Authored by Alissa K. Lipton and Michael R. McGurk
Many companies are familiar with the duty to preserve any evidence that may be relevant to a pending litigation. Equally important, however, is the duty to preserve any evidence that may be relevant to a reasonably anticipated litigation. As stated by the District Court for the Southern District of New York in the groundbreaking Zubulake line of cases: "Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a 'litigation hold' to ensure the preservation of relevant documents."1
The penalties for spoliation of relevant evidence can be severe and range from cost-shifting, fines or special jury instructions, to the ultimate sanctions of a default judgment or dismissal.2 At the same time, data preservation should not be undertaken lightly due to its costs and because it diverts resources away from the primary business purposes of a company. Preserving information for an indefinite length of time because of a potential litigation that is unlikely to occur would be a poor use of limited resources. This article considers several prelitigation scenarios that arise frequently in the context of patent and trademark disputes and provides guidance for determining whether a litigation hold and suspension of document retention/destruction policies is necessary.
First, a bit of background on the relevant standard. There is a general consensus that the duty to preserve evidence arises as soon as litigation is "pending or reasonably foreseeable."3 "This is an objective standard, asking not whether the party in fact reasonably foresaw litigation, but whether a reasonable party in the same factual circumstances would have reasonably foreseen litigation."4 The Federal Circuit has emphasized that the duty to preserve is not triggered by the "mere existence of a potential claim or the distant possibility of litigation."5
At the same time, the Federal Circuit has held that litigation need not be "imminent or probable without significant contingencies" in order for a duty to preserve to attach.6 In other words, even if there are significant contingencies that must be overcome prior to the initiation of litigation, such as board approval of the commencement of licensing negotiations, or rejection by another party of proposed licensing terms, if it is reasonably foreseeable that these contingencies will be overcome, the litigation itself may be considered reasonably foreseeable. In the above circumstance, for example, it may be expected that negotiations will commence, proposed licensing terms will be rejected by the other party and that suit ultimately will be filed.
Because a plaintiff chooses to initiate litigation and controls the timing of litigation, a plaintiff's duty to preserve is typically triggered prior to filing suit.7 If a company intends to file suit for patent or trademark infringement or has taken steps in furtherance of litigation, such as drafting a complaint, creating claim charts for particular products, coming up with an expected litigation timeline, or creating any other documents reflecting an intent to file suit, in most cases a litigation hold should be instituted and document retention/destruction policies should be suspended for relevant information. Similarly, if a company sends out a cease and desist letter threatening litigation or requesting that the recipient institute a litigation hold, the sender would be wise to institute its own litigation hold and take steps to preserve any relevant information.
It is important to remember that if a party asserts the attorney work product protection over information created prior to litigation, this may be used by a court as an additional factor in support of a finding that litigation was anticipated at the time the information was created, suggesting that the party had an obligation to preserve evidence relevant to the dispute.8
Next, consider the case of an accused infringer put on notice of another entity's patent or trademark rights. Under what circumstances does the accused infringer have a duty to preserve evidence relevant to a potential dispute? If an accused infringer intends to file suit seeking a declaration of noninfringement, invalidity and/or unenforceability, and there is declaratory judgment jurisdiction under the standard set forth in MedImmune Inc. v. Genentech Inc.,9 the Federal Circuit has noted that the accused infringer is in the same position to control litigation as the patentee.10 In this situation, the accused infringer's duty to preserve would generally be triggered prior to filing suit, as soon as litigation is contemplated or steps are taken in furtherance of litigation.
