Federal Circuit Addresses Dueling Rambus Opinions, Remands both for Further Consideration

Micron Tech., Inc. v. Rambus Inc., NO. 2009-1263, 2011 WL 1815975 (Fed. Cir. May 13, 2011) (Micron II); Hynix Semiconductor, Inc. v. Rambus Inc., Nos. 2009-1299, 2009-1347, 2011 WL 1815978 (Fed. Cir. May 13, 2011) (Hynix II)

Two federal courts analyzing nearly identical facts came to different conclusions regarding whether a party to both litigations had committed spoliation by destroying relevant documents.  Specifically, the courts differed in their determinations of when the duty to preserve arose, which hinged on when litigation was reasonably foreseeable.  One court issued significant sanctions and one court issued none.  On appeal, the Federal Circuit sought to clarify the analysis of when the duty to preserve was triggered and remanded both cases for further consideration.

The facts of these cases have been summarized before and are available here (Micron I) and here (Hynix I).  Nonetheless, some repetition is warranted.  In the early 1990s, Rambus Inc. developed a method which “eliminated or minimized” a “bottleneck” in “the ability of computers to process growing amounts of data through the memory.”  It was not the only method, however.  In 1992 the founders of Rambus learned of one such alternative and came to believe that it was encompassed by their technology.  Accordingly, a “two pronged business strategy” was developed, in which Rambus “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 [competing technology] instead.”  Beginning in 1998, a newly hired vice president was directed by Rambus’s CEO to “develop a strategy for licensing and litigation.”  A critical component of that strategy was the development and implementation of a document retention policy.  Pursuant to that policy, many documents, both electronic and paper, were destroyed, including all but one of Rambus’s email backup tapes and hundreds of boxes of paper documents, many of which were shredded at one of two company sponsored “shred days.”

In 2000, Rambus initiated its first infringement suit.  Around the same time, both Micron and Hynix Semiconductor filed declaratory judgment actions against Rambus asserting invalidity, non-infringement and unenforceability.  In both cases, plaintiffs accused Rambus of spoliation of relevant documents and in both cases (as is often the case) the question of spoliation turned on when litigation was reasonably foreseeable.

The district court in the District of Delaware (Micron I) concluded that litigation was reasonably foreseeable to Rambus no later than December 1998.  Accordingly any destruction of relevant documents after that date constituted spoliation.  As a sanction, the court found Rambus’s patents unenforceable.  The district court in the Northern District of California (Hynix I) reached the opposite conclusion.  Specifically, the court found that litigation was not foreseeable until late 1999 and that prior to that time “‘the path to litigation was neither clear nor immediate’ and was ‘subject to several contingencies that had to occur before Rambus would engage in spoliation.’”  No sanctions were issued.

On appeal the Federal Circuit sought to resolve the dueling opinions from the two lower courts and to settle the question of whether spoliation occurred.  Declining to identify the exact date on which the duty to preserve arose (reasoning that the “important inquiry” was “whether the totality of the circumstances as of the date of document destruction made litigation reasonably foreseeable”) the court concluded (in Micron II) that the duty to preserve arose “some time before the second shred day in August of 1999” and went on to affirm the Delaware court’s finding that “Rambus destroyed documents during its second shred day in contravention of the duty to preserve them and, thus, engaged in spoliation.”

In rejecting the conclusions of the California court, the Federal Circuit court conceded that the question of when litigation is reasonably foreseeable “is a flexible fact-specific standard” that “does not trigger the duty to preserve documents from the mere existence of a potential claim or the distant possibility of a claim” but clarified that “it is not so flexible as to require that litigation be ‘imminent or probable without significant contingencies.’”  Specifically, the court held that the “district court erred in applying too narrow a standard of reasonable forseeability as requiring that litigation be immediate or certain, which was legal error.”  Accordingly, the district court’s Findings of Fact and Conclusions of Law in connection with the rejection of Hynix’s motion to dismiss on the basis of spoliation were vacated, and the case was remanded for reconsideration under the framework set forth in Micron II.

In Micron II, having upheld the district court’s finding of spoliation, the Federal Circuit turned to the lower court’s choice of sanction. The court found that the district court’s “sparse analysis” of whether bad faith existed was insufficient and rendered the Federal Circuit court “unable to determine whether the district court applied the applicable exacting standard in making its factual determination.”  Accordingly, the case was remanded for further assessment of the issue.  Specifically, the lower court was directed to determine whether “Rambus ‘intended to impair the ability of the potential defendant to defend itself” without regard for the question of whether Rambus “‘should have known’ of the propriety of its document destruction.”  Likewise, the question of prejudice was remanded where prejudice “turns on whether the district court, on remand, concludes that Rambus was a bad faith spoliator.”  The lower court was further instructed to “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.”

In both cases, the court found no error in the lower courts’ application of the crime-fraud exception to pierce the attorney-client privilege.