Complex Litigation Corner:  Critical spoliation ruling kicks off trial

Just as summer finally hinted at a cool-down in the Midwest, one piece of the long-awaited patent battle between consumer technology behemoths Apple and Samsung was just heating up in a San Jose, Calif., federal court. As the blockbuster trial opened there, with billions of dollars potentially at stake, it is no surprise that headlines blared in more than just the usual legal periodicals.

Probably less sexy a story to the general public, though what nonetheless will catch the attention of federal court litigators: In the week leading up to trial and upon concluding that "Samsung 'consciously disregarded' its obligation to preserve relevant evidence," U.S. Magistrate Judge Paul S. Grewal ordered an adverse jury instruction against Samsung. See Apple Inc. v. Samsung Electronics Co., Ltd., et al., No. 5:11-cv-01846, 2012 WL 3042943 (N.D. Cal. July 25, 2012). Although the instruction was characterized as one on the "least harsh" end of the spectrum, it almost certainly will impact this megatrial. Let's break it down.

In August 2010 — some seven months before it ultimately filed suit — Apple presented Samsung with information concerning Samsung's alleged infringement of certain Apple patents. That same month, Samsung e-mailed litigation hold notices to a select group of employees, communicating that "[T]here is a reasonable likelihood of future patent litigation between Samsung and Apple unless a business resolution can be reached." Id. at *3. According to the court, Samsung took "no significant further action" over the following seven months. Id. at *4. After Apple ultimately filed suit, Samsung sent a series of additional litigation hold notices to expanding groups of employees.

The court evaluated Apple's spoliation claim under the framework set forth in what is commonly referred to as the "Zubulake IV " decision, Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 220 (S.D.N.Y. 2003) (Scheindlin, J.). That test requires a party seeking spoliation sanctions to show 1) that the adverse party had an obligation to preserve the evidence at the time it was destroyed; 2) that the records were destroyed with a "culpable state of mind"; and 3) that the evidence was relevant to the party's claim or defense.

The court found two major flaws in Samsung's performance. The first related to the seven months that transpired between Samsung's August 2010 hold notice sent to a small group of employees and the later initiation of a broader hold. Particularly at issue was Samsung's proprietary default e-mail system, which included a feature that automatically deleted all e-mails after the passage of two weeks, though employees were able manually to save e-mails they deemed relevant. (The court dubbed this system "an adjudicated spoliation tool" in reference to sanctions imposed on Samsung in a separate litigation.) Even as to the group that received the August 2010 notice, "other than exhorting these employees to circumvent the otherwise certain destruction of documents … Samsung did no follow-up training at all." Apple, 2012 WL 3042943 at *5. Samsung argued that its obligation to preserve evidence did not arise until after Apple filed suit, but the court rejected this argument, refusing to allow Samsung to sidestep the plain admission in its August 2010 hold notice that it believed litigation to be reasonably likely.

The second major flaw related to Samsung's ongoing efforts. Although the court seemed satisfied that Samsung did a reasonable job of updating and reminding its employees about the litigation hold and the requirements and methodology for document preservation, at no time did Samsung ever engage in any audit or monitoring of the employees subject to the litigation hold to determine the efficacy of that hold. Acknowledging that it could never be in a position to know what information was actually lost, the court nonetheless was convinced that relevant information was destroyed. In support of this, Apple demonstrated that Samsung produced either no e-mail or very little e-mail for certain key employees who utilized the proprietary system with the auto-delete feature. By contrast, similarly situated employees who used Microsoft Outlook produced significant quantities of e-mail.

As to the culpability of Samsung's state of mind, the court had little difficulty finding that Samsung acted with conscious disregard of its obligations. Even at the opinion's writing, Samsung never disabled the e-mail auto-delete feature. It failed to initiate a timely litigation hold beyond the select handful of employees and it failed to verify its employees' compliance with the litigation hold notices. As the court characterized it, Samsung "kept the shredder on long after it should have known about this litigation and simply trusted its custodial employees to save relevant evidence from it." Id. at *8. This was insufficient.

In light of Samsung's spoliation, the court settled on a "modest, optional adverse jury instruction" by which the jury will be instructed that Samsung failed, after its duty to preserve arose, to prevent the destruction of relevant evidence for Apple's use, that the jury may presume that Apple has shown that relevant evidence was destroyed and that the lost evidence was favorable to Apple.

While this stops short of a mandatory presumption or an instruction that facts are deemed admitted, it's without question an important ruling in a case of this magnitude.