Kevin Brady is a well-respected Delaware litigator and a nationally-recognized e-discovery expert. We are pleased to have his summary of a recent Delaware decision that addresses key issues of great import to all litigators.
In Micron Technology, Inc. v. Rambus, Inc., (D.Del., Jan. 9, 2009), read opinion here, the U.S. District Court for the District of Delaware imposed severe penalties for spoliation of evidence. Kevin’s review of the court’s opinion follows:
On January 9, 2009, District Court Judge Sue L. Robinson, in a patent infringement action that was filed in 2000, sanctioned defendant Rambus Inc. for spoliation conduct including the destruction of “innumerable documents relating to all aspects of Rambus’ business” dating back to the late 1990s. The dispute between Micron and Rambus related to Micron’s alleged infringement of multiple Rambus’ patents. After a bench trial on the issue of alleged spoliation of evidence and unclean hands, Judge Robinson declared that the patents in suit were unenforceable against Micron. For Rambus, this is the third decision from three different jurisdictions (Delaware, Virginia and California) where Rambus has been charged with spoliation of evidence based upon its licensing, litigation and record retention plans including its now-infamous “Shred Days.” The Virginia court (Rambus, Inc. v. Infineon Techs. AG, 220 F.R.D. 264 (E.D. Va. 2004) found that Rambus had spoliated evidence, however, a California court (Hynix Semiconductor Inc. v. Rambus, Inc., No. C-00-20905 RMW, 2006 WL 565893 (N.D. Cal. Jan. 5, 2006) found that Rambus did not spoliate evidence.
Rambus develops and licenses technologies to companies that manufacture semiconductor memory devices such as Direct Random Access Memory ("DRAM"). Shortly after Rambus was founded in 1990, the company filed a patent application containing the DRAM inventions. Rambus’ plan was to license its DRAM technology to manufacturers and make it widely compatible so as to achieve industry-wide adoption. As part of its licensing framework, Rambus developed a litigation strategy which included references to a document retention policy. In 1996, Rambus entered into licensing agreements with eleven of the twelve major DRAM manufacturers, including Micron. In May 1998, Rambus implemented a company-wide document retention policy at the same time it was considering potential litigation against targets such as Micron.
In September 1998, Rambus employees participated in “Shred Day” also known as “office clean out” day during which the employees destroyed an estimated 400 banker’s boxes-worth of documents pursuant to the company record retention/destruction policy. No records were kept of what was destroyed but evidence was presented to Judge Robinson that the destroyed documents related to, inter alia, contract and licensing negotiations, patent prosecution, Board meetings and finances. In April 1999, Rambus also instructed its outside counsel to purge its patent files for patents that had already issued. On August 26, 1999, Rambus had another “Shred Day” where its employees destroyed an estimated 300 boxes of documents. However, between the first and second “Shred Day,” one of the patents at issue in the litigation had been issued. In October 1999, Rambus sent a letter to Hitachi about three of Rambus’ patents. In November or December 1999, Rambus instituted a litigation hold and in August 2000, Micron filed the instant suit against Rambus.
Spoliation occurs in two ways: (i) the destruction or significant alteration of information which could be used as evidence; or (ii) the failure to properly preserve information for another’s party’s use in pending or reasonably anticipated litigation. With respect to the failure to preserve element and a party’s record retention policy, the court will look to see whether the “policy is reasonable considering the facts and circumstances” or whether it was instituted in bad faith. Lewy v. Remington Arms Co., 836 F. 2d 1104, 1112 (8th Cir. 1988). Under Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003), “[o]nce a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a “litigation hold” to ensure the preservation of relevant documents.” Sanctions, which serve three functions – remedial, punitive and deterrent — are appropriate where there is evidence that the offending party’s spoliation threatens the integrity of the court. Mosaid Tech. Inc. v. Samsung Elec. Co., 348 F. Supp. 2d 332 (D.N.J. 2004).
Unfortunately, the law in the Third Circuit as to the required proof to establish spoliation is not settled. Under Schmid v. Milwaukee Elec. Tool Corp., 13 F. 3d 76, (3d Cir. 1994) dispositive sanctions such as those requested in this case, are not warranted in the absence of demonstrated bad faith (i.e., the intentional destruction of evidence) and prejudice. In order to prove prejudice under Schmid, “a party need only ‘come forward with plausible, concrete suggestions as to what [the destroyed] evidence might have been.’” In Re Wechsler, 121 F. Supp. 2d at 423 (citing Schmid, 13 F. 3d at 80). However, the court in Gates Rubber Co. v. Bando Chem. Indus. Ltd., 167 F.R.D. 90 (D. Colo. 1996), raised the bar when it came to dispositive sanctions. As that court explained, because dispositive sanctions “contravene the strong public policy [that] favors adjudication of cases on their merits” a higher burden of proof [a clear and convincing standard] may be appropriate.
In analyzing the facts, Judge Robinson found that litigation was “reasonably foreseeable” (i.e., a litigation hold was triggered) “no later than December 1998 when [Rambus] had articulated a time frame and a motive for implementation of the Rambus litigation strategy.” In addition, because Rambus adopted a document retention policy “within the context of Rambus’ litigation strategy” Rambus knew or should have known that the implementation of such a policy would result in the destruction of potentially relevant information.
In following the Schmid standard, Judge Robinson found that Micron had demonstrated prejudice by showing that the documents destroyed during Shred Day and the purging of the patent files were discoverable and that type of information would have been relevant to the case.
As a result, the Court concluded that Micron had been prejudiced by Rambus’ conduct and that the appropriate sanction for Rambus’ conduct would be for the Court to declare the patents in suit unenforceable as against Micron.