If you have read any DRI e-discovery materials or attended a DRI e-discovery presentation the series of spoliation decision involving Rambus Inc. is nothing new.  An appellate court has now issued a ruling in two cases involving Rambus.  Micron Technology, Inc. et al. v. Rambus Inc., 2011 U.S. App. LEXIS 9730 (Fed. Cir. May 13, 2011) and Hynix Seminconductor Inc. et al. v. Rambus Inc., 2011 U.S. App. LEXIS 9728.  The Micron case upholds one district court’s ruling (Delaware) that Rambus destroyed evidence, but reverses a drastic spoliation sanction declaring Rambus’ patents unenforceable.  The Hynix case reverses the other district court’s ruling (Northern District of California) that the same conduct did not rise to the level of spoliation.  The Hynix case also vacates the patent issues addressed by the California district court.  The circuit court remands both cases back to the district courts for additional analysis of whether Rambus’ conduct was in bad faith and whether Micron was prejudiced by it.
 
The lesson of the series of Rambus cases around the country is straightforward: determining when the duty to preserve evidence is triggered is a fact specific analysis conducted by courts on a case by case basis.  As background, Rambus obtained a series of patents related to random access memory used by personal computers.  As part of its business plan, it decided to enforce its patents by filing lawsuits against infringing companies.  The conduct that has been analyzed by a handful of courts, however, involves the steps taken by Rambus to prepare for litigation.  In addition to implementing a comprehensive document retention policy the company implemented shred days, magnetically erased all of its e-mail backup tapes – except one (which happened to contain helpful information) and asked employees to “look for things to keep” supporting its claims in the midst of the massive destruction of documents.  The Hynix case was pointed out as showing how on essentially the same facts courts could reach different conclusions about when the duty to preserve evidence is triggered.  The Federal Circuit has now sought to bring the Hynix case in line with other courts that have held that Rambus’ document destruction to prepare for litigation was spoliation.

The Federal Circuit affirmed the Delaware District Court’s holding that Rambus spoliated evidence and agreed with the district court’s determination that the duty to preserve was triggered on or about the second shred day.  The appellate court held that Rambus, as plaintiff, controlled the timing of litigation and had affirmatively decided to prepare for reasonably anticipated litigation.  To highlight some of the adverse evidence, internal Rambus documents included a presentation to employees rolling out the records retention policy, entitled: “BEFORE LITIGATION: A document Retention/Destruction Policy.”  Other documents included implementation of the record retention policy as a “to do” item on litigation preparedness plans. 

The Federal Circuit, however, held that the drastic remedy of striking Rambus’ pleadings required specific analysis of bad faith by clear and convincing evidence.  While there were plenty of facts to support the district court’s decision, the appellate court faulted the court’s failure to apply specific facts to a bad faith analysis.  On remand the district court was also asked to analyze whether Micron was prejudiced by the spoliation.  The Federal Circuit gives the district court a road map to potential adverse findings so the reversal is more than likely a prequel to eventual sanctions against Rambus. 

In the Hynix case, the Federal Circuit holds that the Northern District of California was too liberal in its interpretation of when the duty to preserve evidence arose.  Both parties to the litigation agreed that “reasonable foreseeability of litigation” was the applicable standard but disagreed on its meaning.  Rambus argued to the district court and on appeal that "to be reasonably foreseeable, litigation must be 'imminent,' at least in the sense that it is probable and free of significant contingencies."  The district court held that the contingencies (hurdles to litigation) becoming more certain were too many, holding that the duty to preserve evidence was not triggered until after the second shred day.  Accordingly, there was no spoliation of evidence.  The Federal Circuit meticulously analyzes the hurdles to litigation holding that they were largely in Rambus’ control and that litigation was a key part of Rambus’ IP strategy.  The court also dismissed Rambus’ arguments (relied on the district court to show that litigation was not reasonably foreseeable) as insignificant: the lack of (1) board approval for litigation and (2) the lack of a litigation budget.  Lastly the court holds that the Northern District of California’s decision is the only court to hold that there was no spoliation, whereas a handful of other courts held that the same conduct constituted spoliation.

It is important to note that much of the evidence supporting spoliation was in the form of attorney-client communications.  The Federal Circuit affirms both district courts’ piercing of the attorney-client privilege under the crime-fraud exception to the attorney-client privilege.  In both cases, attorney-client communications relating to the establishment of Rambus’ records retention/destruction policy were deemed discoverable based on alleged violation of the California Penal Code section prohibiting the destruction of evidence with intent to prevent it from being produced.  

 

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It should come as no surprise.  The tactic of pursuing sanctions for alleged e-discovery abuse has reached an all time high, as reported by the ABA Journal.  Corporations and their lawyers are facing the “gotcha game” for allegedly failing to preserve electronically stored information more than ever.  As a trend, more and more litigants have added standard spoliation questions to interrogatories, document demands and deposition outlines.  These questions seek information related to document retention policies and procedures, IT infrastructure and ESI storage locations, personnel responsible for document retention and preservation, litigation hold procedures and the efforts taken to preserve ESI.

The game is simple: seek overly broad preservation early – often before or at the time litigation is reasonably certain.  The unwary shrug off the demands for preservation or narrowly preserve limited relevant ESI.  As litigation unfolds, evidence is developed that witnesses and the corporation did not take their ESI preservation obligations seriously, interpreted the scope of preservation narrowly (permitting the destruction of other relevant ESI) or made mistakes that allegedly should have been prevented (like losing a key witness’s laptop).  The problem is compounded by the sheer volume of ESI in existence and the complexity of the computer systems used to store and access ESI.  Even worse, careful litigants can find themselves in the cross-hairs despite eminently reasonable efforts to preserve, collect and produce relevant data.

Summarizing the survey results reported in the ABA Journal, the Catalyst E-Discovery Blog reports:

Court-ordered sanctions for e-discovery abuses have reached an all-time high and are increasingly severe. Sanctions against counsel, while still uncommon, are also on the rise.

 

These are among the findings of a survey of e-discovery cases published in the December 2010 issue of the Duke Law Journal. The survey analyzes all 401 federal cases prior to Jan. 1, 2010, in which e-discovery sanctions were requested. Of those, it identifies 230 sanction awards. 

 

“There has been a significant increase in both motions and awards since 2004,” the authors conclude. They were found in all types of cases and all types of courts.

Neutralizing the “gotcha game” takes early diligence.  Corporations and outside counsel must take time early (and prior to threatened litigation if possible) to understand their IT infrastructure, determine how relevant information is stored and develop strategies for timely preservation.  When litigation is threatened, additional diligence is required to identify the defensible scope of relevant data and aggressively take steps to enforce preservation.  A written litigation hold and detailed documentation of preservation efforts are strongly recommended in light of cases like the Pension Committee in 2010.  When facing an unreasonable opponent, get a court involved as soon as practical. 

By implementing a defensible preservation strategy, corporations should be able to take the “gotcha game” off the table.  Worst case, the steps taken to document preservation efforts should avoid sanctions.  A little early diligence will go a long way to counter the current rise in spoliation sanctions as a tactic.

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