Rambus Inc.

May 19, 2011 – Blog Post

O n Friday, May 13, the Federal Circuit issued decisions in two companion declaratory judgment actions against Rambus Inc.: Micron Tech. v. Rambus and Hynix Semiconductor v. Rambus.

Micron Tech. came to the Federal Circuit on appeal from the District of Delaware. In that case, the district court held that twelve asserted Rambus patents were unenforceable because Rambus destroyed documents related to the litigation. As a result of this alleged spoliation of evidence, which is a crime, the district court also decided that the crime-fraud exception applied to (see rule 1.6(b)(2) of the American Bar Association’s Model Rules of Professional Conduct). Rambus appealed these decisions to the Federal Circuit.

In Hynix, on the other hand, the Northern District of California found the asserted claims of six Rambus patents valid (over defenses of obviousness and lack of written description) and infringed. The district court also declined to find that Rambus engaged in spoliation. Hynix appealed, and Rambus cross-appealed the district court’s summary judgment of noninfringement for other asserted Rambus patent claims.

Rambus hired Joel Karp as a Vice President for Intellectual Property in 1997. Karp’s activities through 1999 included licensing, litigation, and document retention and destruction. Rambus’s document policies under Karp included destruction of email backup tapes and “shredding parties” for paper documents relating to contract and licensing negotiations, patent prosecution, standard-setting organization activity, board meetings, and finances. However, they spared some documents, including an email backup that helped them establish a patent priority date.

The Federal Circuit found that Rambus’s activities constitution spoliation of the documents for both Micron and Hynix, affirming the District of Delaware ruling on the issue and vacating and remanding the Northern District of California ruling on the issue. In both opinions, the Federal Circuit repeatedly cited Silvestri v. Gen. Motors Corp., 271 F.3d 583, 590 (4th Cir. 2001) to establish that spoliation includes destruction of evidence or failure to preserve potential evidence in pending litigation or in litigation that a reasonable party would have reasonably foreseen. In both cases, Rambus argued that litigation would have to be “imminent” for spoliation to occur, but the Federal Circuit disagreed. The Federal Circuit found no clear error in the Micron district court spoliation ruling because the district court had found that Rambus’s document policies were part of a litigation strategy, that Rambus was on notice of potential infringement when it destroyed its documents, that Rambus continued to destroy documents even after taking steps in furtherance of litigation, that litigation was Rambus’s choice as the patentee, and that Rambus’s relationship with manufacturers did not make litigation significantly less likely. In contrast, the Federal Circuit found that the Hynix district court wrote off foreseeable contingencies to litigation and considered other evidence of reasonably foreseeable but not imminent litigation. These problems led the Hynix district court to narrow the duty to preserve documents further than the Federal Circuit and several other district courts would narrow the duty.

In both opinions, the Federal Circuit also addressed invoking the crime-fraud exception to the attorney-client privilege. Here, the Federal Circuit affirmed both theMicron and Hynix district courts’ rulings that the crime-fraud exception applied, defeating Rambus’s attorney-client privilege here. In both cases, the district courts found that the prima facie case of criminal spoliation was adequate to support application of the crime-fraud exception to privilege. Addressing Rambus’s counterarguments, the Federal Circuit distinguished a case about the destruction of evidence in a murder, finding Rambus’s situation different because Rambus controlled both the evidence and the related legal investigation (here, infringement litigation).

Judge Gajarsa concurred-in-part and dissented-in-part to each opinion. Regarding Micron, Judge Gajarsa primarily argued for affirming the district court’s finding of bad faith on Rambus’s part, rather than remanding the finding to the district court for further proceedings as the majority did. Regarding Hynix, Judge Gajarsa took issue with what he viewed as the majority’s misguided efforts to resolve a conflict between the spoliation findings between Hynix and Micron. Judge Gajarsa argued that Hynix district court opinion, correctly read, applied the correct standard like that district court in Micron. He then argued that the Federal Circuit, as an appellate court, overstepped its duties on this issue and used its own fact findings rather than the district court’s fact findings.

In light of the rulings concerning Rambus’s behavior in Micron and Hynix and in light of the underlying laws, patent holders should carefully balance their record-keeping practices. Companies can legitimately benefit from general policies involving the destruction or retention of documents, as the Federal Circuit acknowledges inMicron. However, patent holders should refrain from destroying relevant documents if they think they may be asserting their rights in litigation, even if the litigation is not “imminent” and even if the documents are not beneficial to their cause. At minimum, patent holders should not decide to destroy documents when they could reasonably have future litigation in mind when doing so. Because bad-faith, prejudicial spoliation of evidence can result in dismissal of infringement cases, destroying unfavorable documents in this way is likely to ultimately hurt a patent holder, as in Rambus’s case.