In Micron Technology v. Rambus, 2009-1263 (Fed. Cir., May 13, 2011), and its companion decision, Hynix v. Rambus, Nos. 2009-1299, -1347(Fed. Cir. May 13, 2011), the Federal Circuit defined a framework for determining when a litigation has become "reasonably foreseeable," thereby giving rise to a duty to preserve documents. The Federal Circuit also discussed how to determine whether a dispositive sanction is appropriate against a spoliator.
In 1996, Rambus offered licenses under patent properties covering Rambus's Dynamic Random Access Memory (RDRAM) to Micron, Intel and other chip manufacturers. Toward the end of 1999, manufacturing delays caused Intel to move to an SDRAM (synchronous DRAM) platform not covered by the licenses but believed by Rambus to be covered by the patent properties. In 2000, Rambus initiated infringement suits against SDRAM manufacturers, and Micron initiated the declaratory judgment action.
Micron argued to the lower court that Rambus committed spoliation by destroying documents at two "shredding parties," one in 1998 and one in mid-1999, during which Rambus destroyed more than nine tons of documents. Rambus countered that there was no duty to preserve documents until later, in part because of a series of litigation contingencies that had to be cleared. In response, Micron asserted that Rambus had long planned litigation against SDRAM manufacturers. The district court found that litigation was foreseeable by late 1998 and sanctioned Rambus by holding the patents unenforceable against Micron and dismissing the action.
II. The Federal Circuit Decision
The Federal Circuit held that spoliation is "the destruction or material alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation." Spoliation is governed by an objective standard that asks whether a "reasonable party in the same factual circumstances would have reasonably foreseen litigation." In addition, reasonable foreseeability "is a flexible fact-specific standard that allows a district court to exercise the discretion necessary to confront the myriad factual situations inherent in the spoliation inquiry."
III. The Framework for Determining That Litigation Is Reasonably Foreseeable
Micron/Hynix established a five-factor "framework" for determining when the duty to preserve documents begins. This framework was, of course, influenced by the facts involving Rambus, and is not necessarily exclusive.
i. First Factor: No Long-standing Document Destruction Policy
"[W]here a party has a long-standing policy of destruction of documents on a regular schedule, with that policy motivated by general business needs, which may include a general concern for the possibility of litigation, destruction that occurs in line with the policy is relatively unlikely to be seen as spoliation." Because the only reason for Rambus's document destruction, which included destroying emails despite a "growing worry" that the emails contained discoverable information, was to frustrate the fact-finding efforts of adverse parties, this factor weighed against Rambus.
ii. Second Factor: Knowledge of Infringing Activity
"[W]hile it may not be enough to have a target in sight that the patentee believes may infringe, the knowledge of likely infringing activity by particular parties makes litigation more objectively likely to occur because the patentee is then more likely to bring suit." A 1998 "Nuclear Winter" memorandum, predicting a market shift to SDRAM, included infringement charts and a time frame for implementing Rambus's litigation strategy, indicating that Rambus had sufficient notice of infringing activities.
iii. Third Factor: Steps in Furtherance of Litigation
Actually having taken steps in furtherance of litigation suggests the foreseeability of that litigation. Prior to the second shredding party, Rambus developed a "litigation readiness" plan that included being ready for litigation with thirty days' notice and implementing the second shredding party. The plan contemplated filing complaints by October 1, 1999, provided all contingencies cleared. Rambus argued that not all contingencies had cleared so it could not have taken steps in furtherance of litigation. However, an internal memo from late 1998 indicated that Rambus was "not interested in settling" and should "push for very high rates," which it knew would lead to litigation. While it would have been "more foreseeable" if the contingencies had cleared prior to the second shredding party, the Federal Circuit found no clear error in the Micron court's finding that the contingences were likely to be cleared.
