Patent owners are now on notice: The Federal Circuit has confirmed that shredding relevant documents after identifying litigation targets can lead to spoliation sanctions, even if the destruction occurred before litigation was “imminent” or “probable without significant contingencies.” The Federal Circuit also approved piercing the attorney-client privilege to provide key evidence in this inquiry. The privilege was pierced based on the crime-fraud exception, citing a state penal statute prohibiting willful destruction of any document knowing that the document “is about to be produced in evidence,” with the intent “to prevent it from being produced.”

In a prior Sutherland Legal Alert, we reported that Rambus Inc. lost the right to assert its patents against Micron Technology, Inc., after a federal judge concluded that Rambus intentionally destroyed numerous relevant documents in preparation for enforcing its patent portfolio. That spoliation finding has been affirmed on appeal, because litigation was “reasonably foreseeable” when Rambus destroyed relevant documents. The sanction rendering the Rambus patents unenforceable was reversed, however, based upon inadequate factual findings of bad faith and prejudice. This decision may not provide businesses with a bright-line rule—the Court of Appeals for the Federal Circuit emphasized that the standard is “flexible [and] fact-specific”—but patent owners now are on notice that document destruction occurring after they identify litigation targets will, at the very least, raise a strong presumption that spoliation has occurred.1 In a companion case, the Federal Circuit reversed a California federal court ruling that sided with Rambus.2 The Federal Circuit remanded both cases for further proceedings.3

When is litigation “reasonably foreseeable”?

In both cases, the Federal Circuit had the opportunity to address a very practical problem: When will litigation be deemed “reasonably foreseeable,” triggering the duty to preserve evidence? Rambus argued for a narrow test that would require litigation to be “imminent, or probable without significant contingencies,” to trigger the duty to preserve evidence. The Federal Circuit rejected that test, instead ruling that “reasonably foreseeable” is an objective standard that does not ask whether the party in fact reasonably foresaw litigation, but instead asks whether a reasonable party in the same factual circumstances would have reasonably foreseen litigation. Indeed, the Federal Circuit explained that whether litigation is “reasonably foreseeable” is a flexible, fact-specific standard that allows a district court to exercise the discretion necessary to confront the myriad factual situations inherent in the spoliation inquiry. This standard does not trigger the duty to preserve documents from the mere existence of a potential claim or the distant possibility of litigation. Neither does litigation have be “imminent, or probable without significant contingencies,” as proposed by Rambus.