MICRON TECHNOLOGY, INC. v. RAMBUS INC. No. 2009-1263.
645 F.3d 1311 (2011)
MICRON TECHNOLOGY, INC., Plaintiff/Counterclaim Defendant-Appellee, and Micron Electronics, Inc. and Micron Semiconductor Products, Inc., Counterclaim Defendants-Appellees, v. RAMBUS INC., Defendant/Counterclaimant-Appellant.
United States Court of Appeals, Federal Circuit.
Rehearing and Rehearing En Banc Denied July 29, 2011.
Matthew D. Powers, Weil, Gotshal & Manges LLP, of Redwood Shores, CA, argued for plaintiff/counterclaim defendant-appellees and counterclaim defendants appellees. With him on the brief were Jared Bobrow, Jessica L. Davis, Sven Raz; and Lisa R. Eskow, of Austin, TX.
Carter G. Phillips, Sidley Austin LLP, of Washington, DC, argued for defendant/counterclaimant-appellant. With him on the brief were Rollin A. Ransom, Eric A. Shumsky, Eric M. Solovy, Rachel H. Townsend, Ryan C. Morris. Of counsel was Peter S. Choi. Of counsel on the brief were Richard G. Taranto, Farr & Taranto, of Washington, DC; and Gregory P. Stone, Paul J. Watford, and Fred A. Rowley, Jr., Munger, Tolles & Olson LLP, of Los Angeles, CA; and Michael J. Schaengold, Patton Boggs LLP, of Washington, DC.
Opinion for the court filed by Circuit Judge LINN, with whom NEWMAN, LOURIE, and BRYSON, Circuit Judges, join. Concurring-in-part, dissenting-in-part opinion filed by Circuit Judge GAJARSA.
LINN, Circuit Judge.
Rambus Inc. ("Rambus") appeals the decision of the United States District Court for the District of Delaware holding that the twelve Rambus patents asserted against Micron Technology, Inc., Micron Electronics, Inc., and Micron Semiconductor Products, Inc. (collectively, "Micron") are unenforceable due to Rambus's spoliation of documents. Micron Tech., Inc. v. Rambus Inc., 255 F.R.D. 135 (D.Del.2009) ("Decision"). Rambus also appeals the district court's order piercing Rambus's attorney-client privilege on the basis of the crime-fraud exception, Micron Tech, Inc. v. Rambus Inc., No. 00-792 (D.Del. Feb. 10, 2006) ("Privilege"), and denial of Rambus's motion to transfer to the Northern District of California, Micron Tech, Inc. v. Rambus Inc., No. 00-792 (D.Del. June 14, 2007) ("Transfer"). For the reasons discussed below, this court affirms-in-part, vacates-in-part, and remands.
This case and the companion case of Hynix Semiconductor Inc. v. Rambus Inc.,
Farmwald and Horowitz did not initially file patent applications with claims explicitly directed at SDRAM. However, after Rambus's tenure and resignation as a member of the standard setting Joint Electron Devices Engineering Council ("JEDEC"), Rambus amended its claims to cover the SDRAM technology adopted as the standard by JEDEC. See generally Rambus Inc. v. Infineon Techs. AG,
The present appeal began when Micron filed a declaratory judgment action against
The record is lengthy but uncomplicated. In 1990, Farmwald and Horowitz filed their first patent application directed to improving the speed with which computer memory can function. Rambus was founded the same year to commercialize this invention. Rambus developed its proprietary RDRAM technology, and licensed chip makers to manufacture memory chips incorporating this technology. Around this time, JEDEC was working to develop industry standard specifications for memory chips and the interfaces between memory chips and computer processor chips, eventually adopting its first SDRAM standard in 1993. In approximately 1992, Rambus learned of SDRAM and came to believe that the Farmwald and Horowitz invention encompassed SDRAM. Rambus continued prosecuting multiple patent applications in the Farmwald/Horowitz family, intending to obtain issued patent claims that covered SDRAM. Rambus thereafter pursued a two-prong business strategy: it licensed chip makers to manufacture chips that complied with Rambus's proprietary RDRAM standards, and prepared to demand license fees and to potentially bring infringement suits against those manufacturers who insisted on adopting the competing SDRAM standard instead.
The first prong of Rambus's strategy went smoothly for some time. In 1996, Intel licensed the RDRAM technology and adopted it as the memory interface technology for its next generation microprocessors. Rambus negotiated licenses with eleven DRAM manufacturers to produce RDRAM-compliant chips for Intel's use. By the fall of 1999, though, these manufacturers had failed to deliver the promised manufacturing capacity, and Intel was therefore beginning to rethink its adoption of RDRAM. Rambus contends that only after RDRAM failed to become a market leader in late 1999 did it to put into action the second prong of its business strategy, to seek licensing revenue (and litigation damages) from those manufacturers adopting SDRAM.
