Source: https://www.bna.com/rambus-loses-spoliation-n6819/
Timestamp: 2019-04-26 08:23:06+00:00

Document:
Rambus Inc., generally known in the patent community for litigation surrounding its activities in the standards-setting process in the semiconductor industry, lost in two cases before the U.S. Court of Appeals for the Federal Circuit ruled May 13, this time for spoliation of evidence.
In the companion case, based on the same basic set of facts but litigated in the U.S. District Court for the Northern District of California by a different prospective infringer, the court applied the same standard to overturn the lower court's rejection of the spoliation argument (Hynix Semiconductor Inc. v. Rambus Inc., Fed. Cir., No. 2009-1299, 5/13/11).
Original Problem in Standards Body.
Rambus holds a number of patents, all traceable to a 1990 application, covering various aspects of dynamic random access memory, or DRAM. Rambus's early patent claims were directed to a particular type of DRAM the company called Rambus DRAM or RDRAM.
The company does not manufacturer products; its business is based on intellectual property licensing. Rambus had early success licensing RDRAM technology to Intel Corp. and others.
At the time, Rambus was also member of the Joint Electron Devices Engineering Council, a standard-setting organization. JEDEC had a disclosure policy intended to prevent a member from obtaining patents on the industry standard. Rambus did disclose claims of one of its RDRAM patents, but quit the body when it discovered that the SSO was moving toward a synchronous DRAM, or SDRAM, standard.
However, the company determined that its 1990 application supported SDRAM claims as well, and it consequently submitted continuation applications covering those claims.
Rambus's actions related to failures to adhere to the SSO's disclosure policy were the subject of litigation in Rambus Inc. v. Infineon Technologies AG, 145 F. Supp. 2d 721, 60 USPQ2d 1385 (E.D. Va. 2001) (62 PTCJ 192, 6/29/01), affirmed 318 F.3d 1081, 65 USPQ2d 1705 (Fed. Cir. 2003) (65 PTCJ 319, 2/7/03). However, the Federal Circuit ruled that the disclosure duty was not triggered until work formally began on the proposed SDRAM standard, which occurred after Rambus left JEDEC.
Same Basic Facts in Both Cases.
Meanwhile, however, other JEDEC members who were pursuing SDRAM technology--Micron Technology Inc., Samsung Electronics Co., and Hynix Semiconductor Inc.--took a different approach. Each initiated declaratory judgment proceedings in three different federal courts, alleging spoliation of evidence by Rambus.
• In March 1998, Joel Karp, Rambus's vice president in charge of intellectual property, first proposed a litigation strategy to the company's board of directors. In the same meeting, he proposed a document retention strategy.
• In September 1998, Rambus held its first “shred day,” in line with the document retention strategy. By that time, it had also destroyed all electronic mail messages and backups except one that helped establish a priority date for the patent application.
• In October 1998, Karp notified the board of his intention to assert the patents against SDRAM manufacturers, beginning in the first quarter of 2000. Notes from an executives' strategy meeting a month later confirmed the intention even if the RDRAM market held its ground.
• In December 1998, Karp outlined a plan to sue Intel if that company moved to SDRAM, as well as other SDRAM manufacturers including Micron. Karp had claim charts made detailing Micron's infringement.
• In April 1999, Rambus instructed its patent prosecution counsel to implement the same document retention policy. Counsel complied with the request.
• The first patent (5,915,105) issued in June 1999, and the company's CEO asked Karp to prepare a litigation strategy against at least one SDRAM manufacturer.
• Rambus held a second “shredding party” on Aug. 26, 1999.
• Rambus negotiated with Hitachi on a patent license, but talks broke down in November 1999. On Jan. 18, 2000, Rambus sued Hitachi for patent infringement, but the companies settled in June. The lawsuit against Infineon was filed Aug. 8, 2000.
The case against Samsung did not go forward until 2005. It is noteworthy in that the lower court wrote a lengthy opinion addressing the alleged spoliation of evidence by Rambus, Samsung Electronics Co. v. Rambus Inc., 39 F. Supp. 2d 524 (E.D. Va. 2006), but the Federal Circuit vacated the opinion as moot because of a separate issue. 523 F.3d 1374, 86 USPQ2d 1604 (Fed. Cir. 2008) (76 PTCJ 87, 5/16/08).
Micron Suit in Delaware; Hynix in Northern California.
In August 2000, 10 days after the Infineon lawsuit was filed, Rambus approached Micron for licensing discussions, but Micron responded Aug. 28 with a declaratory judgment action in Delaware. A day later, Hynix filed a similar action in the Northern California court.
The issue of whether Rambus had destroyed documents after it had a duty to begin preserving documents was litigated in both suits.
In Hynix, Senior Judge Ronald M. Whyte pierced Rambus's attorney-client privilege on the basis of the crime-fraud exception of California Penal Code §135, which prohibits destruction of documents “about to be produced in evidence.” Consequently, the court discovered many of the facts in the time line listed above.