In Hynix, the district court had found merit in the litigation contingencies argument, but the Federal Circuit commented that "it would be inequitable to allow a party to destroy documents it expects will be relevant in an expected future litigation, solely because contingencies exist, where the party destroying documents fully expects those contingencies to be resolved." Accordingly, the Court found that litigation was reasonably foreseeable in Hynix and remanded that case for further proceedings consistent with the Micron framework.
iv. Fourth Factor: Reasonable Foreseeability of Litigating the Patents
It is "more reasonable for a party in [patentee's] position as a patentee to foresee litigation that does in fact commence, than it is for a party in the manufacturers' position as the accused." Rambus's decision was "the determining factor" for whether or not litigation would ensue, so that litigation was foreseeable.
v. Fifth Factor: The Parties' Relationship
"[W]hen parties have a business relationship that is mutually beneficial and that ultimately turns sour, sparking litigation, the litigation will generally be less foreseeable than would litigation resulting from a relationship that is not mutually beneficial or is naturally adversarial." In the case of Rambus, the relationship between the parties, based on licensing intellectual property related to RDRAM, did not make litigation concerning SDRAM any less likely, because the relationship in that context was not mutually beneficial.
IV. The Dispositive Sanction
The Federal Circuit also provided useful guidance on when the sanction of dismissal may be appropriate.
i. Bad Faith
The standard for bad faith (in the case of a plaintiff) is whether the plaintiff "intended to impair the ability of a potential defendant to defend itself." (A similar standard for a defendant can be easily discerned.) Because the district court failed to clearly articulate a reason for concluding that Rambus's acts were carried out in bad faith, other than the fact that spoliation occurred from intentional document destruction, the Court found its analysis "too sparse" to determine whether the "applicable exacting standard" had been applied.
ii. Prejudice: Burden Shifts on a Finding of Bad Faith
A party is prejudiced by spoliation when it "materially affect[s] the substantial rights of the adverse party and is prejudicial to the presentation of his case." The party claiming prejudice has a burden of providing "plausible, concrete suggestions as to what [the destroyed] evidence might have been." Where bad faith is shown, the burden shifts, leaving the spoliator with a "heavy burden" of showing a "lack of prejudice" to its adversary. Proper resolution of this issue turns on the resolution of the bad-faith inquiry, and so the Federal Circuit left this to the district court on remand.
iii. A Dispositive Sanction Requires More Than Prejudice and Bad Faith
Jonathan Tropp, an intellectual property litigator, authored an article, "Design Patents: 'Campbell Soup' Stirs the Pot," published by the New York Law Journal.
Day Pitney Alert
Ryan S. Osterweil, a senior associate in Day Pitney's Intellectual Property group and a member of the firm's Regulated Substances practice group will be speaking on a panel, "The Cannabis Goldrush and the IP Landgrab," at a program presented by the Patents Committee of the New York City Bar Association.
Jonathan Tropp will discuss the recent Federal Circuit chip technology patent case, Power Integrations, Inc. v. Fairchild Semiconductor International, at the 35th Annual Joint Patent Practice Seminar in New York, NY.
Day Pitney Alert
Ryan Osterweil was quoted in an article, "'It Isn't Illegal If It Doesn't Exist yet': Patent Laws Pose Challenges for the Cannabis Industry," which was published by Cannabis Wire and reports on a recent New York City Bar Association program where he served as a panelist.
Richard Brown was quoted in an article, "Winery Sues NJ Turnpike Authority to Defend Right to Use Highway Sign in Logo," in The New Jersey Law Journal.
Carrie Webb Olson was featured in a podcast, "On Slants and ‘Skins: Supreme Court may tackle 'offensive' trademarks," in Massachusetts Lawyers Weekly. In the podcast, she discusses the significance of the recent trademark cases involving The Slants and The Redskins.
Carrie Webb Olson, chair of Day Pitney's trademark practice group, was quoted in an article, "Offensive Trademark Ban Going Down? It Probably Should" in Law360.
Cecilia Zhang Stiber was mentioned in an article, "40 under 40 Winners Announced," in The Fairfield County Business Journal. Ms. Stiber was selected as one of 40 leading professionals under the age of 40 from "nearly 100 nominations." The awards ceremony will be held at 32 Weed Ave. on Tuesday, June 21, 2016.