Micron disagrees, arguing that Rambus was planning litigation against SDRAM manufacturers at the same time it was seeking to license RDRAM manufacturers.
In 1997, Rambus hired Joel Karp as its vice-president in charge of intellectual property, and on January 7, 1998, Karp was directed by Rambus's CEO Tate to develop a strategy for licensing and litigation. Karp then met with several transactional attorneys at Cooley Godward. Because
In August or September 1998, Rambus hired outside counsel to perform licensing and patent prosecution work as well as to begin preparing for litigation against SDRAM manufacturers. In October 1998, Karp advised Rambus executives that he was planning to assert Rambus's patents against SDRAM manufacturers in the first quarter of 2000, explaining that there were good business reasons for the delay in bringing suit, particularly Rambus's interest in getting licensing revenues from RDRAM manufacturers, who would be the same parties it would seek to license for the production of SDRAM. In November 1998, Rambus executives held an offsite strategy meeting. The meeting notes show that Rambus planned to eventually assert its patents against SDRAM, even if the RDRAM adoption strategy succeeded. In approximately December 1998, Karp drafted a memo describing a possible "nuclear winter" scenario under which Intel moved away from RDRAM. The memo outlined plans for suing Intel and SDRAM manufacturers, saying that "by the time we do this, the proper litigants will be obvious." The memo also noted that infringement claim charts for Micron devices had already been completed by December 1998. On April 15, 1999, Karp met with Rambus's outside counsel at Fenwick & West to "discuss [Rambus's] patent portfolio and potential litigation."
Thereafter, in 1998, Rambus also began implementing the portion of Karp's litigation strategy that required the institution of a document-retention policy. In the second quarter of 1998, Rambus established "Top Level Goals" for "IP Litigation Activity." These goals included "[p]ropos[ing] [a] policy for document retention." In the third quarter of 1998, Rambus established "Key Goals" for "IP Litigation Activity." These goals included "[i]mplement[ing] [a] document retention action plan." On July 22, 1998, Karp presented the finished document retention policy to Rambus employees. The slides used for this presentation were titled "BEFORE LITIGATION: A Document Retention/Destruction Policy." The policy explicitly stated that destruction of relevant and discoverable evidence did not need to stop until the commencement of litigation. Despite the policy's stated goal of destroying all documents once they were old enough, Karp instructed employees to look for helpful documents to keep, including documents that would "help establish conception and prove that [Rambus had] IP."
The document destruction policy extended to the destruction of backups of Rambus's internal email. On March 16, 1998, an internal Rambus email discussed the "growing worry" that email backup tapes were "discoverable information," and discussions began regarding how long to keep these backup tapes. On May 14, 1998, Rambus implemented a new policy of
In addition to destroying the email backup tapes, Rambus began destroying paper documents in accordance with its newly-adopted document-retention policy. On September 3-4, 1998, Rambus held its first "shred day" to implement the policy. In April 1999, Karp instructed Lester Vincent, Rambus's outside patent prosecution counsel at Blakeley Sokoloff, to implement the Rambus document-retention policy with respect to Rambus documents in Vincent's possession. Vincent complied, discarding material from his patent prosecution files. Vincent continued discarding material through at least July 1999. He discarded draft patent applications, draft patent claims, draft patent amendments, attorney notes, and correspondence with Rambus.
In June 1999, the first patent in suit issued. On June 24, 1999, Karp was instructed by the Rambus CEO to "hammer out ... our strategy for the battle with the first target that we will launch in October ." In June 27, 1999, Rambus established its "IP 3Q '99 Goals," including goals for "Licensing/Litigation Readiness." These goals included "[p]repar[ing] litigation strategy against 1 of the 3 manufacturers," being "[r]eady for litigation with 30 days notice," and "[o]rganiz[ing] [the] 1999 shredding party at Rambus." Planning for litigation continued when, on July 8, 1999, Fenwick & West prepared a timeline for the proposed patent infringement suits showing that Rambus planned to file a patent infringement complaint on October 1, 1999.
On August 26, 1999, Rambus held the "shredding party" it had planned as part of its third-quarter intellectual property litigation readiness goals. Rambus destroyed between 9,000 and 18,000 pounds of documents in 300 boxes.
