In Static Media LLC v. Leader Accessories LLC, No. 21-2303 (Fed. Cir. Jun. 28, 2022), the Federal Circuit reversed the district court’s contempt order against Leader and its attorney, and its grant of sanctions and attorney’s fees.

The parties entered a protective order stating that “Confidential” documents could only be disclosed to non-parties who execute a “Written Assurance.” Leader joined a joint defense group with a third-party, OJ Commerce, who was sued in a different court. Leader’s attorney sent Static’s financial documents to OJ Commerce’s attorney, who used the documents for settlement negotiations. The district court found Leader and its attorney in contempt and ordered attorney’s fees and sanctions.

The Federal Circuit reversed. First, the Federal Circuit held that there is no clear and convincing evidence to support the district court’s conclusion that Leader should have known that OJ Commerce would violate the protective order. Second, the Federal Circuit held that Leader’s disclosure of Static’s confidential information to develop a joint defense strategy was not improper. The word “use” in the protective order implied disclosure to those that are not signatories to the protective order.

Judge Reyna dissented, stating that the district court was entitled to deference in discovery sanctions.