Nevertheless, Whyte determined that “Rambus did not actively contemplate litigation or believe litigation against any particular DRAM manufacturer to be necessary or wise before its negotiation with Hitachi failed, namely in [November] 1999.” 591 F. Supp. 2d 1038 (N.D. Cal. 2006). Since all the shredding preceded that date, he found that document destruction did not constitute spoliation.
Rambus then moved the Delaware court to transfer the Micron case to Northern California.
Judge Sue Robinson denied the motion, and ruled that Rambus had, in fact, engaged in spoliation. She concluded that Rambus's litigation was reasonably foreseeable “no later than December 1998, when Karp had articulated a time frame and a motive for implementation of the Rambus litigation strategy.” Thus, the August 2009 second shred day, at least, came after the duty to preserve documents was in effect.
Robinson also concluded that the only reasonable sanction against Rambus was to hold the patents unenforceable. Rambus appealed the Delaware court's judgments.
The Hynix case continued in Northern California. No. CV-00-20905 RMW, 87 USPQ2d 1859 (N.D. Cal. 2008) (75 PTCJ 483, 3/7/08). Hynix eventually appealed Whyte's judgment on spoliation, as well as judgments in favor of Rambus as to claim construction, the written description requirement, obviousness, and unenforceability due to waiver.
Micron's Rules for Reasonable Foreseeability Standard.
The same five-judge panel heard each case. Judge Richard Linn wrote the majority opinion in both. The court's opinion in Micron was the most detailed.
Relying for the most part on Silvestri v. General Motors Corp., 271 F.3d 583 (4th Cir. 2001), the court held that the duty to preserve evidence begins when litigation is pending or reasonably foreseeable, and the “reasonably foreseeable” standard is flexible and fact-based. “However, it is not so inflexible as to require that litigation be 'imminent, or probable without significant contingencies,' as Rambus suggests,” the court explained.
• It may not be enough to trigger the reasonably foreseeability standard when a patent owner simply has “a target in sight that the patentee believes may infringe,” but in the instant case, the court said, “Rambus was on notice of potentially infringing activities by particular manufacturers,” and in fact broadened its claims to encompass the SDRAM manufacturers as infringers.
• The patentee is more likely to have the choice of when to litigate and thus is in a better position to foresee litigation than the prospective infringers, he said.
• Finally, the court explained, “In general, when parties have a business relationship that is mutually beneficial and that ultimately turns sour, sparking litigation, the litigation will generally be less foreseeable than would litigation resulting from a relationship that is not mutually beneficial or is naturally adversarial.” The move from RDRAM to SDRAM was certainly not beneficial to Rambus, Linn noted.
However, the court next moved to the sanction chosen by the Delaware court and concluded that the lower court's opinion did not adequately address imposing the dispositive sanction of dismissal.
Relying primarily on Schmid v. Milwaukee Electric Tool Corp., 13 F.3d 76, 81 (3d Cir. 1994), the court required that such a sanction demands a finding of bad faith and prejudice to the opposing party.
In the instant case, Linn said, the lower court opinion “does not fully explain the factual underpinnings of its bad faith determination.” He explained that more is needed than a note that document destruction was intentional.
Finally, the court affirmed the lower court's judgments both in piercing the attorney-client privilege and the denial of transfer.
Same Basic Analysis in Hynix.
Providing more detail than in Micron as to the importance of contingencies at issue, Linn characterized Whyte's judgment as a recognition that the outcomes of the contingencies that would lead to litigation were reasonably foreseeable, while litigation itself was not. “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,” he explained.
The Hynix opinion then proceeded to discuss the other issues on appeal in that case and affirmed claim construction, written description, and obviousness judgments, for the most part because the court was bound by the Infineon decision. The court also affirmed judgments as to waiver and Rambus's cross-appeal of noninfringement findings on some of the claims.
Linn's opinions were joined by Judges Alan D. Lourie and William C. Bryson. Judge Pauline Newman joined the majority in Micron but joined the dissent in Hynix.
Judge Arthur J. Gajarsa wrote the dissenting opinions in both cases, criticizing the majority for overturning fact finding decisions of the lower courts and not deferring to the lower courts' application of the laws of sister circuits.
“I disapprove of this backdoor imposition of Federal Circuit law in place of that of the regional circuit and additionally dissent from the portion of the majority's Hynix opinion that overturns the district court's spoliation determination,” Gajarsa said.
Matthew D. Powers of Weil, Gotshal & Manges, Redwood Shores, Calif., represented Micron. Rambus was represented in that case by Carter G. Phillips of Sidley Austin, Washington, D.C.
Sri Srinivasan of O'Melveny & Myers, Washington, D.C., represented Hynix. Rambus was represented in Northern California by Richard G. Taranto of Farr & Taranto, Washington, D.C. Robert E. Freitas of Orrick, Herrington & Sutcliffe, of Menlo Park, Calif., represented amicus curiae Nanya Technology Corp., another SDRAM manufacturer.

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