of trade secrets in open court
would “defeat the entire purpose of the action”). The Iowa legislature in
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the Uniform Trade Secrets Act has directed courts to preserve trade
secrets in litigation by reasonable means:
In an action brought under this chapter, a court shall
preserve the secrecy of an alleged trade secret by reasonable
means, including but not limited to granting protective
orders in connection with discovery proceedings, holding
in-camera hearings, sealing the records of the action, and
ordering a person involved in the litigation not to disclose an
alleged trade secret without prior court approval.
Iowa Code § 550.7. Nevertheless, “a trade secret must and should be
disclosed if the disclosure is relevant and necessary to the proper
presentation of a plaintiff’s or defendant’s case.” Mediacom Iowa, 682
N.W.2d at 66.
Once a district court has found information sought in discovery is
a trade secret, it must determine whether good cause exists for a
protective order. Id. at 67. The court should employ three criteria:
“ ‘[T]he harm posed by dissemination must be substantial
and serious; the restraining order must be narrowly drawn
and precise; and there must be no alternative means of
protecting the public interest which intrudes less directly on
expression.’ ”
Id. at 68 (quoting Farnum, 339 N.W.2d at 389–90). The district court is
to “strike a balance between the policy favoring discovery and free
expression on one side and a party’s interest in avoiding commercial
damage and preventing an abuse of discovery on the other.” Farnum,
339 N.W.2d at 390. After the court has weighed the harm from
disclosure against the need for the information, the court “must issue an
appropriate protective order to safeguard the rights of the parties.”
Highway Equip. Co. v. Cives Corp., No. C04–0147, 2007 WL 1612225, at
*3 (N.D. Iowa 2007). A court has broad discretion to craft the terms of
the protective order under rule 1.504. Iowa R. Civ. P. 1.504(1)(a)(7)
(“[The court] [m]ay make any order which justice requires to protect a
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party or person from annoyance, embarrassment, oppression, or undue
burden or expense, including . . . [t]hat a trade secret . . . not be
disclosed or be disclosed only in a designated way.”).
Litigation over protective orders arises in various contexts.
Sometimes the issue is whether a protective order should be modified so
that third parties may gain access to the material. In Comes v. Microsoft
Corp, we considered a request by plaintiffs in a Canadian antitrust
litigation against Microsoft to gain access to confidential materials from
the Iowa litigation. See Comes v. Microsoft Corp., 775 N.W.2d 302, 304–
05 (Iowa 2009). After reviewing caselaw from federal appellate courts
and elsewhere regarding modification of protective orders to allow thirdparty
access to litigation discovery designated as confidential, we said:
After considering the various approaches other courts
have taken to address requests to modify protective orders,
we conclude the soundest approach is to balance the
interests at stake, taking into account the reasons for the
issuance of the protective order in the first place and
whether the legitimate interests of the parties can still be
protected with the suggested modification. The court should
also consider to what extent the party opposing modification
has reasonably relied on the terms of the protective order
and whether the party would have relied on the protective
order had the suggested modification initially been included
in it. In a case such as this one, the court should consider
the value of the interests of the party seeking modification,
as well as any public interest in judicial economy and public
disclosure, if appropriate. The court should consider
whether the party seeking modification is attempting to
circumvent discovery or evidentiary restrictions in some
other jurisdiction. Because each situation in which a party
or third party seeks modification will be different, we will not
try to list all the considerations the district court may take
into account when making its decision, but the court should
fully and fairly consider all the circumstances supporting the
modification, as well as the circumstances mitigating against
it, and not employ any presumption for or against
modification.
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Id. at 309–10. We concluded by expressly disavowing any presumption
against the modification of protective orders. Id. at 310.
