Spoliation refers to the destruction or material alteration of evidence, or a party's failure to preserve evidence related to a reasonably foreseeable litigation. Recent high-profile patent cases have been affected by alleged spoliation, including Hynix v. Rambus, Micron v. Rambus, and Samsung v. Apple. Spoliation sanctions can be severe enough to change a litigation's outcome. Therefore, it is crucial that businesses engaged in patenting and licensing technologies understand spoliation law and take steps to preserve documents that may relate to patent litigation. This article reviews the standards for foreseeability relating to patent litigation, how different circuits determine whether to impose spoliation sanctions, and recent examples of spoliation sanctions in patent litigation.

Businesses engaged in patenting and licensing technologies sometimes face litigation.To preserve evidence, companies should have policies in place for retaining documents relating to possible litigation. Failing to preserve certain documents can result in spoliation sanctions, and such sanctions can change a litigation's outcome. Recent high-profile patent cases have addressed the contentious issue of document destruction and demonstrated the serious consequences of spoliation sanctions.

Spoliation refers to the destruction or material alteration of evidence, or a party's failure to preserve evidence related to a reasonably foreseeable litigation.² Spoliation—a judicially created equitable remedy—seeks to ensure that a party's destruction of evidence will not impair an adverse party's ability to advocate for itself.³ When deciding whether spoliation warrants sanctions, courts generally determine whether litigation was reasonably foreseeable when evidence destruction occurred, the objective intent of the party destroying evidence, and whether the destruction prejudiced the adverse party.⁴

Recent Federal Circuit decisions in Hynix v. Rambus ("Hynix II") and Micron v. Rambus ("Micron II") provide important guidelines regarding documentretention policies for businesses engaged in patent licensing.⁵ This article reviews the standards for foreseeability relating to patent litigation, how different circuits factor the intent of the alleged spoliator and prejudice to the adverse party when determining sanctions, and recent examples of spoliation sanctions in patent litigation.

Failure to comply with document-preservation obligations can restrain, or even nullify, a party's ability to prevail in patent litigation. On remand, respective district court holdings in both Hynix v. Rambus ("Hynix III") and Micron v. Rambus ("Micron III") subjected Rambus to spoliation sanctions for its conduct.⁶ Following Hynix III, the California district court applied a monetary sanction of $250 million against Rambus' earlier damage award of approximately $349 million.⁷ While in Micron III, the district court took a much more severe approach, holding Rambus' patents unenforceable due to spoliation.⁸ The sections below analyze the lessons from these and other cases relating to spoliation.

Courts have established that when "a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a 'litigation hold' to ensure the preservation of relevant documents."⁹ When analyzing spoliation claims, courts consider whether litigation was reasonably foreseeable at the time evidence was destroyed.

Pinpointing the moment when litigation becomes foreseeable can be difficult. In the context of patent litigation, trial courts have reached different conclusions when presented with identical facts.¹⁰ In Hynix v. Rambus ("Hynix I") and Micron v. Rambus ("Micron I"), courts in the District of Delaware and the Northern District of California, respectively, came to opposite conclusions concerning whether Rambus could reasonably foresee litigation when it destroyed documents, even though both courts considered the same conduct by Rambus.

In both cases, Rambus, the patentee and accused spoliator, destroyed documents relating to patents covering certain Dynamic Random Access Memory ("DRAM") technologies.¹¹ The Delaware court held that Rambus could reasonably foresee litigation, while the California court held that Rambus could not.¹² On appeal, the Federal Circuit resolved this discrepancy by deciding that Rambus could reasonably foresee litigation when it destroyed documents.¹³

A. Reasonable Foreseeability Clarified by the Federal Circuit

Before litigation commences, a "trigger" event may occur that makes litigation become reasonably foreseeable.¹⁴ For example, a trigger event may occur when a patentee sends a letter to a competitor alleging patent infringement. By sending the letter, the patentee signals that it foresees litigation. The competitor can foresee litigation the moment it reads the letter. But spoliation does not always require a trigger event. Instead, the critical inquiry is whether a reasonable party could have foreseen litigation at the time the party destroyed evidence.¹⁵

