Micron and Hynix: Is the Federal Circuit's Rambus Holding a Game Changer?

Micron and Hynix: Is the Federal Circuit's Rambus Holding a Game Changer?

May 18, 2011

An appellate court has now issued a ruling in two cases involving Rambus.  Micron Technology, Inc. et al. v. Rambus Inc., 2011 U.S. App. LEXIS 9730 (Fed. Cir. May 13, 2011) and Hynix Seminconductor Inc. et al. v. Rambus Inc., 2011 U.S. App. LEXIS 9728.  The Micron case upholds one district court’s ruling (Delaware) that Rambus destroyed evidence, but reverses a drastic spoliation sanction declaring Rambus’ patents unenforceable.  The Hynix case reverses the other district court’s ruling (Northern District of California) that the same conduct did not rise to the level of spoliation.  The Hynix case also vacates the patent issues addressed by the California district court.  The circuit court remands both cases back to the district courts for additional analysis of whether Rambus’ conduct was in bad faith and whether Micron was prejudiced by it.
The lesson of the series of Rambus cases around the country is straightforward: determining when the duty to preserve evidence is triggered is a fact specific analysis conducted by courts on a case by case basis.  As background, Rambus obtained a series of patents related to random access memory used by personal computers.  As part of its business plan, it decided to enforce its patents by filing lawsuits against infringing companies.  The conduct that has been analyzed by a handful of courts, however, involves the steps taken by Rambus to prepare for litigation.  In addition to implementing a comprehensive document retention policy the company implemented shred days, magnetically erased all of its e-mail backup tapes – except one (which happened to contain helpful information) and asked employees to “look for things to keep” supporting its claims in the midst of the massive destruction of documents.  The Hynix case was pointed out as showing how on essentially the same facts courts could reach different conclusions about when the duty to preserve evidence is triggered.  The Federal Circuit has now sought to bring the Hynix case in line with other courts that have held that Rambus’ document destruction to prepare for litigation was spoliation.

The Federal Circuit affirmed the Delaware District Court’s holding that Rambus spoliated evidence and agreed with the district court’s determination that the duty to preserve was triggered on or about the second shred day.  The appellate court held that Rambus, as plaintiff, controlled the timing of litigation and had affirmatively decided to prepare for reasonably anticipated litigation.  To highlight some of the adverse evidence, internal Rambus documents included a presentation to employees rolling out the records retention policy, entitled: “BEFORE LITIGATION: A document Retention/Destruction Policy.”  Other documents included implementation of the record retention policy as a “to do” item on litigation preparedness plans. 

The Federal Circuit, however, held that the drastic remedy of striking Rambus’ pleadings required specific analysis of bad faith by clear and convincing evidence.  While there were plenty of facts to support the district court’s decision, the appellate court faulted the court’s failure to apply specific facts to a bad faith analysis.  On remand the district court was also asked to analyze whether Micron was prejudiced by the spoliation.  The Federal Circuit gives the district court a road map to potential adverse findings so the reversal is more than likely a prequel to eventual sanctions against Rambus. 

In the Hynix case, the Federal Circuit holds that the Northern District of California was too liberal in its interpretation of when the duty to preserve evidence arose.  Both parties to the litigation agreed that “reasonable foreseeability of litigation” was the applicable standard but disagreed on its meaning.  Rambus argued to the district court and on appeal that “to be reasonably foreseeable, litigation must be ‘imminent,’ at least in the sense that it is probable and free of significant contingencies.”  The district court held that the contingencies (hurdles to litigation) becoming more certain were too many, holding that the duty to preserve evidence was not triggered until after the second shred day.  Accordingly, there was no spoliation of evidence.  The Federal Circuit meticulously analyzes the hurdles to litigation holding that they were largely in Rambus’ control and that litigation was a key part of Rambus’ IP strategy.  The court also dismissed Rambus’ arguments (relied on the district court to show that litigation was not reasonably foreseeable) as insignificant: the lack of (1) board approval for litigation and (2) the lack of a litigation budget.  Lastly the court holds that the Northern District of California’s decision is the only court to hold that there was no spoliation, whereas a handful of other courts held that the same conduct constituted spoliation.

It is important to note that much of the evidence supporting spoliation was in the form of attorney-client communications.  The Federal Circuit affirms both district courts’ piercing of the attorney-client privilege under the crime-fraud exception to the attorney-client privilege.  In both cases, attorney-client communications relating to the establishment of Rambus’ records retention/destruction policy were deemed discoverable based on alleged violation of the California Penal Code section prohibiting the destruction of evidence with intent to prevent it from being produced.  

For more information, please contact John J. Jablonski.