Although the principles of Comes apply here, this case involves a
different issue than the Comes case. Here, the question is whether
materials that have been designated AEO under a stipulated protective
order that permits this redesignation should be reclassified as
confidential. We recognize that in trade-secret litigation, “courts often
issue protective orders limiting access to the most sensitive information
to counsel and their experts.” Tailored Lighting, Inc. v. Osram Sylvania
Prods., Inc., 236 F.R.D. 146, 148 (W.D.N.Y. 2006); see also Safe Flight
Instrument Corp. v. Sundstrand Data Control, Inc., 682 F. Supp. 20, 22
(D. Del. 1988) (collecting cases). The United States Court of Appeals for
the Tenth Circuit recently stated:
“The disclosure of confidential information on an ‘attorneys’
eyes only’ basis is a routine feature of civil litigation involving
trade secrets. The purpose of this form of limited disclosure
is to prevent a party from viewing the sensitive information
while nevertheless allowing the party’s lawyers to litigate on
the basis of that information.”
Paycom Payroll, LLC v. Richison, 758 F.3d 1198, 1202–03 (10th Cir.
2014) (quoting In re City of New York, 607 F.3d 923, 935–36 (2d Cir.
2010) (emphasis omitted) (citing Fed. R. Civ. P. 26(c)(1)(G))).
The main concern of parties seeking to impose AEO restrictions is
fear that dissemination of sensitive information, particularly to
decision-makers of its competitors, would threaten serious competitive
harm. Even when the decision-makers of the opposing party act in
complete good faith, courts assert that they will simply not be able to
compartmentalize what they learn. See BASF Corp. v. United States, 321
F. Supp. 2d 1373, 1380 (Ct. Int’l Trade 2004); see also F.T.C. v. Exxon
Corp., 636 F.2d 1336, 1350 (D.C. Cir. 1980) (“[I]t is very difficult for the
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human mind to compartmentalize and selectively suppress information
once learned, no matter how well-intentioned the effort may be to do
so.”); McAirlaids, Inc. v. Kimberly-Clark Corp., 299 F.R.D. 498, 501 (W.D.
Va. 2014) (noting that proposed protective order allowing “technical
advisors” to examine documents was insufficient because “they would be
required to separate their own thoughts and ideas from their competitors’
thoughts and ideas in all future endeavors,” which would be difficult, if
not impossible). As a result, even though it may be completely innocent,
competitive decision-makers could subconsciously use sensitive
information against the disclosing party’s interest. See, e.g., McAirlaids,
299 F.R.D. at 501 (holding that “proposed protective order creates an
unacceptable risk of inadvertent disclosure”). The caselaw uniformly and
sensibly holds, all other things being equal, that the risk of harm from
disclosure to a competitor is generally greater than the risk of harm
related to disclosure to a noncompetitor. See Am. Standard Inc. v. Pfizer
Inc., 828 F.2d 734, 741 (Fed. Cir. 1987) (noting “[c]ourts have presumed
that disclosure to a competitor is more harmful than disclosure to a
noncompetitor”); see, e.g., BASF, 321 F. Supp. 2d at 1381; Medtronic
Sofamor Danek, Inc. v. Michelson, No. 01–2373–GV, 2002 WL 33003691,
at *3–4 (W.D. Tenn. Jan. 30, 2002).
On the other hand, the opposing party seeking disclosure, even if a
competitor, may claim that disclosure of documents to its
decision-makers is necessary to allow it to litigate effectively. For
example, in In re Wilson, 149 F.3d 249, 252–53 (4th Cir. 1998), the
Fourth Circuit upheld a bankruptcy court decision to allow at least some
disclosure of protected trade secrets to high-level employees of the
corporation’s competitor, reasoning that though the plaintiff may suffer
inevitable harm from disclosure, the defendant’s need to understand the
19
claim charged against him outweighed the potential harm of disclosing
trade secrets to the competitor. In some contexts, the opposing party
may assert, for instance, that its decision-makers have unusual expertise
in the subject matter of the litigation that might not be available to
outside experts. See 2 Hounds Design Inc. v. Brezinski, No. 3:13–CV–
101–RJC–DCK, 2013 WL 5938073, at *3–4 (W.D.N.C. Nov. 5, 2013);
Frees, Inc. v. McMillian, No. 05–1979, 2007 WL 184889, at *5 (W.D. La.