Rambus destroyed large volumes of documents beginning in 1998.¹⁶ This destruction occurred after counsel for Rambus prepared a patent licensing and litigation strategy for its DRAM patents, which included a new document-retention policy.¹⁷ In September 1998, Rambus held its first document "shred day" according to the new document-retention policy.¹⁸ In June 1999, upon issuance of the first patent in suit, Rambus developed a litigation strategy for enforcement of the patent against DRAM manufacturers.¹⁹ While developing this strategy, Rambus held another shred day in August 1999.²⁰

About one year later, on August 18, 2000, Rambus approached Micron regarding a proposed license for the DRAM patents, and on August 28, 2000 Micron responded by seeking a declaratory judgment of noninfringement, invalidity, and unenforceability of Rambus' patents.²¹ Hynix had a licensing relationship with Rambus for earlier-generation DRAM technologies, described as Rambus Dynamic Random Access Memory ("RDRAM").²² But Rambus declined to extend this license to the newly patented technologies for Double Data Rate Synchronous Dynamic Random Access Memory ("DDR-SDRAM").²³ On August 29, 2000 Hynix sought a declaratory judgment of noninfringement, invalidity, and unenforceability of Rambus' DDR-SDRAM patents.²⁴

In Micron I, a Delaware district court found that Rambus could have reasonably foreseen litigation when it destroyed documents during its August 1999 shred day.²⁵ In Micron II, the Federal Circuit affirmed that finding and set forth guidelines for determining whether litigation is reasonably foreseeable. The following paragraphs in this section discuss those
guidelines.

If the destruction of documents is consistent with such a policy then, even if it includes a general and nonspecific concern for litigation, it is less likely to be considered spoliation.²⁷ But Rambus developed its strategy to expressly prepare for litigation against specific parties, and the Federal Circuit determined that Rambus' purpose was to frustrate the fact finding of adverse parties.²⁸ Therefore, Rambus was motivated by foreseeable litigation in developing its documentdestruction policy.²⁹

If a patentee has knowledge of likely infringing activity by competitors, then litigation is more likely to be foreseeable.³⁰ The Federal Circuit pointed out that "[w]hile it may not be enough to have a target in sight that the patentee believes may infringe, the knowledge of likely infringing activity by particular parties makes litigation more objectively likely to occur because the patentee is then more likely to bring suit."³¹

Affirmative steps taken by a party to prepare for litigation indicate that a party foresees litigation.³² At the time Rambus destroyed its documents, Rambus had already targeted specific infringing parties, analyzed possible forums, created claim charts, and determined litigation timelines.³³ The Federal Circuit stated that these actions indicated that Rambus foresaw litigation as a party looking to enforce its patent rights.³⁴

The Federal Circuit observed that a patentee controls the enforcement of a patent, and that a patentee may often foresee litigation before an accused infringer.³⁵ As the patentee, Rambus determined its patent-enforcement strategy and when it could file lawsuits.³⁶ Moreover, Rambus' activities leading up to litigation reflected acts undertaken by a party prepared to enforce its patents through litigation.³⁷

Longstanding licensing or business relationships between parties may in some circumstances make litigation less foreseeable.³⁸ The Federal Circuit suggested that a longstanding relationship's impact on the foreseeability of litigation depends on whether that relationship involves technology directly relating to the patents in suit.³⁹ The Federal Circuit suggested that because Rambus' patents in suit related to DDR-SDRAM, its licensing relationships relating to RDRAM patents did not affect the foreseeability of litigation.⁴⁰

The above factors inform a spoliation analysis for patent litigation. But even if litigation does not represent a likely outcome of a patent dispute, litigation still may be reasonably foreseeable. In Hynix I, the California district court decided that "the path to litigation was neither clear nor immediate," and thus Rambus could not reasonably anticipate litigation.⁴¹ In so deciding, the district court relied on the existence of contingencies, such as an existing licensing partnership between Rambus and Hynix.⁴²

The Federal Circuit, however, rejected the California district court's analysis. The Federal Circuit emphasized that even if parties must satisfy contingencies before litigation, they may still foresee litigation.⁴³ The Federal Circuit explained that it "would be inequitable to allow a party to destroy documents it expects will be relevant in an expected future litigation, solely because contingencies exist, where the party destroying documents fully expects those contingencies to be resolved."⁴⁴ Thus for determining
whether documents should be preserved, litigation

may be foreseeable even when it is only a possible outcome of a patent conflict.