In contrast, if an accused infringer would like to avoid litigation, the totality of the circumstances must be analyzed to determine whether litigation is "reasonably foreseeable." If communications from the intellectual property holder openly threaten litigation or demand that the recipient cease and desist allegedly infringing activities, and the recipient does not intend to comply with the request, a court may consider the recipient to be on notice that litigation is reasonably foreseeable and conclude that the duty to preserve evidence relevant to the dispute has been triggered.11
If, on the other hand, the communications do not openly threaten litigation, but merely identify a dispute and suggest the possibility of a nonlitigious resolution, such as taking a license, the duty to preserve evidence is unlikely to be triggered.12 "In general, when parties have a business relationship that is mutually beneficial and that ultimately turns sour, sparking litigation, the litigation will generally be [considered] less foreseeable than . . . litigation resulting from a relationship that is not mutually beneficial or is naturally adversarial."13
Once it has been determined that a duty to preserve exists, a company must suspend its routine document retention destruction policy and put in place a litigation hold. The litigation hold should be in writing; provide detailed instructions for identifying relevant documents; direct recipients to preserve all relevant paper and electronic documents; and provide a mechanism for collection of documents.14 A company should preserve unique, relevant evidence that it "knows, or reasonably should know, is relevant to the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request."15
The duty extends to documents made by, or prepared for, individuals likely to have discoverable information that is relevant to the claims or defenses of any party or that relates to the subject matter of the anticipated litigation. A company should preserve the relevant records of former employees that are in the company's possession, custody or control. The litigation hold generally need not apply to inaccessible backup media unless it is possible to identify backup media for key players and the information on these media is not otherwise available.16 It is a good practice to obtain confirmation from individuals subject to the litigation hold that they understand and will comply with the litigation hold. It is also important to monitor compliance with the litigation hold on a regular basis and to periodically reissue or update the litigation hold as necessary.17
Endnotes
1 Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003) ("Zubulake IV").
2 See Pension Committee of the Univ. of Montreal Pension Plan v. Banc of Am. Securities LLC, 685 F. Supp. 2d 456, 469 (S.D.N.Y. 2010).
3 Micron Tech. Inc. v. Rambus Inc., 645 F.3d 1311, 1302 (Fed. Cir. 2011) (quoting Silvestri v. General Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001). See also Hynix Semiconductor Inc. v. Rambus Inc., 645 F.3d 1336 (Fed. Cir. 2011).
4 Id., 645 F.3d at 1302.
5 Id.
6 Id.
7 Pension Committee, 685 F. Supp. 2d at 466.
8 See, e.g., sanofi-aventis Deutschland GmbH v. Glenmark Pharmaceuticals Inc., at *5 (D.N.J. July 1, 2010).
9 549 U.S. 118, 127, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007). Declaratory judgment jurisdiction depends upon an affirmative act by the intellectual property holder relating to the enforcement of its intellectual property rights. While more is required than a communication from a patent owner to another party identifying the patent and the other party's product line, the bar for declaratory judgment jurisdiction is relatively low and can be satisfied by a patent owner identifying particular products that may infringe a patent and offering to provide claim charts or other analysis. See, e.g., 3M Co. v. Avery Dennison Corp., 673 F.3d 1372 (Fed. Cir. 2012); Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1362 (Fed. Cir. 2009); Sandisk Corp. v. STMicroelectronics Inc., 480 F.3d 1372 (Fed. Cir. 2007). The willingness on the part of the parties to engage in licensing discussions does not negate declaratory judgment jurisdiction.
10 Micron Tech., 645 F.3d at 1325 n.1.
11 See Cache La Poudre Feeds LLC v. Land O'Lakes Inc., 244 F.R.D. 614 (D.Col. 2007); Arista Records LLC v. Usenet.com Inc., 608 F. Supp. 2d 409 (S.D.N.Y. 2009) ("Where copyright infringement is alleged, and a cease and desist letter issues, such a letter triggers the duty to preserve evidence, even prior to the filing of litigation.").
12 See Cache La Poudre, 244 F.R.D. at 623. See also Goodman v. Praxair Servs. Inc., 632 F.Supp.2d 494 (D. Md. 2009) (distinguishing Cache La Poudre); Cf. Ind. Mills & Mfg. v. Dorel Indus., *4 (S.D. Ind. 2006) (litigation not reasonably anticipated based on letter from patent holder referring to infringement and the possibility to negotiate a resolution without litigation).
13 Micron Tech., 645 F.3d at 1325.
14 Pension Committee, 685 F. Supp. 2d at 465 ("[T]he failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.").
15 Zubulake IV, 220 F.R.D. at 217.
16 Zubulake IV, 220 F.R.D. at 218.
17 Zubukake v. UBS Warburg LLC, 229 F.R.D. 422, 431-33 (S.D.N.Y. 2004) ("Zubulake V").
Originally printed in Law360 (www.law360.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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