Jan. 22, 2007); MGP Ingredients, Inc. v. Mars, Inc., 245 F.R.D. 497, 499
(D. Kan. 2007); Medtronic, 2002 WL 33003691, at *3–4; THK Am., Inc. v.
Nippon Seiko K.K., 141 F.R.D. 461, 462 (N.D. Ill. 1991); Bee Chem. Co. v.
Serv. Coatings, Inc., 253 N.E.2d 512, 516–17 (Ill. App. Ct. 1969). A
naked contention, however, that access will affect the ability of the
defendant to defend its case, without more, is not sufficient. See
McAirlaids, 299 F.R.D. at 500–02 (court refused to modify existing
protective order based on party’s assertion that it needed its decisionmakers
to have access to documents to make an “educated business
decision with regard to the litigation”). In order to evaluate the asserted
need for further disclosure, the court must have a thorough
understanding of the contested issues in the case, how the documents
relate to the contested issues, and how the fact-finding process would be
aided by disclosure of the documents to the persons seeking to view the
documents.
There appears to be a prevailing view among courts addressing the
issue that competitive decision-makers of direct competitors should be
denied access to trade secrets in litigation. See Paycom Payroll, LLC, 758
F.3d at 1202–03 (noting AEO restriction is a “routine feature”); In re City
of New York, 607 F.3d at 935 (same); Brown Bag Software v. Symantec
Corp., 960 F.2d 1465, 1470–71 (9th Cir. 1992) (denying in-house counsel
20
access to trade secrets because they were involved in decision-making);
U.S. Steel Corp. v. United States, 730 F.2d 1465, 1468 (Fed. Cir. 1984)
(“In a particular case, e.g., where in-house counsel are involved in
competitive decisionmaking, it may well be that a party seeking access
should be forced to retain outside counsel or be denied the access
recognized as needed.”); Northbrook Digital, LLC v. Vendio Servs., Inc.,
625 F. Supp. 2d 728, 735–36 (D. Minn. 2008) (observing that protective
orders may be directed at a party’s outside patent-prosecution lawyers);
Highway Equip. Co., 2007 WL 1612225, at *4 (ruling that in-house
counsel could not view designated materials); Safe Flight, 682 F. Supp. at
22 (collecting cases in which trade secrets were revealed only to opposing
party’s trial attorneys and independent experts).
In Safe Flight, plaintiff’s president, Leonard Greene, asked to act as
his own expert because of his position as a “preeminent aeronautic
engineer, having received more than sixty aeronautic patents.” 682
F. Supp. at 21. Greene argued that he was uniquely qualified and that
without his review his attorneys would be unable to make the right
decisions. Id. The court disagreed, noting that Greene would inevitably
retain some of what he learned from the disclosures that would guide his
future research, and he had not investigated using outside experts. Id.
at 22. In a similar case, the plaintiff’s president and inventor of the
patent at issue, sought access to “highly confidential” material
designated for attorneys’ eyes only so he could testify as an expert.
Tailored Lighting, 236 F.R.D. at 147. The court found the “substantial
risk of competitive injury that attends disclosure of such trade secret
information to the opposing party’s president” outweighed the plaintiff’s
inconvenience and expense in hiring outside expert. Id. at 149.
