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Rambus's Prejudicial, Bad Faith Spoliation Warrants Harsh Sanction

By Joseph Callanan, Litigation News Associate Editor – March 18, 2013

 

In the latest chapter of the Rambus patent litigation, the United States District Court for the District of Delaware found, following remand, that Rambus prejudicially spoliated evidence in bad faith. Micron Tech., Inc. v. Rambus, Inc. The Federal Circuit had instructed the trial court to “fully explain” its earlier dispositive sanction that Rambus’s patents were unenforceable as to Micron Technology, which the trial court did over 49 pages. Much like other electronic discovery decisions, such as those in Zubulake and Pension Committee, opinions in the Rambus patent litigation provide wise counsel to private companies on document retention practices.


The Rambus patent litigation has a storied procedural history. Litigation over Rambus’s patents has touched numerous competitors and federal agencies, including the Federal Trade Commission, the United States International Trade Commission, and the United States Patent and Trademark Office. There are more than 100 reported Rambus patent infringement related-decisions and five unsuccessful petitions for certiorari before the United States Supreme Court.


Jurisdictions Finally Reach Same Result
The most recent Rambus result came after companion decisions by the United States Court of Appeals for the Federal Circuit merged two streams of the Rambus litigation—claims by Micron in federal court in Delaware and by Hynix Semiconductor in the United States District Court for the Northern District of California.


In Hynix Semiconductor, Inc. v. Rambus Inc., two different juries found that Hynix infringed upon certain Rambus patents. After numerous post-trial motions, both Hynix and Rambus appealed to the Federal Circuit. One of Hynix’s arguments on appeal was that Rambus’s patents should be unenforceable by the doctrine of unclean hands due to Rambus’s alleged spoliation—a defense the trial judge had rejected.


In Micron, considering the same allegations of spoliation as in Hynix, the trial court reached a different conclusion, ruling after a bench trial that Rambus’s patents were unenforceable due to its spoliation. Rambus appealed to the Federal Circuit.


The Federal Circuit issued decisions in Hynix and Micron on the same day. In each case, the court affirmed in part, vacated in part, and remanded. The court affirmed the Micron court’s finding that Rambus destroyed documents during an August 1999 “shred day” after litigation was reasonably foreseeable “no later than December 1998.” The court found that Rambus destroyed nearly 800 boxes of documents and all but one email back-up tape.


The court then vacated the Micron trial court’s dismissal and remanded for more detailed findings and reconsideration of its bad faith and prejudice determinations as well as the appropriate sanction. The appellate court similarly vacated the Hynix court’s final judgment and findings regarding spoliation and remanded for the court to determine, consistent with the Micron decision, when Rambus’s duty to preserve documents arose.


Prejudicial Spoliation Warranted Dismissal
On remand from the Federal Circuit, the district judge for the U.S. District Court for the District of Delaware reexamined whether Rambus in bad faith engaged in spoliation and the nature and extent of any prejudice suffered by Micron. The district court found in 49 pages that the spoliation was in bad faith and had prejudiced the opposing party, and thus the court ruled the patents unenforceable.


The district court found bad faith because Rambus adopted its corporate document retention policy as part of a licensing and litigation strategy that ignored or intentionally avoided involvement by outside counsel. For example, the court found that months after Rambus asked counsel to identify potential litigation targets, Rambus destroyed “1269 of 1270 email back-up tapes and roughly 400 boxes of documents.” Rambus’s stated intent was to get “battle ready” and to further Rambus’s “litigation strategy by frustrating the fact-finding efforts of parties adverse to Rambus.”


Rambus’s selective execution of the retention policy by instructing employees to “look for things to keep” and destroy documents “questioning the patentability of Rambus inventions” also suggested to the court that Rambus acted in bad faith. Finally, the court compared pre-litigation documents and post-litigation actions and testimony to support further a bad faith finding.


For example, one of Rambus’s Civil Rule 30(b)(6) witnesses testified that the document retention policy had never been presented to the board, then later acknowledging that document retention policy presentations had been given at least twice. Similarly, Rambus’s Rule 30(b)(6) witnesses testified that Rambus conducted only one “shred day” before later changing that testimony to acknowledge that Rambus conducted three shred days. Documents also demonstrated that Rambus misrepresented to Micron the nature of the document retention policy before and after litigation began.


Lessons for Litigators
“The overt and premeditated nature of the document destruction” was the most important factor justifying the sanction of patent unenforceability, says Betsy P. Collins, Mobile, AL, cochair of the ABA Section of Litigation’s Pretrial Practice & Discovery Committee. “You cannot just destroy all of your documents to make it hard for someone to pursue litigation against you,” Collins adds.


While courts may impose sanctions for negligent spoliation, the non-spoliating party has the burden to show prejudice. Here, Rambus’s bad faith turned the tables, and Rambus had to show lack of prejudice. One “concern of the court was the fact that the policy was developed and implemented from the start with an eye towards obtaining a litigation advantage, which the court felt was a hallmark of bad faith,” says Kent A. Lambert, New Orleans, cochair of the Section of Litigation’s Trial Evidence Committee.


Section leaders also suggest what to do besides simply avoiding Rambus’s missteps. “A company's policy should reflect a content neutral approach focused on the type of record” rather than focusing on the subject matter, as did Rambus’s policy, states Lambert. Rambus “selectively destroyed documents (at ‘shredding parties’) that were relevant and material,” and, in effect, Rambus “purged anything they thought could be used against them in anticipated future litigation,” adds Lambert.


“A good faith document retention policy would involve consideration of various categories of documents and how long those documents should be maintained,” states Collins. For example, Collins suggests considering relevant statutes of limitations for aids in determining retention periods.


Clients must sometimes keep some documents even longer. For example, if a client issues burial insurance policies, a type of whole life insurance intended to pay for funeral or burial expenses, “you really have to think that you must maintain documents related to those contracts much longer than say a contract of insurance on an accident policy that lapses after being in force for a year,” Collins suggests. Rambus’s “retention time of three months [for full system backup tapes] seems ridiculously short,” concluded Collins.


Keywords: document retention policy, preservation of evidence, spoliation, sanctions


 
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