In its March 2013 opinion on spoliation for an employment lawsuit, the D.C. Circuit suggested that even suspicions of a potential future internal investigation may trigger the reasonable foreseeability of litigation. By suggesting this standard, the D.C. Circuit hints at a lower standard for reasonable forseeability; but, how that lowered standard would apply in patent cases seems unclear.

B. Reasonable Foreseeability for Accused Infringers in Patent Litigation

While the Federal Circuit opinions in Hynix II and Micron II clarify when a patentee can reasonably foresee litigation, other cases provide guidance as to when an accused infringer can reasonably foresee litigation. When a party becomes aware that it may be sued, there is a duty to preserve evidence.⁴⁷ As illustrated above, a trigger event may occur when a party receives a letter alleging patent infringement.⁴⁸

In the recent high-profile patent litigation, Apple v. Samsung in the Northern District of California, Samsung was accused of infringing Apple's patents relating to smartphone technologies.⁴⁹ The parties were engaged in licensing negotiations when "Apple delivered, in person, a comprehensive summary of its specific patent infringement claims against specific Samsung products."⁵⁰ The district court concluded that receipt of the letter put Samsung on notice that Apple may sue for patent infringement.⁵¹

Additionally, when a party invokes work-product immunity, courts have found that the party has a corresponding duty to preserve evidence.⁵² As established in Micron II, litigation is reasonably foreseeable to a party when steps are taken by that party to prepare for litigation.⁵³ By invoking work-product immunity, a party has signaled that it foresees litigation because work-product immunity applies to materials prepared in anticipation of litigation.⁵⁴

The act of destroying documents alone does not result in spoliation sanctions. Sanctions depend on the conduct of the spoliating party and the prejudice to its adversary's case.⁵⁵ The severity of sanctions can range from discovery sanctions, such as orders for additional discovery and fee shifting, to casedispositive sanctions.⁵⁶ Case-dispositive sanctions include adverse-inference jury instructions, striking of pleadings, default judgments, and adjusted damage awards.⁵⁷ In determining sanctions, courts scrutinize the spoliating party's conduct and state of mind. The type of conduct warranting sanctions varies among the regional circuits.

In some circuits, such as the Second, Sixth, and Ninth Circuits, willful misconduct or gross negligence is enough to establish a rebuttable presumption that the missing evidence prejudiced the adverse party, and the spoliating party may have difficulty in rebutting that presumption.⁵⁸ To do so, the spoliating party would have to show that the altered or destroyed evidence would not disadvantage its adversary.⁵⁹

In contrast, courts in other circuits, such as the Fifth, Seventh, and Tenth circuits require a showing that a party destroyed evidence in bad faith.⁶⁰ Further, an innocent party may also need to show that the missing evidence relates to an issue in dispute as a "check on spoliation allegations and sanctions motions."⁶¹ Some courts may even require a party to identify missing evidence with some specificity.⁶²

When considering sanctions, some circuits consider a combination of a spoliator's conduct and prejudice to the adverse party. The Third Circuit applies a balancing test for determining sanctions that considers: "(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) whether there is a lesser sanction that will avoid substantial unfairness to the opposing party and, where the offending party is seriously at fault, will serve to deter such conduct by others in the future."⁶³

A. Willfulness and Bad Faith in the Spoliation of Evidence

While the Federal Circuit has jurisdiction over patent litigation, it reviews spoliation under relevant regional circuit law.⁶⁴ In Micron II, which was initially filed in the Delaware district court, the Federal Circuit followed the Third Circuit standard that dispositive sanctions "should not be imposed unless there is clear and convincing evidence of both bad-faith spoliation and prejudice to the opposing party."⁶⁵ Further, for a finding of bad faith, the spoliating party must have intended to impair the ability of its adversary to defend itself.⁶⁶