21
The court in Safe Flight, however, did allow defendant to use
in-house counsel to review confidential materials because those
attorneys were “segregated” from competitive decision-making. 682
F. Supp. at 23. The court noted that lawyers are officers of the court and
bound by obligations of professional responsibility preventing any misuse
of the confidential information. Id. We, too, have recognized that
“[a]lthough a strong tradition of loyalty exists between a lawyer and
client, a lawyer is also an officer of the court who is bound by a code of
professional conduct.” Wemark v. State, 602 N.W.2d 810, 816 (Iowa
1999); see also State v. Walker, 804 N.W.2d 284, 294 (Iowa 2011)
(quoting Wemark to uphold right of an inmate to private conference with
attorney notwithstanding jail rules restricting access to prevent
smuggling of contraband). Even when courts explicitly credit a party or
in-house counsel with integrity and good faith, they recognize that
human nature makes misuse of trade secrets by a competitor too
tempting to risk. See Brown Bag, 960 F.2d at 1471 (“The magistrate had
to consider, however, not only whether the documents could be locked
up . . . , but also whether Brown Bag’s counsel could lock-up trade
secrets in his mind, safe from inadvertent disclosure . . . .”); U.S. Steel
Corp., 730 F.2d at 1467 (claiming that trade-secret information is so
potent that “its nature and volume place it beyond the capacity of anyone
to retain in a consciously separate category” (internal quotation marks
omitted)); Safe Flight, 682 F. Supp. at 22 (explicitly crediting Greene as a
man of “great moral fiber”).
The cases cited by Eagle Labs compelling disclosure arise in
different factual contexts. In Bee Chemical, the issue was whether the
trial judge properly entered an initial order granting the plaintiff access
in discovery to defendants’ formulas; the alternatives were access or no
22
access. 253 N.E.2d at 514. By contrast, this case involves the question
of redesignation of documents from AEO to confidential under a
stipulated order that had been previously entered. There were no tiers of
protection involved or available in Bee Chemical.
THK America, Inc. likewise involved what the terms would be for an
initial protective order, not the implementation or modification of a
stipulated protected order that had previously been entered. 141 F.R.D.
at 462. An American company and its Japanese parent company were
suing the defendant for patent infringement. Id. There was no dispute
that only persons employed by the American company could review the
defendant’s materials in question. Id. The issue was whether persons
with a past or present affiliation with the Japanese parent company also
could review the materials. Id. The court responded by fashioning a
protective order that allowed certain key employees of the Japanese
parent company also to view the materials because otherwise the
litigation would become “one-sided.” Id.
In two additional cases Eagle Labs cites, the parties were not direct
competitors. See MGP Ingredients, Inc., 245 F.R.D. at 502 (“Thus, the
risk of anyone abusing his or her knowledge of confidential information
appears to be small.”); Medtronic, 2002 WL 33003691, at *3 (“Finally,
unlike many of the cases relied upon by Medtronic, including Safe Flight,
[defendants] are not directly in competition with Medtronic.”).
C. Did the District Court Abuse Its Discretion? We now turn to
the question of whether the district court abused its discretion in
ordering the redesignation of the SOPs from AEO to confidential.
Redesignation should not be required merely because Sioux Pharm
alleges the SOPs were purloined by Eagle Labs. Sioux Pharm argues it is
unsure which specific SOPs were stolen. Sioux Pharm may allege
23
misappropriation of a collection of trade secrets if it has a good-faith
basis for that allegation without 100% certainty as to which specific ones
were taken. See Nike, Inc. v. Enter Play Sports, Inc., ___ F.R.D. ___, ___,
2015 WL 1319241, *3–4 (D. Or. March 24, 2015) (declining to require
plaintiff to more specifically identify trade secrets allegedly
misappropriated by defendant, noting to do so would place plaintiff in a
“catch-22” in light of the uncertainty over what defendant actually had
taken). A party uncertain whether its trade secret was stolen should not
have to reveal the secret to the thief to find out.
