The Threat of Evidence Destruction

Next month's installment will continue the discussion of safeguarding evidence in China.

James W. Soong is a shareholder in the Silicon Valley office of the international law firm Greenberg Traurig, LLP. His practice focuses on patent litigation and strategic intellectual property counseling. Y.T. Chen is an attorney in the Taipei, Taiwan, office of the law firm Lee and Li, Attorneys-At-Law. Her practice focuses on patent infringement litigation and corporate investment. This article reflects the current views of the authors and not necessarily those of their law firms or clients.

In high-technology disputes, a patentee must secure a thorough understanding of often complex and subtle technologies in accused devices to prove patent infringement. Despite a patentee's best efforts to obtain proof of infringement, very often the most convincing evidence of patent infringement ' for example, proprietary design documents of the accused device ' lies within the possession of the alleged infringer itself. The survivability of that core evidence, however, can be under constant threat due to, for example, periodic purging of information pursuant to routine business practice or even bad-faith spoliation efforts by the alleged infringer. The risk to electronic evidence is especially grave because of its susceptibility to rapid erasure. Clearly, the threat of evidence destruction may seriously jeopardize the ability of a patentee to prove its case.

In this article, we examine judicial and other mechanisms in the United States and China that a patentee can utilize to safeguard evidence under the alleged infringer's control. In the United States, patentees need not wait the protracted time required for commencement of formal discovery to seek evidence under immediate threat of destruction. In China, which lacks a judicial construct precisely analogous to American discovery, patentees can employ special judicial and administrative measures even prior to commencement of suit to secure evidence in the hands of the alleged infringer.

United States

Under U.S. jurisprudence, the patentee alone shoulders the burden of proving infringement, and must establish it by a preponderance of the evidence. Therefore, the threat of evidence destruction in a patent dispute should warrant special action by patentees to secure evidence well before the start of formal discovery. Prior to litigation, a patentee can take strategic action to place an alleged infringer on notice of imminent suit, triggering the duty of the alleged infringer to preserve evidence. Subsequent to filing but before the commencement of formal discovery, a patentee can additionally seek early judicial intervention to both safeguard infringement evidence under the alleged infringer's control and accelerate the patentee's acquisition of such proof.

Pre-Suit Evidentiary

Considerations

American jurisprudence affords litigants pre-suit protections that mandate the preservation of potentially relevant evidence for use in possible later litigation. The duty to preserve potentially relevant evidence, including electronic evidence, can precede the launch of suit. In this regard, the duty triggers as early as “reasonable anticipation” of litigation, and expands with escalation of the dispute. Adherence to the duty is mandatory and does not require a supporting court order.

When triggered, the duty requires counsel to issue a “litigation hold” that informs the client of its responsibility to preserve all relevant evidence, whether or not litigation has actually commenced. Further, the client must ensure that certain key individuals likely to have relevant evidence be directly notified of their obligation to preserve evidence. Counsel also should instruct the client and its agents about their responsibility to retain and safeguard electronic information, given its special transient character. Failure to adhere to this rule can subject a party to extreme sanctions, such as costs and fees, adverse inferences, evidentiary exclusions, and even dismissal of the action.

From the alleged infringer's perspective, a document retention program can help avoid a charge that potentially relevant evidence was improperly destroyed. Indeed, in recent years, document retention programs have been utilized for a strategic legal purpose: to defend against a charge that documents were intentionally destroyed to obstruct justice or otherwise sabotage judicial processes. A patentee, however, can suspend this advantage to the alleged infringer by giving
notice of the imminence of suit. Upon receipt of such notice, the alleged infringer must immediately cease destruction of all relevant documents under the document retention program. In fact, by their own terms, viable document retention programs themselves mandate such suspension when suit becomes imminent.

The rule requiring evidence preservation can be leveraged to assist a patentee concerned about possible destruction or loss of potentially relevant evidence prior to suit by an alleged infringer. The patentee should communicate to the alleged infringer the threat of imminent suit and demand in writing the retention of all relevant evidence. The notice should specify the types of information requiring retention, including hard and electronic versions; identify where such information may be stored; demand cessation of normal document destruction protocols; and warn against dissemination of evidence through, for example, storage of electronic information on peripheral devices and drives that may be difficult to audit. In this way, the patentee can unambiguously put the alleged infringer on notice, prevent the destruction of relevant evidence, and preclude later argument by the alleged infringer that the preservation duty had not arisen or was unknown.

