Pharmaceutical Litigation Update

Document Destruction Under Company Practices Found to be Sanctionable

In a patent infringement case in Utah, Adams & Assoc. v. Asustek Computer, et al., 1:05-CV-64 TS (DCU March 27, 2009), the plaintiff moved for a death penalty sanction - termination of the litigation in its favor - against one of the defendants, Asustek Computer (“Asus”), based on spoliation of evidence. In his recommendation to the District Court, Magistrate Judge Nuffer found Asus’ destruction of documents in accordance with its preexisting information management practices to be sanctionable, in part because Asus’ “practices place operations-level employees in the position of deciding what information is relevant to the enterprise and its data retention needs.” The magistrate judge, however, refused to award a death penalty sanction and requested further briefing to determine the appropriate sanction for Asus’ spoliation.

While the spoliation issues are cutting edge, the technology in the case is not. Asus is accused of destroying source code for testing Floppy Disk Controllers (FDCs), generally a chip on a computer motherboard, as well as associated documents. Plaintiff relied on documents, including emails, it had received from Asus’ chip manufacturer in another litigation to argue that Asus had had those items in its possession at one time. While Asus challenged some of those less-than-clear third party documents, the magistrate judge responded, “Computer gobblydegook is not confusing or prejudicial.” After the sanctions motion was filed, Asus produced two emails that indicated attached FDC testing software but did not produce that software. Plaintiff then supplemented its motion to rely on those emails.

The magistrate judge noted a “nearly complete absence of emails related to the subject of this litigation.” Asus explained this situation by stating that (1) it does not archive email at the server level; (2) employees are instructed to preserve emails of long-term value; and (3) employees have the responsibility to archive email and other documents when computers are replaced, which happens periodically. Asus relied on that "information management practice" and also argued that it preserved all relevant documents after receiving an allegation of infringement from the plaintiff.

The magistrate judge found both points lacking. Due to numerous previous lawsuits by the plaintiff concerning FDC technology, the magistrate judge found that Asus should have been retaining FDC documents prior to receiving personal notice. The magistrate judge also concluded that Asus’ practices did not provide a “safe harbor” from sanctions under Fed. R. Civ. P. 37(e) when the “data is at the mercy of individual employees’ backup practices,” especially noting that certain financial-related data is better protected; sanctions were appropriate because “Asus’ practices invite the abuse of rights of others.” The appropriate sanction would be determined after a review of the evidence at the close of discovery. Thus, unless District Court Judge Stewart sets aside the magistrate judge's recommendation, Asus will go forward with the case knowing that a sanction is coming but not knowing what it will be.