In contrast, on remand in Hynix III, the California district court stated that in the Ninth Circuit "willful spoliation is the same as bad faith spoliation insofar as it may justify dismissal and places the burden on the spoliator to show the adversary was not prejudiced."⁶⁷ The Hynix III court determined that Rambus acted in bad faith or at least willfully:

Rambus did willfully destroy records when litigation was reasonably foreseeable. That destruction was part of a litigation plan. The destruction involved the shredding of large volumes of documents on multiple occasions. And finally, Rambus made no effort to log or record what was destroyed.⁶⁸

Apple v. Samsung provides another illustration of the Ninth Circuit's willfulness standard in a patent case. There, the California district court imposed spoliation sanctions against Samsung, because Samsung failed to adequately disable an email autodelete function when litigation became foreseeable.⁶⁹ Samsung notified potential custodians of the need to disable their email auto-delete function, and provided instructions on how to disable the function.⁷⁰ But some custodians failed to comply with Samsung's instructions.⁷¹ The district court found Samsung's effort to preserve emails inadequate and sanctioned Samsung for willfully failing to preserve the emails.⁷²

B. Prejudice Caused by Spoliation

An innocent party suffers no prejudice if the missing evidence lacks materiality. But if the outcome of the case could depend on the missing evidence, an innocent party may face significant prejudice.

In Micron II, the Federal Circuit stated that the adverse party only needed to present "plausible, concrete suggestions as to what the destroyed evidence might be." On remand, both the Micron III and Hynix III courts determined that the spoliated evidence would not affect patent invalidity defenses asserted by the accused infringers. Prior-art and written-description defenses, based on patent law in 35 U.S.C. §§ 102, 103, and 112, rely on publicly available evidence, rather than evidence that would
be only in Rambus' possession.⁷⁴

But both Hynix and Micron also raised defenses related to Rambus' compliance with patent-disclosure obligations with the Joint Electron Device Engineering Council ("JEDEC"), a standards setting organization.⁷⁵ In order to prove that Rambus flouted its JEDEC obligations, the adverse party would need access to evidence possessed by Rambus.⁷⁶ If Rambus failed to comply with JEDEC obligations, Rambus may have gained an unfair competitive advantage according to JEDEC policy.⁷⁷ Evidence of Rambus' failure to comply with JEDEC rules could affect the trial's outcome.⁷⁸

In its prejudice analysis on remand from the Federal Circuit in Micron II, the Delaware district court in Micron III held that Rambus' spoliation also precluded Micron from obtaining evidence of inequitable conduct during prosecution of the patents in suit.⁷⁹ For an inequitable conduct defense to succeed, Micron would have to present evidence that Rambus intended to deceive the United States Patent and Trademark Office (USPTO). But evidence of any intent to deceive the USPTO, if such evidence ever existed, would have likely been in Rambus' possession. Without such evidence, Micron could not pursue its defense of inequitable conduct, which if found, would have rendered the patents unenforceable.⁸⁰

C. The District Court in Micron III Held Rambus' Patents Unenforceable

As a result of Rambus' spoliation conduct, the Delaware court in Micron I sanctioned Rambus and held Rambus' patents unenforceable against Micron.⁸¹ On remand, the Federal Circuit directed the Delaware district court to justify any spoliation sanctions and determine whether Rambus' conduct undermined the integrity of judicial proceedings.⁸² The Federal Circuit stated that the Delaware district court, "must select the least onerous sanction corresponding to the willfulness of the destructive act and the prejudice suffered by the victim."⁸³ But the Delaware district court in Micron III again dismissed Rambus' infringement claims against Micron, holding Rambus' patents unenforceable against Micron as a sanction for spoliation.⁸⁴

Regarding sanctions in Micron II, the Federal Circuit outlined three aims to consider for spoliation sanctions: "(1) deterring future spoliation of evidence; (2) protecting the defendant's interest; and (3) remedying the prejudice defendants suffered as a result of [Rambus'] actions."⁸⁵ According to the Delaware district court in Micron III, less onerous sanctions than dismissal would fail to satisfy these aims.⁸⁶

