By now, everyone knows that companies have a duty to preserve evidence when they reasonably anticipate litigation. Determining when a party reasonably anticipates litigation can be a complicated endeavor. Proof of how difficult it can be can be found in two cases involving the same party that were decided by two different courts. Those two courts reviewed the exact same fact pattern, the same conduct by the litigant. One court concluded that the party failed to preserve information and the other court concluded that the party adequately preserved information.
The two cases involved Rambus, Inc., a manufacturer of computer memory systems, that initiated several lawsuits against computer manufacturers alleging patent infringement. Although there were several lawsuits, the two most interesting are the ones that were pending in the federal courts of Delaware and Northern California. Both courts reviewed the very same fact pattern. In January 1998, Rambus hired a new Vice President who was tasked with devising a litigation strategy for prosecuting the patent claims against offenders. In March 1998, Rambus decided to adopt a record retention policy. In May 1998, Rambus implemented its new record retention policy, which resulted in the deletion of 1,269 backup tapes containing email files. Interestingly, though, the one tape containing information helpful to Rambus's patent claims was not deleted. In early September 1998, Rambus engaged in one of two "shred days" in which 400 boxes of paper files were destroyed, including information pertaining to Rambus's patents. By September 1998, Rambus hired outside litigation counsel to prepare the patent lawsuits, but the company decided to delay filing suit shortly thereafter. The first lawsuit was filed in June 1999 and the second "shred day" occurred in August 1999, when another 300 boxes of documents were destroyed.
Two lawsuits were filed in Delaware and Northern California in August 2000. The court in Northern California held that Rambus satisfied its obligations to preserve information relating to the patent suits. At the end of that trial, Rambus was awarded $350M plus other royalties. The court in Delaware, however, held that Rambus "spoliated evidence," that it failed to preserve information when it reasonably anticipated litigation. The Delaware court found that Rambus should have anticipated litigation before the second "shred day" in August 1999 and that it destroyed key information relating to the case. As a sanction, the Delaware court dismissed Rambus's claims.
The two cases proceeded up on appeal, which were decided by the United States Court of Appeals for the Federal Circuit. The appellate court grappled with the conflicting rulings. Ultimately, the appellate court found that Rambus had wrongfully destroyed evidence at a time when it had a duty to preserve it. In other words, the Delaware decision was affirmed and the Northern California judgment in Rambus's favor was overturned. The Delaware court's dismissal of Rambus's case was affirmed and the Northern California case was remanded back to the trial court with instructions to fashion an appropriate sanction. Given that the Delaware court dismissed Rambus's case, it is safe to assume that the California trial court will do the same.
Beyond the interesting observation that two courts can review the same set of facts and reach polar opposite conclusions, some lessons can be drawn from the opinions. The legal issue decided by the appellate court was whether litigation must be "imminent" to trigger an obligation to preserve information. The appellate court clearly held that imminence is the not the proper standard. Rather, the duty to preserve attaches when a party reasonably anticipates litigation, whether it is imminent or not. Note that the rejected imminence test is unworkable when applied to plaintiffs, who necessarily control if and when a case is filed.
Another interesting legal issue is embedded in the decisions. The trial courts and the appellate court held that all communications between Rambus and its attorneys regarding the efforts (or lack thereof) to preserve information were not privileged. Ordinarily, communications between lawyers and their clients are privileged when they are intended to be secret and are made for the purposes of providing legal advice. There are exceptions, however. One exception is when the lawyers and clients engage in a crime or a fraud. In California and Delaware, it is a crime to destroy evidence in a case. There is a similar, although not identical statute in New Hampshire. Because Rambus and its lawyers arguably committed a crime when records were destroyed, the courts each held that all communications between them regarding the destruction of the evidence were not privileged. This argument can probably be applied in any case in which spoliation is suspected and could result in significant waivers of the attorney-client privilege. This is yet another reason why having a good record retention plan with detailed litigation hold procedure and to avoid spoliating evidence at all costs.
Finally, a lesson can be gleaned about implementing record retention plans. There are many reasons to adopt record retention plans. They make companies more efficient by eliminating unnecessary records and information. They also reduce storage costs, both in physical space and electronic storage. Record retentions plans are also crucial when litigation strikes as they provide protocols for preserving and producing relevant information. As shown in the two Rambus cases, failing to preserve information can have drastic effects. For Rambus, it probably means that it cannot prosecute its patent against any of the potential infringers. The manner in which Rambus's policy was implemented, however, raises a cautionary point. When companies are ready to implement their policies, they will likely engage in a significant one-time purge of old data. Before they do so, companies must be very careful to consider any pending litigation as well as any events that might lead to litigation in the future. If the company has any litigation or reasonably anticipates litigation, all information relating to those matters must be saved from the purge.
For more information about the Rambus decisions, they can be found at Hynix Semiconductor, Inc. v. Rambus, Inc., ___ F.3d ___, 2011 WL 1815978 (Fed. Cir. May 13, 2011) and Micron Tech., Inc. v. Rambus, Inc., ___ F.3d ____, 2011 WL 1815975 (Fed. Cir. May 13, 2011).
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