Preservation Order

In addition to the general obligation to preserve evidence upon reasonably foreseeable litigation and to adhere to an applicable document retention program, the parties can employ judicial measures to help ensure the preservation of evidence. Such judicial measures are appropriate in circumstances where certain evidence may be especially susceptible to loss, for example, electronic evidence. Special judicial intervention may also be sought if either party is skeptical about the other's ability or intention to preserve evidence. To avoid exclusive reliance on an opponent's self-regulated efforts to preserve evidence, or as insurance for an agreement negotiated between the parties themselves, a litigant can move for a preservation order to guarantee the survival of critical evidence, or at least increase culpability and possible related sanctions when evidence is nonetheless destroyed.

Because preservation orders can be granted prior to any pretrial conference, entry of a scheduling order, and commencement of formal discovery, they are an effective tool to accelerate proof of patent infringement. Courts have based their power to issue preservation orders on alternative legal theories. In one instance, a federal judge premised such authority on the court's inherent power to fashion such relief and on Rule 16. The court held that the following two factors should be analyzed before issuance of a preservation order: 1) whether the order is necessary, and 2) whether the order is unduly burdensome.

If a patentee seeks a preservation order under the guise of a temporary restraining order or preliminary injunction under Rule 65, as opposed to the court's inherent power or other authority, then different considerations apply. One court notably required additional consideration of irreparable harm to the moving party absent an order mandating evidence preservation, presumably because the requested preservation order was construed as a form of injunctive relief. In particular, that court identified these three factors in a balancing test to determine the propriety of a preservation order:

(1) the level of concern the court has for the continuing existence and maintenance of the integrity of the evidence in question in the absence of an order directing preservation of the evidence;

(2) any irreparable harm likely to result to the party seeking the preservation of evidence absent an order directing preservation; and

(3) the capability of an individual, entity, or party to maintain the evidence sought to be preserved, not only as to the evidence's original form, condition or contents, but also the physical, spatial and financial burdens created by ordering evidence preservation.

In this three-factor balancing test, one factor may be so weighty as to alone justify issuance of the protective order.

The considerations of the three-factor test above parallel those of the two-factor test with the notable difference of an additional factor, irreparable harm. Whether the patentee cites only the two-factor test or the three-factor test in its moving papers, the patentee would be wise to also discuss the issue of irreparable harm for good measure. The patentee should demonstrate a specific and imminent threat of loss of evidence, the “harm” component of this factor. A vague and indefinite claim that evidence may be destroyed will not suffice. The patentee should also brief the “irreparable” component.

Patentees are well advised to seek an explicit preservation order as close to the commencement of litigation as possible. The issuance of a preservation order at this time puts an alleged infringer on early notice, depriving it of a claim of “accidental” evidence destruction. Further, an untimely or delayed request for a preservation order could cause the court to question the presence of exigent circumstances justifying the grant.

Expedited Discovery

Although satisfaction of the Rule 11 pre-filing investigation requires at least a threshold possession of infringement evidence, more evidence is usually necessary to corroborate the infringement suspicion and carry the burden of proof. When acquisition of critical information cannot wait for the Rule 26(f) scheduling conference and attendant commencement of formal discovery, patentees should consider the evidentiary mechanism of expedited discovery. A grant of expedited discovery may be had only upon order of the court.

Expedited discovery is appropriate where delay may result in continued irreparable harm. Courts may also employ expedited discovery to “judge the parties' interests and respective chances for success on the merits.” Edudata Corp. v. Scientific Computers, Inc. , 599 F. Supp. 1084, 1088 (D. Minn.) (granting expedited discovery), aff'd in part and rev'd in part on other grounds , 746 F.2d 429 (8th Cir. 1984). In practice, requests for expedited discovery often accompany requests for preliminary injunctive relief, such as a temporary restraining order and preliminary injunction. Even if a court denies the request for a temporary restraining order, it still may order expedited discovery, which may be critical to allow the patentee to meet its evidentiary burden for issuance of a preliminary injunction.