Litigation did not ultimately start as planned on October 1, 1999. Still, conditions eventually deteriorated to the point that Rambus felt it could no longer delay the litigation it had started planning in early 1998. As noted above, in the fall of 1999, several RDRAM manufacturers failed to deliver on their promised production of RDRAM chips, causing Intel to rethink its commitment to RDRAM. On September 24, 1999, Karp spoke to Rambus executives, telling them that the industry did not respect Rambus's intellectual property and that Rambus would "have to ultimately pursue remedies in court." Karp asked the board to approve his licensing and litigation strategy, and the board did so. In October 1999, Rambus approached Hitachi, seeking license payments for Hitachi's manufacture of SDRAM. In November 1999, negotiations with Hitachi broke down. Rambus instituted a litigation hold in December 1999, and Rambus sued Hitachi on January 18, 2000. The suit against Hitachi was settled on June 22, 2000. In the meantime, Rambus negotiated SDRAM licenses with Toshiba, Oki, and NEC. Rambus continued to litigate against the members of the chip-making industry by bringing suit against Infineon on August 8, 2000. Rambus, Inc. v. Infineon,
On August 18, 2000, Rambus approached Micron about the possibility of Micron taking a license for its SDRAM production. Micron filed a declaratory judgment action against Rambus in the District of Delaware on August 28, 2000, asserting invalidity, non-infringement, and unenforceability. The following day, Hynix Semiconductor filed a similar declaratory judgment suit against Rambus in the Northern District of California. Hynix Semiconductor, Inc. v. Rambus, Inc.,
Meanwhile, in the Micron litigation in the District of Delaware, Micron sought access to communications between Rambus and its attorneys relating to the adoption of Rambus's document-retention policy. Courts in Hynix and Infineon had previously required production of these documents, and in February 2006, the District of Delaware agreed after finding that the adoption of the policy on the advice of counsel raised the likelihood that Delaware and California criminal statutes prohibiting destruction of evidence had been violated. The court held that the attorney-client privilege could be breached under the crime-fraud exception because Rambus and its counsel had possibly committed a crime. Following this decision and the favorable ruling of the Northern District of California on the spoliation issue, Rambus sought on February 14, 2006, to have the Micron case transferred to the Northern District of California. The District of Delaware denied the motion to transfer.
In November 2007, the District of Delaware held a bench trial on the unclean-hands issue asserted by Micron. Stopping short of reaching the unclean-hands claim, the district court found that Rambus had engaged in spoliation; the court accordingly entered judgment in Micron's favor as a spoliation sanction. The court found that litigation was reasonably foreseeable to Rambus "no later than December 1998, when Karp had articulated a time frame and a motive for implementation of the Rambus litigation strategy." The district court thus ruled that documents destroyed after December 1998 were intentionally destroyed in bad faith. The district court concluded that the only reasonable sanction for the intentional destruction of documents was to hold Rambus's patents in suit unenforceable against Micron. Rambus timely appealed.
As the Supreme Court has noted, "[d]ocument retention policies, which are created in part to keep certain information from getting into the hands of others, including the Government, are common in business. It is, of course, not wrongful for a manager to instruct his employees to comply with a valid document
When litigation is "reasonably foreseeable" is a flexible fact-specific standard that allows a district court to exercise the discretion necessary to confront the myriad factual situations inherent in the spoliation inquiry. Fujitsu Ltd. v. Fed. Express Corp.,
After carefully reviewing the record, the district court determined that "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." Decision, 255 F.R.D. at 150. In coming to this conclusion, the district court applied the correct standard, noting that "[a] duty to preserve evidence arises when.... litigation is pending or imminent, or when there is a reasonable belief that litigation is foreseeable." Id. at 148.