Redesignation also should not be ordered merely because
Eagle Labs chose not to retain an expert. See Tailored Lighting, Inc., 236
F.R.D. at 149 (“[T]he burden of that cost [of hiring an outside expert]
simply does not outweigh the substantial risk of competitive injury that
attends disclosure of such trade secret information to the opposing
part[ies] . . . .”). At a September 17 hearing, one of the defense counsel
said:
Plaintiffs’ position essentially forces us to go out and hire our
own expert because only our own expert who is a nonparty
under the terms of the protective order can look at AEO
materials produced by the Plaintiffs.
At the September 23 hearing, one of the defendants’ counsel
stated, “Our clients specifically chose not to retain an expert to limit
costs in this litigation.” Eagle Labs did not argue that experts were
unavailable;5 it simply maintained that for economic reasons as a small
company it chose not to hire one. Eagle Labs offered no evidence of what
its cost of hiring an expert would be in the context of its overall litigation
costs, nor did it disclose anything about its actual financial resources. If
5Sioux Pharm used an expert who prepared a report following a comparison of
both sides’ SOPs. This report is part of the record on appeal.

24
a mere assertion of economic hardship were by itself a sufficient ground
for requiring the other side’s AEO materials to be reclassified as
confidential, AEO status would have little security.
So, the question becomes, what would be a good reason for
redesignation. One obvious answer would be when the material does not
qualify for AEO treatment under the existing stipulated order because it
is not “confidential, non-public, and/or proprietary information
containing highly sensitive proprietary, financial, or trade secret
information, which would cause severe competitive damage if disclosed to
another party to this action.”
The parties’ stipulated protective order expressly authorizes parties
to make an objection to confidential or AEO designation and authorizes
the court to resolve the objection, with the burden resting on the party
claiming protected status “to defend the appropriateness of the
designation.”6 This placement of the burden coincides with the approach
courts have generally taken when confronted with blanket protective
orders that allow parties unilaterally to designate materials as
confidential or AEO. In re Parmalat Sec. Litig., 258 F.R.D. 236, 245–46
(S.D.N.Y. 2009) (granting motion to strike confidential designation when
party made only minimal showing of economic value and the harm that
would result from disclosure and thus failed to meet its burden of
showing good cause to keep the documents sealed); In re Zyprexa
Injunction, 474 F. Supp. 2d 385, 416 (E.D.N.Y. 2007) (noting that in
challenges to designations under umbrella protective orders, “the burden
of establishing that there is good cause to protect the designated
materials rests at all times with the party seeking protection”); In re
6Further, the order provides that if the court determines a designation was not
made in good faith, it may award sanctions.

25
Providian Credit Card Cases, 116 Cal. Rptr. 2d 833, 840 (Ct. App. 2002)
(explaining that party proposing sealing or continuing protective order
has the burden of proving the matter is a trade secret in order to
overcome the presumption in favor of disclosure).
However, in this case, Eagle Labs did not dispute below that the
materials had been properly designated as AEO, and there was evidence
in the record (such as the affidavit of Sioux Pharm’s president and
co-owner) supporting such a designation. Nor does the district court’s
order indicate that the court found the materials had been misclassified.
As we have already discussed here, and at more length in Comes,
courts also have the authority to modify stipulated protective orders. In
Comes, we explained that in deciding whether to modify an order “the
court should fully and fairly consider all the circumstances supporting
the modification, as well as the circumstances mitigating against it.” 775
N.W.2d at 310. Obviously, two salient factors are the need for the
defendants personally to have access to the materials to defend properly
the plaintiffs’ claims and the harm to the plaintiffs that would result from
disclosure of the materials to the defendants. Another legitimate
consideration, which may have entered into the district court’s calculus,
was whether the defendants were going to see the plaintiffs’ full SOPs
anyway when the case went to trial in a few weeks.7
7The stipulated order provides,
This Protective Order does not limit the right of a Party to offer
Confidential or Attorneys’ Eyes Only information into evidence at
hearings or at trial, or to use it for any other lawful hearing or trial
purpose including but not limited to impeachment. Any party may move
the Court for an Order that the evidence be received in camera or under
other conditions to prevent unnecessary disclosure.
