The Rambus Decisions: Pre-Litigation Strategy Can Be Grounds for Spoliation Sanctions, Including Dismissal
By: CYNTHIA A. MOYER
The Federal Circuit recently decided two cases involving semiconductor chip maker Rambus, Inc., and concluded that implementing a document destruction policy pre-litigation can constitute spoliation. Micron Technology, Inc. v. Rambus, Inc., 2011 WL 1815975 (Fed. Cir. May 13, 2011); Hynix Semiconductor, Inc. v. Rambus, Inc., 2011 WL 1815978 (Fed. Cir. May 13, 2011).
In both cases, competitors of Rambus started declaratory judgment actions, seeking declarations that their products did not infringe certain patents held by Rambus. In Micron, venued in the United States District Court for the District of Delaware, the district court held after a bench trial that Rambus could not enforce its patents against Micron because Rambus intentionally destroyed documents pre-litigation when it had a reasonable expectation of litigation.
Specifically, in 1998, Rambus began devising its strategy for patent infringement litigation against companies that used a competing semiconductor chip. To that end, Rambus established what it called “Top Level Goals” for “IP Litigation Activity.” One of the goals included development of a document retention strategy. In a power point presentation to all Rambus employees, one slide was entitled, “BEFORE LITIGATION: A Document Retention/Destruction Policy.” Consistent with its new policy, Rambus destroyed all but one of 1,269 back-up tapes, and held a event called “shred day” to destroy paper documents. In all, more than 300 boxes, weighing between 9,000 and 18,000 pounds, of documents were destroyed before litigation was commenced.
The United States District Court for the District of Delaware concluded that the only reasonable sanction for the intentional destruction of documents was to hold that the Rambus patents were unenforceable against Micron. Rambus then appealed to the Federal Circuit.
Meanwhile, in the Hynix case, venued in the United States District Court for the Northern District of California, the District Court concluded that Rambus did not intentionally destroy evidence, and proceeded to consider the merits of the patent infringement suit. The District Court then ruled that Hynix infringed at least one of the Rambus patents and awarded Rambus damages.
The two cases were both appealed to the Federal Circuit, where they were consolidated on appeal. The Federal Circuit held that the Delaware District Court properly concluded that litigation was reasonably foreseeable when Rambus destroyed its documents. In so holding, the Federal Circuit affirmed the Delaware District Court’s holding that the raison d’être for Rambus’s document retention policy was to further Rambus’s litigation strategy. With regard to whether the district court’s sanction was appropriate, the Federal Circuit remanded both cases to allow the District Courts to make a determination as to whether Rambus intended to impair the ability of the potential defendant to defend itself, which would constitute bad faith. The Federal Circuit also remanded the issue of whether the alleged infringers suffered prejudice as a result of the spoliation. The Federal Circuit said that dismissal “should not be imposed unless there is clear and convincing evidence of both bad-faith spoliation and prejudice to the opposing party.” In addition considering the degree of fault and prejudice suffered, the district courts were also instructed to consider whether there is any lesser sanction that could punish the offending party and deter similar conduct in the future.
How the two district courts will resolve these issues remains to be seen.