This court reviews the district court's factual findings, such as the date at which litigation was reasonably foreseeable, for clear error. Citizens Fed. Bank v. United States,
The district court found that Rambus destroyed relevant, discoverable documents beginning in July 1998, with the first major shred day occurring in September
First, it is certainly true that most document retention policies are adopted with benign business purposes, reflecting the fact that "litigation is an ever-present possibility in American life." Nat'l Union Fire Ins. v. Murray Sheet Metal Co.,
Second, Rambus was on notice of potentially infringing activities by particular manufacturers. Once the patent issued, the gun was loaded; when the targets were acquired, it was cocked; all that was left was to pull the trigger by filing a complaint. While 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. Here, numerous internal documents manifest Rambus's plan "to play [its] IP card with the DRAM companies" against SDRAM products, either through a patent infringement or a breach of contract suit. See Decision, 255 F.R.D. at 138-48 (noting that even in the early 1990s, Rambus was already "concerned that DRAM manufacturers were using Rambus'[s] technology to develop their own competing DRAMs," and detailing Rambus's campaign to capitalize on non-compliant products' infringement); id. at 144 ("The [Nuclear Winter Memorandum] indicated specifically that Rambus already had claim charts showing that Micron infringed one of the Rambus patents."). See also Br. of Rambus's at 34 ("Rambus therefore feared that demanding licenses on non-compatible products (let alone initiating litigation) would risk undermining its relationships with the very DRAM manufacturers its business strategy depended upon."). In addition, the bulk of the discussions between CEO Tate, Karp, and Rambus's attorneys related to SDRAM and Rambus's licensing (as Rambus argues) or litigation (as Micron argues) plans. Either way, Rambus was on notice of activities it believed were infringing. Cf. Schmid v. Milwaukee Elec. Tool Corp.,
Third, Rambus took several steps in furtherance of litigation prior to its second shredding party on August 26, 1999. Karp had already concluded that Rambus would "need to litigate against someone to establish [a] royalty rate and have [the] court declare [the Rambus] patent[s] valid," had prioritized defendants and forums, had created claim charts and determined an expected timeline for litigation that it would "launch in October ," and had as its goal to "be ready for litigation with 30 days notice" "against 1 of the 3 manufacturers" by the third quarter of 1999. On June 24, 1999, Karp was instructed by CEO Tate to "hammer out ... our strategy for the battle with the first target that we will launch in October ." The first steps toward this litigation were spelled out on June 27, 1999, when Rambus established "IP 3Q '99 Goals," including goals for "Licensing/Litigation Readiness." These goals included "[p]repar[ing] litigation strategy against 1 of the 3 manufacturers," being "[r]eady for litigation with 30 days notice," and "[o]rganiz[ing]
Rambus strongly argues that the steps it did not yet take in furtherance of litigation, i.e. the contingencies, compel a finding that litigation was not reasonably foreseeable. Rambus cites the contingencies accepted by Judge Whyte in the companion Hynix case as precluding Rambus from reasonably foreseeing litigation:
Hynix, 591 F.Supp.2d at 1062. It is of course true that had these contingencies been cleared, litigation would have been more foreseeable. However, it was not clear error to conclude that overcoming the contingencies was reasonably foreseeable. For example, Rambus makes much of the inadvisability of jeopardizing its relationship with the manufacturers through litigation over SDRAM, because those same manufacturers were producing RDRAM, which Rambus hoped would become the market leader. However, as was made clear in the Nuclear Winter Memorandum, if RDRAM did not become a market leader, Rambus would go after the manufacturers of SDRAM and if RDRAM did become a market leader, and the RDRAM ramp "reache[d] a point of no return," then Rambus could come out from "stealth mode," and could then "ROCK THE DIRECT BOAT" because the manufacturers would be locked in to the RDRAM standard. Hence the use of definitive language of future intention, such as asking "WHAT'S THE RUSH [to assert patents against RDRAM partners]?" and noting that it should "not asserts patents against Direct [RDRAM] partners until ramp reaches a point of no return (TBD)." (emphasis added). Similarly, obtaining product samples would certainly be a reasonably foreseeable event, particularly because Rambus had explicitly broadened its claim coverage in prosecution to cover standard-compliant products, which, by the terms of the standard, all the manufacturers would meet. It was also reasonably foreseeable that the manufacturers would reject Rambus's licensing terms, because Karp proposed a five percent royalty rate to the board in March 1998 that attorney Johnson had called "ridiculous," and that the Cooley attorneys informed him would result in a lawsuit. In December 1998 or January 1999, Karp opined that in situations where Rambus was "not interested in settling," they should propose a royalty rate between five and ten percent, and noted that "we should not be too concerned with settlement at this point and should push for very high rates." It is thus not clear error to conclude that Rambus reasonably foresaw that the manufacturers would reject its licensing offer. The same is true for the other listed contingencies. Thus, Rambus's preparations for litigation prior to the critical date, including choosing and prioritizing manufacturers
Fourth, when Rambus sued Hitachi on January 18, 2000, it was the plaintiff-patentee, and its decision whether to litigate or not was the determining factor in whether or not litigation would in fact ensue. In other words, whether litigation was reasonably foreseeable was largely dependent on whether Rambus chose to litigate. It is thus more reasonable for a party in Rambus's position as a patentee to foresee litigation that does in fact commence, than it is for a party in the manufacturers' position as the accused.
Fifth, as discussed above, the relationship between Rambus and the manufacturers involving RDRAM did not make litigation significantly less likely, it only delayed the initiation of litigation until the manufacturers were either too invested in RDRAM for the SDRAM litigation to negatively impact Rambus's sales, or until Rambus had no choice but to sue because RDRAM was rejected. 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. Thus, for example, document destruction occurring during the course of a long-standing and untroubled licensing relationship relating to the patents and the accused products that ultimately become the subject of litigation is relatively unlikely to constitute spoliation, while destruction of evidence following repeated failures of a licensee to properly mark products or remit royalties, is more likely to constitute spoliation. Because the relationship regarding RDRAM did nothing to make litigation significantly less likely, and because Rambus and the manufacturers did not have a longstanding and mutually beneficial relationship regarding SDRAM, Rambus cannot use its delay tactics regarding RDRAM to undermine the other considerations herein discussed.
Rambus argues that the district court clearly erred in setting December 1998 as the date at which litigation was reasonably foreseeable, because the only happening on that date was the issuance of the Nuclear Winter Memorandum, which addressed Rambus's potential response to the "very unlikely" scenario that Intel would drop its support for RDRAM. Rambus argues that a document addressing such a contingency cannot form the basis for reasonably foreseeable litigation. The district court found that 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." Decision, 255 F.R.D. at 150. The important inquiry is not whether a particular document made litigation reasonably foreseeable, but whether the totality of the circumstances as of the date of document destruction made litigation reasonably foreseeable. As discussed above, there was no clear error in the district court's holding that they did.
This court thus affirms the district court's determination that Rambus destroyed
B. The District Court's Choice of Sanction
District courts have the "inherent power to control litigation," West, 167 F.3d at 779, by imposing sanctions appropriate to rectify improper conduct by litigants. Schmid, 13 F.3d at 78. Such sanctions may include dismissal. Leon v. IDX Sys. Corp.,
Rambus challenges the district court's imposition of the dispositive sanction of dismissal, arguing that Micron failed to prove bad faith or prejudice, and that the district court was limited to applying some lesser sanction than dismissal. This court addresses Rambus's arguments in turn.
i. Bad Faith
To make a determination of bad faith, the district court must find that the spoliating party "intended to impair the ability of the potential defendant to defend itself." Schmid, 13 F.3d at 80. See also Faas v. Sears, Roebuck & Co.,
Here, the district court's analysis of bad faith follows its conclusion on spoliation and does not fully explain the factual underpinnings of its bad faith determination:
Decision, 255 F.R.D. at 150. A determination of bad faith is normally a prerequisite to the imposition of dispositive sanctions for spoliation under the district court's inherent power, and must be made with caution. In determining that a spoliator acted in bad faith, a district court must do more than state the conclusion of spoliation and note that the document destruction was intentional. See Mathis v. John Morden Buick, Inc.,
The district court's opinion alludes to several key items, including: (1) facts tending to show that Rambus's document retention policy was adopted within the auspices of a firm litigation plan rather than merely carried out despite the reasonable foreseeability of such litigation, e.g., Decision ¶¶ 17, 53, 55 and n. 29; (2) facts tending to show the selective execution of the document retention policy, e.g., Decision ¶ 13 and n. 23, 27; (3) facts tending to show Rambus's acknowledgement of the impropriety of the document retention policy, e.g., Decision ¶¶ 6, 38 and n. 24, 47; and (4) Rambus's litigation misconduct, Decision ¶¶ 37-39. While these items may lead to a determination of bad faith, the district court did not make clear the basis on which it reached that conclusion.
"It is not our task to make factual findings," Golden Hour Data Sys., Inc. v. emsCharts, Inc.,
We note that the district court applied a "knew or should have known" standard in its bad faith determination. On remand, the district court should limit its bad faith analysis to the proper inquiry: whether Rambus "intended to impair the ability of the potential defendant to defend itself," Schmid, 13 F.3d at 80, without regard to whether Rambus "should have known" of the propriety of its document destruction.
Litigations are fought and won with information. If the district court finds facts to conclude that Rambus's goal in implementing its document retention policy was to obtain an advantage in litigation through the control of information and evidence, it would be justified in making a finding of bad faith. If, on the other hand, the district court determines that Rambus implemented its document retention policy for legitimate business reasons such as general house-keeping, a finding of bad faith would be unwarranted. Without a finding either way, however, "the opinion explaining the decision lacks adequate fact findings, [and] meaningful review is not possible." Dennison Mfg. Co. v. Panduit Corp.,
Prejudice to the opposing party requires a showing that the spoliation "materially affect[s] the substantial rights of the adverse party and is prejudicial to the presentation of his case." Wilson v. Volkswagen of Am., Inc.,
It is undisputed that Rambus destroyed between 9,000 and 18,000 pounds of documents in 300 boxes. The district court concluded that the destroyed documents were relevant to at least the following defenses, which would have been "illuminated by evidence of a non-public nature, e.g. by internal Rambus documents": "unenforceability due to patent misuse and violation of the antitrust and unfair competition laws (based in part on Rambus's conduct at JEDEC), as well as inequitable conduct." Decision, 255 F.R.D. at 150-51. Documents relating to Rambus's conduct at JEDEC, together with documents reflecting Rambus's instructions to its patent prosecution counsel concerning its conduct at JEDEC, could have helped resolve Micron's claims relating to patent misuse, antitrust violations, and unfair competition. Documents reflecting Rambus's knowledge of relevant prior art references could have helped resolve Micron's inequitable conduct claims. On the other hand, because it is not clear what documents were destroyed, it may be, as Rambus argues, that all the documents destroyed were either redundant or irrelevant to the trial.
The proper resolution of this issue turns largely on whether Rambus has the burden to show lack of prejudice or Micron has the burden to show prejudice. As discussed above, this turns on whether the district court, on remand, concludes that Rambus was a bad faith spoliator. The question of prejudice is therefore also remanded.
iii. Dispositive Sanction
In addition to reassessing on remand its determination of bad faith and prejudice, the district court should also explain the reasons for the propriety of the sanction chosen (if any) based on the degree of bad faith and prejudice and the efficacy of other lesser sanctions.
Dismissal is a "harsh sanction," to be imposed only in particularly egregious situations where "a party has engaged deliberately in deceptive practices that undermine the integrity of judicial proceedings." Leon, 464 F.3d at 958 (internal citations omitted). This court agrees that such sanctions should not be imposed unless there is clear and convincing
The district court must "select the least onerous sanction corresponding to the willfulness of the destructive act and the prejudice suffered by the victim." Schmid, 13 F.3d at 79 (citing Jamie S. Gorelick, Steven Marzen and Lawrence Solum, Destruction of Evidence, § 3.16, p. 117 (1989)). While the district court noted that "[s]anctions such as adverse jury instructions and preclusion of evidence are impractical, bordering on meaningless, under these circumstances and in the context of a typical jury trial," and that "the simple imposition of fees and costs is wholly inadequate under the facts of this case," Decision, 255 F.R.D. at 151, it did not explain why only dismissal would "vindicate the trifold aims of: (1) deterring future spoliation of evidence; (2) protecting the defendants' interests; and (3) remedying the prejudice defendants suffered as a result of [Rambus's] actions." See West, 167 F.3d at 780.
If the district court again concludes on remand that there was bad faith and prejudice, the record evidence may indeed justify a dispositive sanction, but the seriousness of such a sanction warrants an analysis of all of the factors discussed above. Cf. Roadway Express v. Piper,
C. Piercing of the Attorney-Client Privilege
The district court's spoliation rulings depended in part on evidence from communications between Rambus and its attorneys; these communications were in the record only because they had been ordered produced by Rambus after the district court pierced the attorney-client privilege that otherwise would protect the communications from disclosure. Rambus appeals the privilege-piercing ruling, arguing that the district court erred by finding that Micron had made the required prima facie showing that Rambus had committed or intended to commit a fraud or crime and that the attorney-client communications in question were in furtherance of that crime or fraud.
As discussed above, there is ample evidence that Rambus destroyed documents in its possession knowing that they would likely be forced to be produced in litigation and intending to prevent that production. There is also ample evidence that Rambus devised this strategy partly on the basis of the advice it received from its outside counsel. The only question therefore is whether the documents Rambus destroyed were "about to be produced in evidence," or whether the delay of some months between Rambus's destruction of the evidence and Rambus's final decision to file suit against Hitachi eliminates any possibility that this element of the California statute could be satisfied.
Rambus argues that the "about to be produced in evidence" element of § 135 has been interpreted to "connote[ ] an immediacy or temporal closeness" between the destruction of the evidence and the time when it was to be produced and that such "temporal closeness" is missing here. People v. Prysock,
D. Denial of Transfer
The final issue on appeal concerns the district court's denial of Rambus's motion to transfer this case to the Northern District of California. As discussed above, Rambus filed its first suit against SDRAM manufacturers in January 2000. Micron filed the present declaratory judgment action against Rambus in August 2000. The following day, Hynix filed suit against Rambus in the Northern District of California. The present case was stayed at Rambus's request on June 28, 2002, with the stay apparently lifted in late 2004. Meanwhile, proceedings continued in the Hynix matter in the Northern District of California. In that case, in January 2006, the U.S. District Court for the Northern District of California decided that there had been no spoliation by Rambus. Following that favorable ruling, Rambus moved to transfer the present case to the Northern District of California on February 14, 2006. The Delaware district court denied the motion to transfer on March 29, 2006. At the time of Rambus's motion to transfer, the present case had been pending for five and a half years, and there was a trial schedule already in place.
In an oral ruling from the bench, the district court referred to Rambus's motion to transfer "as clear and obvious a case of forum shopping as has probably ever existed in the federal judiciary," thanks to the motion's coming hard on the heels of the favorable spoliation ruling in the Northern District of California. The district court weighed several factors, including the forum-shopping allegation (weighing against transfer), the plaintiff's choice of forum (weighing against transfer), the convenience of the witnesses (not weighing in favor of either transferring or not transferring), and the fact that trial was scheduled and imminent (weighing against transfer). Based on these factors, the district court denied the transfer motion.
This court reviews this issue under the law of the relevant regional circuit. The Third Circuit reviews denials of motions to transfer for abuse of discretion. Jumara v. State Farm Ins.,
Moreover, every other factor either is neutral or supports the district court's decision not to transfer the case: (1) Rambus waited over five years to ask for this case to be transferred, (2) the motion to transfer came just months before a scheduled trial, and (3) Rambus filed the transfer motion only a month after receiving a favorable ruling by the proposed transferee court, strongly suggesting forum shopping. This forum-shopping should be discouraged, arguing strongly in favor of denying the transfer motion. The district court also pointed out that the convenience of the witnesses did not favor either forum, because most of the witnesses were employees of or consultants to the parties and could therefore be encouraged to testify in either forum, even if they could not be compelled to testify in Delaware. This was correct, not least because Rambus had earlier tried to move a related case out of the Northern District of California, arguing that it was inconvenient for its witnesses to testify there. Given that both parties were incorporated in Delaware, they had both willingly submitted to suit there, which weighs in favor of keeping the litigation in Delaware. Finally, Rambus had previously filed other litigation regarding the same patents (against Hitachi) in the District of Delaware, suggesting that it had no difficulty litigating a patent infringement suit in that court. Given that all the relevant factors either favor denying the transfer motion or are neutral, this court holds that the district court did not abuse its discretion by refusing to transfer this case to the Northern District of California, and therefore affirms the district court's denial of Rambus's motion to transfer.
For the reasons stated above, this court affirms the district court's determination that Rambus spoliated documents, but vacates the district court's dismissal sanction, and remands for further consideration consistent with this opinion.
Each party shall bear its own costs.
GAJARSA, Circuit Judge, concurring-in-part and dissenting-in-part.
While I agree with the majority that there was spoliation of evidence by Rambus, I dissent from that part of the majority's opinion that remands for a reexamination of the evidence for bad faith and vacates the district court's sanction award. Even though the majority applauds with one hand the district court's "inherent power to control litigation," West v. Goodyear Tire & Rubber Co.,
The district court found that Rambus' conduct "impugned" the very integrity of the judicial system. Micron Tech., Inc. v. Rambus Inc., 255 F.R.D. 135, 151 (D.Del. 2009) ("District Court Op."). In so doing, Rambus also abused the privilege of owning a patent monopoly. "As recognized by the Constitution, [a patent] is a special privilege designed to serve the public purpose of promoting the `Progress of Science and useful Arts'" and "is an exception to the general rule against monopolies and to the right to access to a free and open market." Precision Instrument Mfg. Co. v. Automotive Maint. Mach. Co.,
Instead of recognizing this abuse by Rambus, the majority searches to find a needle in the haystack because, in its collective superior judgment, Rambus' conduct does not require taking away that privilege. In fact, the majority fails to consider the "high hurdle" that Rambus must overcome in showing that the district court abused its discretion. Tex. Digital Sys., Inc. v. Telegenix, Inc.,
As an appellate court, we should not decide whether the facts before us "may" lead to a conclusion that we agree with, but whether by so concluding the district court abused its discretion. Indeed, "[t]he question, of course, is not whether ... the Court of Appeals, would as an original matter have [resolved the case in the same way as the District Court]; it is whether the District Court abused its discretion in so doing." Nat'l Hockey League v. Metro. Hockey Club, Inc.,
Here, the district court followed the appropriate Third Circuit standard and provided ample basis in fact for its decision to award dispositive sanctions. District Court Op. at 148-51. In the Third Circuit, a spoliating party acts in bad faith when it "intended to impair the ability of the potential defendant to defend itself." Schmid v. Milwaukee Elec. Tool Corp.,
First, Rambus used its document retention plan to disguise and hide its destruction of relevant documents. Rambus "instructed patent counsel to purge [its] patent files," which would have at least been relevant to inequitable conduct. District Court Op. at 150. Further, Micron's defenses of patent misuse and violations of unfair trade and antitrust laws could all be "illuminated by evidence of a non-public nature, e.g., by internal Rambus documents," id. at 151, which almost certainly could have been included in the 300 boxes of documents destroyed in the second shred day in August 1999, id. at 145, or the 480 boxes destroyed on December 28, 2000, id. at 147. The district court, however, did not make a blanket determination that Rambus' document destruction impeded all of Micron's defenses. In fact, the district court found Micron's ability to assert anticipation and obviousness would not have been impaired by Rambus' spoliation, as the prior art used to assert such defenses is publicly available. Id.
Second, Rambus' document retention policy informed employees they should "LOOK FOR THINGS TO KEEP," including documents that would help establish conception but "expunge" "documents questioning the patentability of Rambus inventions." Id. at 142 n. 26. This policy remained in effect even after December 1998, the date after which destruction of documents was deemed to be spoliation. Id. at 150.
Third, Rambus' own documents (or, more accurately, those that did not make it to the shredding bin) demonstrate that it was aware that its document retention policy resulted in destruction of documents relevant to litigation. Outside counsel Neil Steinberg e-mailed Rambus executives on July 12, 2000 explaining his desire for a new document retention policy that "is similar to the previous policy—however, this time the IP group will attempt to execute the policy more effectively." Id. at 147 n. 57. In addition, Rambus' numerous misrepresentations about its document retention policy during the litigation are evidence, as found by the district court, of a guilty conscience. Id. at 147-48, 151.
In criticizing the district court's sanctions award, the majority claims that the district court must explain the propriety of the sanction "based on the degree of bad faith and prejudice and the efficacy of other sanctions." Majority Op. at 1328. This misstates the analysis a district court must undertake to award sanctions for spoliation in the Third Circuit. Schmid requires that a district court determine:
13 F.3d at 79 (citations omitted). With regard to the first factor, the district court must determine the "degree of fault" of the spoliating party, not the degree of bad faith. It is incongruous to establish a "degree" of bad faith—a party either did or did not act in bad faith. Indeed, Schmid recognized this by defining bad faith as whether the spoliator "intended to impair the ability of the potential defendant to defend itself...." Id. at 80 (emphasis added). Requiring degrees of bad faith is the equivalent of finding whether or not a party is "just a little bit pregnant." The majority's desire for the district court to define how "bad is bad" is contrary to
The majority further states that the district court failed to satisfy the third Schmid factor by not explaining how holding Rambus' patents unenforceable would deter future spoliation of evidence, protect Micron's interests, and remedy the prejudice to Micron. Majority Op. at 1329-30. Not only is this contrary to the record, but the majority is now creating requirements for the imposition of dispositive sanctions that do not exist in the controlling regional circuit law. As explained above, the district court did not abuse its discretion in finding that Rambus acted in bad faith or that the destruction of these documents prevented Micron from mounting an appropriate defense. Further, the district court specifically found that any sanction other than a dispositive one would be "impractical [and] border[ ] on meaningless" due to the egregiousness of Rambus' conduct. District Court Op. at 151. Indeed, Rambus' conduct "impugned" "the very integrity of the litigation process." Id. Obviously, a dispositive sanction will serve to deter others from the egregious conduct seen here. There is no better way for the district court to have complied with the third Schmid factor.
In vacating the sanctions award, the majority has called the firing squad to the ready, the squad cocking their guns and taking aim, but instead of shooting the appropriate and culpable party, the squad aimed at the district court's proper determinations of fact. The majority selectively chooses those facts that support its desired outcome, while ignoring those that do not. Weighing evidence as a fact finder is not our function as an appellate court. If the evidence that was considered and weighed by the district court is objectively analyzed by this court under the abuse of discretion standard, it would lead all reasonable people to affirm. See Gen. Elec. Co. v. Joiner,
In substituting its own views for those of the district court, the majority directly interferes with the sound discretion of the trial courts in managing their cases and prevents them from protecting the litigation process, which they are inherently bound to do. Cooter & Gell v. Hartmarx Corp.,
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