A recent decision from the United States District Court for the Northern District of Illinois caused a stir because a litigant's case was dismissed and it was ordered to pay $1M in fines because a non-employee/outside consultant retained by the party failed to preserve evidence that was key to the case. The overarching rule of the case is not new. When a party reasonably anticipates litigation, that party must take affirmative steps to preserve potentially relevant information. The preservation obligation extends to repositories of potentially relevant information that are in the possession of third persons/non-parties to the case. For example, if a company stores its electronic data with an off-site storage facility, the company must supply instructions to the data warehouse to preserve all information relating to the case. It is no excuse that the data is actually possessed by a third-party, particularly when the third-party is subject to the control and direction of the litigant.
The Illinois case is important, however, because the outside consultant, if his testimony is to be believed, was actually trying to preserve information. Despite these allegedly honest intentions, his conduct resulted in the dismissal of the plaintiff's patent suit and payment of a hefty fine. The opinion serves as a cautionary tale.
The plaintiff in the case was Rosenthal Collins Group, LLC, a developer of software for the futures trading industry. Rosenthal's opponent was Trading Technologies International, another software developer that sought to patent specific software functionality. Rosenthal filed suit against Trading Technologies in an effort to defeat Trading Technologies's patent; Rosenthal tried to prove that it developed the same technology years before. Rosenthal's case centered on a hired consultant, Walter Buist, who allegedly developed the software functionality for Rosenthal in 1998 and 1999. Rosenthal filed an affidavit from Buist and zip disks it claimed contained the source code for the functionality that was written in 1998 and 1999.
Trading Technologies deposed Buist, and, according to the opinion, problems quickly emerged with Buist's testimony. He admitted that the source code on the zip disks was not from 1998 or 1999, but it was code from 2005 that he altered to make it appear as it would have in 1998 and 1999. Buist admitted that he literally changed the date in the operating system on his computers before he modified the code so it would appear as if the code was placed on the disks in 1998 and 1999. He also made other modifications to the code so that it would be accessible with today's technology.
The patent litigation then took a serious (and costly) detour. Trading Technologies moved for sanctions against Rosenthal. For its part, Rosenthal vigorously denied that anything nefarious occurred. The court initially refused to dismiss Rosenthal's complaint, but it did order Rosenthal to pay Trading Technologies $280,000 for the attorneys' fees incurred on this detour. The court also permitted Trading Technologies to take further discovery to establish precisely what was done by Buist, including examining Buist's personal computers. That process took several years, as Rosenthal was slow to produce the additional materials and make Buist available for another deposition. In the meantime, Buist made things worse by deleting further information.
At his second deposition, Buist admitted to turning back the clock on his computer. He also admitted that, despite the orders of the court that all information be preserved, he wiped clean the zip disks, which prevented further meaningful examination of their contents. Trading Technologies, armed with more specific information from Buist's own testimony, moved again for dismissal of Rosenthal's complaint and for monetary sanctions. This time, the court agreed and dismissed Rosenthal's complaint and ordered that it pay $1M.
Rosenthal's initial defense to the sanctions motions was to claim that Buist was an outside consultant and that neither it, nor Rosenthal's attorneys, knew that Buist had modified the code or wiped the disks. This defense went nowhere, as the court easily linked Buist to Rosenthal and Rosenthal's attorneys. The take away point for all litigants is that it is insufficient to simply instruct third parties not to delete information; litigants must be more proactive and take meaningful steps to preserve the evidence. Had Rosenthal simply taken possession of the information in Buist's possession, it could have prevented any modifications or deletions.
There was an interesting sentence in the opinion that caused some further research, though. The Roshenthal court wrote that "A default judgment sanction may be imposed regardless of whether the aggrieved party has been harmed." This implied that, although one version of the source code might have been modified by Buist, the parties might have been able to find the unmodified code in some other location. In other words, the court suggested that there was no actual prejudice to the parties as a result of Buist's conduct, but there was no explicit description in the opinion to confirm that unmodified code was accessible.
Buist's deposition testimony is available as part of the public record. His testimony, if believed, paints a different picture than the one presented by the court in its opinion. Buist explained that he found the zip disks containing the 2005 version of the code. He copied the contents of those disks to a personal computer, satisfying himself that the contents of the disks were therefore safely saved on the computer's hard drive. Based on his personal memory, he then modified the 2005 version of the source code to make it appear as it would have in 1998 and 1999. He saved the modified versions with different file names and in different directories to keep them separate from other versions. If this is true, there was little prejudice to Trading Technologies, as a copy of the contents of the zip disks was saved on another medium. Buist made several changes to the source code so that it would compile using today's technology and would be accessible by the litigants. All of this, Buist maintained, was with the intention of preserving the evidence. There was no mention of any of this testimony in the court's opinion, and there was no statement by the court that it found Buist to be untrustworthy.
Yet, the court imposed the harshest sanction, dismissal of Rosenthal's claim. If the court did not find Buist to be a liar, how did it reach the conclusion that Rosenthal should be sanctioned so severely? The court focused intently on what Rosenthal and Buist did after the first sanction order was levied, the initial award of $280,000 in attorneys' fees. The court examined what they did after the court expressly ordered the preservation of information and production of additional materials. After that order, Rosenthal was very slow in producing the required information. Buist, perhaps with the assistance of Rosenthal's counsel, wiped clean the zip disks and other media that may have contained important information. The facts showed that the disks and drives were wiped just before they were produced and neither Rosenthal nor Buist offered satisfactory reasons for those deletions. Regardless of one's intentions, disobeying a direct court order to preserve information is perilous and the failure to follow the court's instructions may be the primary factor in the harsh sanctions imposed.
Another lesson can be gleaned from this case. The opinion does not indicate that Rosenthal or Buist communicated with opposing counsel regarding the steps taken to access the source code from the disks or the steps taken to preserve evidence. This is a particularly acute issue when one needs to recreate or restore outdated systems to access data. Here, Buist claimed to have installed an older operating system on his personal computer to access the old source code. When he was done with his work, he re-installed the current operating system on his computer. This had the practical effect of wiping clean his personal computer, so Trading Technologies could not examine his computer and retrace his steps. The court construed the re-installation of the current operating system as an attempt by Buist to cover his tracks, and it may well have been. Had Rosenthal communicated with Trading Technologies, some protocol could have been established that would have allowed Trading Technologies to examine Buist's computer and then allow him to re-install the modern operating system. The fact that this was all done clandestinely only raised suspicions of an already suspicious court. These problems can be avoided by conferring with counsel before changing, modifying or deleting electronically stored information. If an agreement cannot be reached with opposing counsel, involve the court to get an advance ruling. |
