Case Update: For Spoliation, Court Orders $250,000,000 “to be applied as a credit against Rambus’s [$349 million] judgment against SK hynix”

SK Hynix, Inc. v. Rambus, Inc., No. C-00-20905 RMW, 2013 WL 1915865 (N.D. Cal. May 8, 2013)

In this ongoing patent infringement action, a major question has been whether Rambus’s destruction of documents constituted spoliation and, if so, what sanctions should be imposed. Different courts considering the same facts (but involving different plaintiffs) came to different conclusions.  Upon its initial consideration of the question, the district court in the Northern District of California determined that “Rambus had not spoliated documents” and that there was “no factual basis for an unclean hands defense” as asserted by SK hynix.  (See summary here.)  A jury subsequently returned verdicts in favor of Rambus and the court therefore “entered final judgment of infringement with respect to ten Rambus patent claims” and awarded judgment of “$349,035,842 after a remittitur plus prejudgment interest, and required SK hynix to pay specified royalties to Rambus on an ongoing basis.”  A district court in the District of Delaware (in a case involving Plaintiff Micron Technology, Inc.) disagreed, however, and found that sanctions were warranted for Rambus’s spoliation of documents.  (See summary here.)  The court therefore declared the patents in suit unenforceable against the plaintiff in that case.

Upon appeal (of both cases) to the Federal Circuit, the court addressed the competing holdings of the two cases and affirmed the findings of the Delaware court that Rambus had engaged in spoliation.  (See summary here.)  The district court in California was therefore instructed to reconsider the question of spoliation in accordance with the relevant analysis in the Delaware case.  Upon remand, the district court in California concluded that Rambus had committed spoliation and determined that the appropriate sanction was to “strike from the record all evidence supporting a royalty in excess of a ‘reasonable and non-discriminatory royalty.’”  (See summary here.)  Thus, the parties were ordered to submit briefing on the question of what a reasonable, non-discriminatory royalty rate would be.

Upon review of the parties’ submissions, however, the court was persuaded that “trying to fashion an after-the-fact evidentiary exclusion is not the most appropriate mechanism by which to sanction Rambus.”  Rather, the court concluded that “a monetary sanction that takes into account the royalty rates negotiated and paid by SK hynix’s primary competitors [wa]s a more appropriate and straightforward way to mitigate the prejudice to SK hynix caused by Rambus’s spoliation.”  Thus, following analysis of the relevant rates negotiated and paid by SK hynix’s competitors (which were not specifically revealed), the court determined that “a monetary sanction of $250,000,000 to be applied as a credit against Rambus’s judgment against SK hynix recognizes that Rambus’s conduct was inexcusable but not so egregious as to justify dismissal of its infringement case.”

Imposition of a monetary sanction is an imprecise, imperfect process.  After considering all of the evidence and argument submitted by the parties, and the relevant authorities, the court concludes that a monetary sanction of $250,000,000 to be applied as a credit against Rambus’s judgment against SK hynix recognizes that Rambus’s conduct was inexcusable but not so egregious as to justify dismissal of its infringement case.  This sanction applies a royalty rate of between .80% and .85% to Rambus’s total United States sales.  Although slightly in excess of what SK hynix’s major competitors paid, this rate is not so great as to put SK hynix at a significant competitive disadvantage.  It also takes into account that the rates actually negotiated with SK hynix’s competitors were higher than the ERRs for reasons that are not clear.  The amount of the sanction is severe and would be excessive if such amount were not necessary to mitigate the presumed prejudice resulting to SK hynix from Rambus’s spoliation.  It also strikes the appropriate balance between acknowledging that the majority of Rambus’s patents have been determined to be valid and recognizing that Rambus’s spoliation of evidence must be redressed in meaningful way.  The sanction will unquestionably deter Rambus and others from engaging in similar conduct in the future.  Finally, from the public’s standpoint, imposition of this sanction lays to rest years of complicated and expensive litigation.