As we have said, “ ‘There can be no blinking the fact that there is a strong societal
interest in public trials.’ ” Iowa Freedom of Info. Council v. Wifvat, 328 N.W.2d 920,
922–23 (Iowa 1983) (quoting Gannett Co., Inc. v. DePasquale, 443 U.S. 368, 383, 99
S. Ct. 2898, 2907, 61 L. Ed. 2d 608, 623 (1979)). Yet, our courts are required to

26
The problem here is that the party seeking reclassification made
only a conclusory argument for doing so, and the court did not set forth
its reasoning for ordering reclassification in any detail. The district court
cited its own “balancing of the various priorities” and found
reclassification “necessary to do justice and to allow the defendants to
appropriately understand and prepare their trial defense strategy.” This
language leaves it unclear whether the court ordered reclassification
because it found the SOPs did not meet the protective order’s standards
for AEO treatment or because it was deciding to modify the protective
order. Assuming the latter to be the case, this language also leaves
unanswered whether the district court simply agreed with Eagle Labs’
ipse dixit argument about the unfairness of requiring it to hire an outside
expert or whether the court had other, more persuasive grounds for
modifying the order.
“preserve the secrecy of an alleged trade secret by reasonable means, including but not
limited to . . . holding in-camera hearings.” Iowa Code § 550.7. Protection of trade
secrets at trial is entitled to great weight in this balancing approach. See Richmond
Newspapers, Inc. v. Virginia, 448 U.S. 555, 600 n.5, 100 S. Ct. 2814, 2840 n.5, 65
L. Ed. 2d 973, 1005 n.5 (1980) (Stewart, J., concurring in judgment).
We have limited access to judicial proceedings in appropriate cases. For
example, juvenile court proceedings may be closed to the public upon the motion of any
party or on the court’s own motion. See In re A.M., 856 N.W.2d 365, 380 (Iowa 2014)
(citing Iowa Code § 232.92). Witnesses are routinely sequestered during the testimony
of other witnesses under Iowa Rule of Evidence 5.615. In trade-secret litigation, the
parties can be excluded from the courtroom when the trade secrets are presented. See,
e.g., Stamicarbon, N.V. v. Am. Cyanamid Co., 506 F.2d 532, 542 (2d Cir. 1974) (allowing
trade-secrets portion of a trial to be held in camera); Air Prods. & Chems., 442 A.2d at
1129 (allowing counsel and an expert to participate in hearing without the party); State
ex rel. Ampco Metal, Inc. v. O’Neill, 78 N.W.2d 921, 926–27 (Wis. 1956) (allowing the
trade-secrets portion of the trial to proceed in camera). As a commentator observed, “It
would be of little practical value to file a lawsuit to protect the confidentiality of a trade
secret if the secret became part of the publicly available court record and was thereby
lost.” 1 Michael D. Scott, Scott on Computer Information Technology Law § 6.17, at 6-45
to 6-47 (3d ed. 2015) (also noting court can restrict attendance at trial and seal
transcript to protect trade secrets upon a proper showing).
_________________________
27
A district court abuses its discretion when it exercises its
discretion for reasons that are clearly untenable. See Mediacom Iowa,
682 N.W.2d at 66. Here, the party advanced only insufficient grounds
for a course of action. Although the record may contain sufficient
grounds, the district court did not specify its reasons for acting. In this
situation, we are constrained to hold the court abused its discretion. For
this reason, we must reverse and remand for further proceedings
consistent with this opinion. On remand, the district court should first
determine whether the SOPs qualify for AEO status under the protective
order (unless Eagle Labs concedes this point). If so, the court should
then consider modification. This consideration should be based on the
factors outlined in Comes. Particular weight should be given to
Eagle Labs’ need for its own personnel personally to have access to
Sioux Pharm’s SOPs, while recognizing that it is not enough for
Eagle Labs simply to argue that its employees need access because it
elected not to designate an expert for economic reasons.8 Weight also
must be given to the harm that would befall Sioux Pharm if its SOPs
were disclosed to a direct competitor.
