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On Remand, Court Finds Rambus Committed Spoliation, Will Adjust Royalty Rate as Sanction

Posted in CASE SUMMARIES

Hynix Semiconductor, Inc. v. Rambus, Inc., No. C-00-20905 RMW (N.D. Cal. Sept. 21, 2012)

As has been previously discussed on this blog (here), two federal courts analyzing nearly identical facts came to differing conclusions regarding whether a party to both litigations had committed spoliation by destroying documents pursuant to a newly adopted document retention policy.  In Hynix Semiconductor, Inc. v. Rambus, Inc. (N.D. Cal.), the court determined that Rambus did not spoliate documents and the case was resolved in favor of Rambus (i.e., its patents were found to be enforceable and Hynix was ordered to pay damages and future royalties).  In Micron Tech., Inc. v. Rambus, Inc. (D. Del.), the court found that Rambus did spoliate documents and, as a sanction, ordered that the at-issue patents were unenforceable as to Micron.  Both cases were appealed to the Federal Circuit, which clarified the proper standard for determining when the duty to preserve arose—the crux of the spoliation question and an issue about which the two lower courts disagreed.  The Federal Circuit court concluded that the district court in the Northern District of California had “applied too narrow a standard of forseeability” with regard to the question of when litigation was reasonably anticipated and remanded the case for further consideration.

On September 21, 2012, following reconsideration of the issues as instructed and upon its determination that the findings of the Federal Circuit as to Micron Tech. v. Rambus, Inc. (D. Del.) should be given “preclusive effect with respect to the issues of when Rambus’s duty to preserve began and whether Rambus spoliated documents,” the California court concluded that Rambus had indeed committed spoliation.  The court declined, however, to apply the doctrine of collateral estoppel to the issues of bad faith, prejudice, or an appropriate sanction and thus undertook the necessary analysis to determine the appropriate action by the court.

Summarizing broadly, the court determined that although “the evidence does not support a conclusion that Rambus deliberately shredded documents it knew to be damaging,” Rambus “nonetheless spoliated documents in bad faith or at least willfully.”  The court further concluded that prejudice had been established.  Thus, the court turned to the question of what sanction to impose.

Addressing Hynix’s argument that dismissal was the only appropriate remedy, the court noted that the case had already been fully litigated, with considerable delay, and that it was reluctant to impose such a sanction where Rambus’s patents were valid and where the spoliation did not involve intentional destruction of particular damaging documents.  Instead, the court chose to “exercise its discretion to fashion a remedy under its inherent power to sanction spoliation.”  Thus, recognizing that “[i]f Rambus had disclosed its intent to obtain patent coverage of the standards being considered by JEDEC, Rambus would have been required, at a minimum, to make its patents available to Hynix and others on a reasonable, non-discriminatory basis,” and that “[i]f this case had not yet been fully litigated, the court could have sanctioned Rambus by excluding any evidence of a royalty rate greater than one set on a reasonable and non-discriminatory basis,” the court concluded that the most appropriate sanction was to “strike from the record evidence supporting a royalty in excess of a reasonable, non-discriminatory royalty.”  “Such a remedy recognizes that Rambus’s patents have been determined to be valid while at the same time recognizing that Rambus’s spoliation of evidence should preclude it from entitlement to a royalty that places Hynix at a competitive disadvantage.”  Accordingly, the parties were ordered to submit briefing on the question of “what a reasonable, non-discriminatory royalty rate would be,” including addressing the royalty rates obtained by Infineon, Samsung, or any other relevant competitors of Hynix.

A copy of the court’s order is available here.