Despite Intentional Spoliation, $25 Million Verdict Stands

BMG Rights Mgmt. LLC v. Cox Commc’ns, Inc., —F. Supp. 3d—, 2016 WL 4224964 (E.D. Va. Aug. 8, 2016)

In this copyright infringement case, Plaintiff was found to have intentionally spoliated material evidence, resulting in sanctions. Specifically, Defendant was allowed to address the issue of spoliation in its opening statement and the jury was instructed that it may, but was not required to, consider “the absence” of earlier versions of source code relied upon by Plaintiff’s agent to identify and provide notice of infringement by Defendant’s customers.  Despite the sanctions, Plaintiff was awarded $25 million upon the jury’s determination that Defendant—a conduit internet service provider—was liable for willful contributory infringement of Plaintiff’s copyrighted musical works.  In a motion for a new trial, Defendant argued, among other things, that the sanctions were insufficient.  The district judge rejected that argument (and others), denied the motion, and entered final judgement in accordance with the verdict.

Plaintiff relied upon a third party agent, Rightscorp, to identify instances of infringement of its copyrighted musical works and to send notice of such infringement to the infringers’ internet service providers, including Defendant.  Defendant was expected to then forward those notices to the alleged infringers and/or otherwise address the infringement.  In this case, for various reasons, it did not appropriately address the alleged infringement and was ultimately found liable for willful contributory infringement.

At issue with regard to discovery was the source code relied upon by the third party agent to identify and provide notice of infringement.  Specifically, despite a duty to preserve since early 2013, the agent did not use version control software to identify changes to the code over time, resulting in a lack of a “complete historical version” of the code “for any period of time relevant to this suit.”  The magistrate judge found that “by altering the source code, deleting portions of the source code, and by overwriting portions of the source code without maintaining a record of those alterations, deletions, or overwrites, material information was intentionally destroyed and it was not lost through inadvertence or mistake.”  He recommended the district judge “‘should consider’ instructing the jury that BMG failed to preserve material information; that the jury is not to assume that the Rightscorp system operated the same way between 2012 and 2014 as it did in 2015; that BMG must present sufficient evidence for the jury to determine whether the Rightscorp system accurately identified infringements; and that ‘the jury should take into consideration that the plaintiffs failed to comply with their obligations to preserve material evidence by documenting the changes made to the Rightscorp system during the relevant time period.’”  Neither party challenged the order and, although the district judge denied Defendant’s motion to enforce the magistrate judge’s order by dismissing the case, it did give Defendant leave to address spoliation in its opening statement.  At the close of trial, the district judge gave a spoliation instruction “that was a step below” what had been recommended, and instructed the jury that they “may, but [were] not required to, consider the absence of earlier versions of the code.”

Despite the sanctions, the jury found the defendant liable for willful contributory infringement and awarded Plaintiff $25 million.  Defendant moved for a new trial, protesting (among other things) “the Court’s ‘anemic’ spoliation instruction and its failure to impose an additional evidentiary sanction, such as dismissal or the preclusion of evidence, in response to BMG’s failure to preserve evidence of how Rightscorp’s system operated prior to July 2015.”

Addressing the motion, the court noted that amendments to the Federal Rules of Civil Procedure, including Rule 37(e), went into effect on the first day of trial.  As amended, Rule 37(e) allows certain serious sanctions only upon a finding that the spoliating party had the “intent to deprive another party of the information’s use in the litigation.”  Although the magistrate judge made such a finding, the court reasoned that it did not require the adoption of the serious sanctions listed in Rule 37(e)(2).  Rather, per the rule’s Committee Note, “the remedy should fit the wrong” and the “severe measures” authorized under subdivision (e)(2) “should not be used when … lesser measures … would be sufficient to redress the loss.”  In the present case, the court concluded, the lesser measures imposed—which were specifically contemplated by the Advisory Committee—were “sufficient.”

Also addressing the requirements of Fourth Circuit case law addressing spoliation, the court reasoned that “[d]ismissal is reserved for only the most egregious circumstances” and noted that the magistrate judge had concluded that “preclusion of evidence would have likely been the equivalent of dismissal” which was therefore properly rejected.