Courts have applied many tests in analyzing whether to grant expedited discovery. A “reasonableness” test calls for courts to decide motions for expedited discovery based on the “reasonableness of the request in light of all of the surrounding circumstances.” Entmn't Tech. Corp. v. Walt Disney Imagineering, No. A. 03-3546, 2003 WL 22519440, at *3 (E.D. Pa. Oct. 2, 2003) (internal quotation marks omitted). Under the “reasonableness” test, the following factors are relevant:

(1) whether a preliminary injunction is pending;

(2) the breadth of the discovery requests;

(3) the purpose for requesting the expedited discovery;

(4) the burden on the defendants to comply with the requests; and

(5) how far in advance of the typical discovery process the request was made.

Other courts have required that a party seeking expedited discovery simply show good cause. Qwest Communications Int'l, Inc. v. WorldQuest Networks, Inc. , 213 F.R.D. 418, 419 (D. Colo. 2003); Semitool, Inc. v. Tokyo Electron America, Inc. , 208 F.R.D. 273, 275 (N.D. Ca. 2002). Good cause may be found where, in view of the administration of justice, the need for accelerated discovery outweighs prejudice to the responding party. Case law expressly recognizes good cause when the moving party has claimed infringement and unfair competition. Qwest Communications Int'l, Inc. v. WorldQuest Networks, Inc. , 213 F.R.D. 418, 419 (D. Colo. 2003); Semitool, Inc. v. Tokyo Electron America, Inc. , 208 F.R.D. 273, 276 (N.D. Ca. 2002).

China

With respect to intellectual property litigation, litigants in China have a saying: “A litigation contest amounts to a contest over evidence.” The expression communicates the importance of obtaining evidence in patent litigation and employing safeguards to prevent its destruction. Evidence must be acquired by lawful means and, if obtained otherwise, cannot be used to prove infringement. Accordingly, patentees must take care to employ legally sound methods to confront a threat that accused infringers may destroy evidence. This discussion explores from the perspective of the patentee how to protect critical infringement evidence from spoliation so that the patentee can optimize its chances of prevailing in patent litigation in China.

Pre-Suit Evidentiary

Considerations

Unlike U.S. practice, Chinese law does not require an alleged infringer to suspend document destruction upon mere receipt of a “litigation hold” letter from the patentee. Transmission of a litigation hold letter in China thus will not likely persuade the alleged infringer to maintain evidence potentially relevant to the infringement charge. In fact, such a letter could precipitate the opposite result and undesirably trigger the destruction of evidence by the alleged infringer.

Another notice sometimes sent to alleged infringers prior to the commencement of litigation is the cease and desist letter. The provision of a cease and desist letter can help establish whether or not the defendant's infringing activity was intentional. However, in China, patentees have no claim to willful infringement and resulting treble damages. Therefore, besides having a notice function, the letter has little significance. On the other hand, because a party before commencement of intellectual property litigation has no prior obligation to preserve evidence, a cease and desist letter, like a litigation hold letter, might alert the alleged infringer to destroy potentially relevant evidence. In view of this significant risk, the disadvantage posed by a cease and desist letter likely outweighs its benefit.

In sum, patentees in China should avoid pre-litigation tactics that could invite spoliation of infringement evidence. Precautionary measures that anticipate possible destruction of evidence are well-advised. As in U.S. litigation, patentees in China must shoulder the burden of proof in establishing infringement. Therefore, as a best practice, before notice of the infringement claim is provided to alleged infringers, patentees should endeavor to collect evidence sufficient to prevail on the merits of their infringement claim.

Next month's installment will continue the discussion of safeguarding evidence in China.

James W. Soong is a shareholder in the Silicon Valley office of the international law firm Greenberg Traurig, LLP. His practice focuses on patent litigation and strategic intellectual property counseling. Y.T. Chen is an attorney in the Taipei, Taiwan, office of the law firm Lee and Li, Attorneys-At-Law. Her practice focuses on patent infringement litigation and corporate investment. This article reflects the current views of the authors and not necessarily those of their law firms or clients.