In this case, the district court stated that it engaged in a
balancing, but did not expressly engage in the analysis of the risk of
harm that might be caused by further disclosure or the impact that the
failure to allow more disclosure would have on Eagle Labs’ ability to
litigate. The lack of a more detailed order makes it difficult for this court
to engage in meaningful appellate review. Cf. Pansy v. Borough of
Stroudsburg, 23 F.3d 772, 789 (3d Cir. 1994) (emphasizing that in order
“[t]o facilitate effective appellate review of a district court decision of
8The court can reopen the deadline for expert disclosure if need be.

28
whether to grant or modify an order of protection or confidentiality, a
district court should articulate on the record findings supporting its
judgment”); Mediacom Iowa, 682 N.W.2d at 68 (finding trial court abused
its discretion when it made no factual findings regarding whether
information sought constituted trade secrets). On remand, the district
court should give due regard to the two competing considerations in this
case that drive in the opposite direction.
Our ruling should not be construed as criticism of the district
court. From our review of the record, we are impressed by the court’s
careful, even-handed, hands-on management of the case. At the same
time, both in seeking and in opposing the redesignation of Sioux Pharm’s
SOPs, the parties made generally conclusory arguments. As often
happens, the arguments became more focused when the parties got to
our court. Nevertheless, in trade-secret litigation between two direct
competitors, the stakes are high, and any order regarding the
confidentiality status of alleged trade secrets must be carefully drawn.
That order should give due account to the terms of the protective order
and the considerations set forth in Comes.
IV. Disposition.
For these reasons, we reverse the district court’s orders of
September 23 and 30, 2013. We remand the case for further
proceedings consistent with this opinion.
REVERSED AND REMANDED WITH INSTRUCTIONS.
All justices concur except Appel and Wiggins, JJ., who concur
specially, and Hecht, J., who takes no part.
29
#13–1525, Sioux Pharm, Inc. v. Eagle Labs., Inc.
APPEL, Justice (concurring specially).
I concur with the court’s opinion.
On remand, the district court should give due regard to the two
competing considerations in this case which drive in opposite directions:
the risk of harm to Sioux Pharm that might be caused by additional
disclosures and Eagle Labs’ need for further disclosure to effectively
defend its interests in the litigation.
As pointed out by the court, the district court and the parties on
remand should avoid generalizations in favor of specific evidentiary
showings and articulated reasoning. To some extent, the shortcomings
in the district court’s order may have been a result of sequencing. At
this stage of the litigation, the trade secrets of the parties should be
identified with particularity first, with consideration of further disclosure
occurring after such identification has been made. Without identification
of the underlying trade secrets, the district court is not in the best
position to do the necessary balancing on a particularized basis. See
Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1131 (9th Cir.
2003) (stating the party asserting confidentiality bears the burden of
showing that specific prejudice or harm will result for each particular
document it seeks to protect); Baxter Int’l, Inc. v. Abbott Labs., 297 F.3d
544, 547–48 (7th Cir. 2002) (denying confidentiality where parties failed
to show what specifically was confidential and give reasons why
confidential treatment should be accorded).
The district court in this case, however, ordered Sioux Pharm to
identify with particularity its Standard Operating Procedures (SOPs) that
Eagle Labs allegedly misappropriated. If Sioux Pharm complies with this
order first, the district court will then be in a better position to examine
30
each identified SOP that is allegedly a trade secret misappropriated by
Eagle Labs (and any other documents for which disclosure is sought) and
make the necessary particularized findings with respect to the balancing
of the parties’ competing interests.

Outcome: REVERSED AND REMANDED WITH
INSTRUCTIONS.

Plaintiff's Experts:

Defendant's Experts:

Comments: