Shredding Parties to Destroy Evidence Could Cost Rambus $350+ Mil

Hynix Semiconductor v. Rambus, 2009-1299 (Fed. Cir. May 13, 2011) [PDF] and Micron Technology v. Rambus, 2009-1263 (Fed. Cir. May 13, 2011) [PDF].

In both of the above cited cases Rambus sued makers of SDRAM and DDR SDRAM alleging infringement of a number of Rambus owned patents.  A key issue addressed by the Federal Circuit was whether Rambus engaged in spoliation of evidence by destroying certain evidence.

In Hynix Semiconductor v. Rambus, the district court found Rambus did not spoil evidence, found for Rambus on several of Rambus’ infringement claims, and entered a 350 million dollar judgement in favor of Rambus. The district court in Micron Technology v. Rambus, found–on substantially the same facts as in Hynix— that Rambus did spoil evidence and as a sanction dismissed Rambus’ case with prejudice.  The Federal Circuit affirmed the spoliation ruling of the district court in Micron Technology and reversed the district court in Hynix Semiconductor finding the Hynix court applied too narrow an interpretation of whether the litigation was reasonably foreseeable.

Facts. Rambus’ primary business is licensing its intellectual property to DRAM Manufacturers. Rambus first attempted to license its rights in several patents covering RDRAM memory to manufacturers. It had modest success until in 1999 manufactures failed to deliver the promised manufacturing capacity and Intel began to back away from using RDRAM technology. At some point at or after Rambus began licensing RDRAM it under took a strategy for preparing to seek licensing revenue and litigation damages from manufactures adopting SDRAM. The following events occurred:

  1. At a Feb. 2, 1998 meeting between Rambus and its attorneys regarding licensing to infringing  SDRAM manufacturers, Rambus proposed a royalty rate that was so high that Rambus’ attorneys said “you’re not going to have a licensing program, you’re going to hav a lawsuit on your hands. Rambus representative’s said they didn’t to be “Battle Ready” for litigation. Rambus attorney’s recommended a document retention policy.
  2. Meeting notes for a November 1998 meeting showed that Rambus planned to assert its patents against SDRAM manufacturers.
  3. In December 1998, Joel Karp, Rambus VP of IP drafted a memo describing a “nuclear winter” scenario if Intel moved away from RDRAM and outlined plans to sue Intel ad SDRAM manufacturers. The memo also noted that infringement charts for Micron Devices were complete.
  4. A July 22, 1998, Rambus Document retention policy stated that destruction of relevant and discoverable evidence did not need to stop until the commencement of litigation.
  5. Karp told employees to look fora helpful document to keep, including documents that would help establish conception and prove that Rambus has IP.
  6. On March 16, 1998, a Rambus email discussed the growing worry that email backup tapes were discoverable information.
  7. On May 14, 1998, Rambus implemented a new policy of keeping email backup tapes for only 3 months.
  8. In July 1998, Rambus erased all but 1 of the 1,269 tapes storing email backups for the past several years. The one tape saved had documents the helped establish a priority date for one of its inventions.
  9. On September 3, 1998, Rambus held its first “shred day” to implement its newly adopted document retention policy.
  10. In April 1999, Karp instructed Rambus’ outside patent prosecution counsel to implement the document retention policy and discard material from its patent prosecution files, including draft patent applications, claims, amendments, attorney notes, and correspondence with Rambus.
  11. On August 26, 1999, Rambus held a shredding party (second shred day) as a part of its IP litigation readiness goals and destroyed between 9,000 and 18,000 pounds of documents in 300 boxes.
  12. In November 1999, negotiations with on SDRAM manufacturer, Hitachi broke down.
  13. In December 1999, Rambus instituted a litigation hold to preserve evidence.
  14. In January 2000, Rambus sued Hitachi. The case settled in June 2000.
  15. Rambus negotiated SDRAM licenses with SDRAM Manufacturers Toshiba, Oki, and NEC.
  16. Rambus sued Infineon in August 2000
  17. On August 18, 2000, Rambus approached Mircon about licensing.
  18. On August 28, 2000, Mircon sued Rambus for declaratory judgment of invalidity, non-infringement, and unenforceability of Rambus patents .
  19. On August 29, 2000, Hynix Semiconductor filed a similar declaratory judgment suit against Rambus in a different court.

Law on Spoliation of evidence. The court noted that “[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 also noted that “It is, of  course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances.” A party can only be sanctioned for the destruction of evidence when it has a duty to preserve it. Therefore “spoliation refers to the destruction or material alteration of evidence or to the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.” The mere existence of a potential claim or distant possibility of litigation is not enough to trigger the duty to preserve. However, the standard does not require litigation to be imminent or probable with out significant contingencies.

Findings. The Federal Circuit found the district court’s finding of spoliation in Micron was not in error for the following reasons.

  1. The reason for the existence of Rambus’ document retention (or destruction) policy “was to further Rambus’s litigation strategy by frustrating the fact-finding efforts of parties adverse to Rambus.”
  2. “Rambus was on notice of likely infringing activities by particular manufacturers.”
  3. “Rambus took several steps in furtherance of litigation prior to its second shredding party on August 26, 1999.”
  4. As the plaintiff-patentee, Rambus could more likely foresee the litigation commencing because whether litigation occurred was largely dependent on Rambus’ own decision to litigate.
  5. “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.” However, the Rambus’ relationship with the RDRAM manufacturers did nothing to make litigation significantly less likely, and “Rambus and the manufacturers did not have a longstanding and mutually beneficial relationship regarding SDRAM.”

When to Preserve. Therefore, materials should be preserved at least when:

  1. The reason for the destruction of materials is or can be understood as being to frustrate fact-finding efforts of adverse parties;
  2. A patent owner/potential plaintiff is on notice of likely infringing activities; or
  3. Steps have been taken in the furtherance of litigation.