Regarding deterrence, the Delaware district court found that monetary sanctions would not adequately reduce a party's "temptation to destroy unfavorable evidence at the outset of high stakes litigation."⁸⁷ The court also rejected applying the sanction of an adverse jury instruction, because it believed that the outcome from adverse jury instruction is too unpredictable to deter bad faith spoliation.⁸⁸ For protecting Micron's interest and remedying prejudice, the court stated that monetary sanctions against Rambus would not adequately compensate Micron for the "irretrievable loss of evidence that may be dispositive in this case."⁸⁹

A dispositive sanction, however, would ensure the protection of Micron's interests and remedy the prejudice caused by Rambus' evidence destruction.⁹⁰ The court concluded that anything less than declaring Rambus' patents unenforceable against Micron "would, in effect, reward Rambus" for taking a risk and destroying documents it knew could be relevant for litigation.

D. The District Court in Hynix III Ruled for Monetary Sanctions

The Hynix III court did not address inequitableconduct defenses in its decision, but instead imposed
sanctions based on Rambus' failure to comply with

JEDEC obligations.⁹² According to the Hynix III court, had Rambus complied with JEDEC disclosure rules, those rules may have required Rambus to provide a license to Hynix with terms that were "demonstrably free of unfair discrimination."⁹³

The Hynix III court concluded that "the sanction most commensurate with Rambus' conduct and which addresses the above concerns was to strike from the record evidence supporting a royalty in excess of a reasonable, non-discriminatory royalty."⁹⁴ In May 2013 the California court modified this approach, concluding "that a monetary sanction that takes into account the royalty rates negotiated and paid by SK Hynix's primary competitors is a more appropriate and straightforward way to mitigate the prejudice… caused by Rambus' spoliation."⁹⁵ The finding of patent infringement remains, but the court applied sanctions to reduce monetary damages to a fair, reasonable, and non-discriminatory (FRAND) royalty.⁹⁶

To determine a FRAND royalty, the California district court analyzed "effective royalty rates" or "ERRs" of Hynix's primary competitors, Samsung, Infineon Technologies, and Elpida Memory.⁹⁷ Rambus objected to the court's calculation, arguing that these ERRs were negotiated after litigation, and thus the ERRs were unsuitable for ascertaining actual royalty rates.⁹⁸ The court countered that the same spoliation evidence encountered here likely influenced these royalty rates, and thus these rates were relevant to calculating the damage award.⁹⁹ Further, appropriate sanctions would ensure that Hynix was not placed "at a competitive disadvantage vis a vis its competitors."¹⁰⁰ The court's recalculated royalty rate reduced the $349 million damage award by $250 million.¹⁰¹

But if the Delaware district court holding relies on the possibility that destroyed documents contained evidence of inequitable conduct, the Rambus patents may have been unenforceable against all alleged infringers. The California district court, however, declined to grant a Hynix motion for collateral estoppel effect of the Micron III decision.¹⁰² While the discrepancy between the Hynix III and Micron III holdings may have required review by the Federal Circuit, Hynix's and Rambus' $240 million settlement in June 2013 likely precludes further review.¹⁰³

The discussions in the Rambus v. Micron, Rambus v. Hynix, and Apple v. Samsung cases suggest that allegations of spoliation may become an important tactic in high-stakes patent litigation. Given the unpredictability of spoliation law, companies should ensure that their document retention and destruction practices do not make them vulnerable to allegations of spoliation.

While the primary goal of a business' patent strategy may be licensing and monetizing its patents, the Federal Circuit has indicated that these practices may make patent litigation a reasonably foreseeable outcome under many circumstances, even if litigation remains unlikely. Further, when a business takes steps to make patent enforcement part of its business strategy, litigation may become foreseeable. Likewise, once a party becomes aware that its conduct may lead to a patent-infringement claim against it, litigation is foreseeable.

For sanctions, while a showing of bad-faith, evidence destruction may be required to incur spoliation sanctions in some circuits; in other circuits an adverse party need only show willfulness. Even negligent failure to retain documents, such as inadequate disabling of email auto-delete functions, may be enough to incur some type of spoliation sanction. Therefore, companies engaged in patent licensing must make affirmative efforts to ensure that potentially relevant evidence is not lost once litigation becomes reasonably foreseeable under spoliation analysis standards.