Failure to Disable Auto-Delete and To Follow Up with Recipients of Litigation Hold Results in Adverse Inference

Apple, Inc. v. Samsung Elecs. Co. Ltd., No. C 11-1846 LHK (PSG) (N.D. Cal. July 25, 2012)

In this case, the court sanctioned Defendant for the loss of relevant emails resulting from Defendant’s failure to halt the auto-delete feature of its proprietary email system and failure to appropriately follow up with employees subject to the litigation hold to ensure compliance.  As a sanction, the court ordered an adverse inference instruction allowing the jury to presume that the evidence lost was both relevant and favorable to the plaintiff.

The primary focus of this opinion was Defendant’s failure to disable the biweekly auto-delete feature of its proprietary email system despite a duty to preserve (notably, the same auto-delete feature had previously resulted in sanctions in a prior case).  Compounding the problem was Defendant’s failure to follow up with its employees to ensure their compliance with the litigation hold.  Rather, it was within each employee’s discretion whether to save relevant documents.  As a result of these failures, relevant emails were lost.

Of note in this case was the fact that Defendant issued at least two rounds of litigation holds many months apart—one upon receipt of notice of infringement and one after Plaintiff filed suit.  Also of note, the first litigation hold was distributed to only 27 people, while the second round reached more than 2,700.  Following distribution of the first hold, no follow up efforts were undertaken. Following the second, significant effort was undertaken to educate employees on their preservation obligation and how to uphold it.  However, the auto-delete functionality was never disabled and Defendant has not presented evidence that its custodians were in compliance with their preservation obligation even “to this day.”  Indeed, "[Defendant] has never attempted to verify" whether its employees were complying with "the instructions they were told to follow."

Plaintiff sought an adverse inference.  Conducting a comprehensive analysis of the relevant standards, the court first determined the Defendant’s duty to preserve arose upon issuance of the first litigation hold which itself acknowledged a “reasonable likelihood of future patent litigation” in its instruction to recipients.  In so holding, the court reasoned that the “phrase ‘reasonably foreseeable’ as it relates to a party’s preservation duties sets an objective standard” and noted that Plaintiff provided Defendant with “more than just a vague hint” that it had violated its intellectual property where Plaintiff delivered a “comprehensive summary of its specific patent infringement claims.”  The court further reasoned that even if Defendant had hoped for a non-litigation resolution, the notice of infringement would have put a “reasonably prudent actor on notice that litigation was at least foreseeable, if not ‘on the horizon.’”

Turning next to the requisite mental state, the court indicated that bad faith was not required and that “[a]ll that the court must find” is that Defendant acted with “‘conscious disregard’ of its obligations.”  As to whether Defendant showed such disregard, the court agreed with Plaintiff that it was Defendant’s continuation of its biweekly auto-delete policy without any methodology for verifying employees’ compliance that was “dispositive to the instant question” and that “later efforts to educate its employees, and its issuance of litigation hold notices, do not negate this.”  The court further reasoned that “[i]n light of its biweekly automatic destruction policy,” the Defendant had a duty to “verify whether its employees were actually complying with the detailed instructions” allegedly communicated to them but concluded that Defendant had done “nothing in this regard.”  Accordingly, the court determined the evidence was “more than sufficient to show willfulness.”

Finally, as to relevance, the court noted the stark difference in the email production between custodians using the proprietary system and those who used another system that did not automatically delete emails.  While many “key fact witnesses” using the proprietary system produced very few or even zero emails, for example, at least two “similarly situated” custodians using the other email system each produced thousands.  Additionally, many emails sent from custodians using the proprietary system were produced by other employees.  The court also reasoned that that because the majority of accused products were issued prior to the second litigation hold, the most relevant emails were subject to the biweekly destruction that took place prior to “the bulk of” Defendants’ preservation efforts (following issuance of the second hold).  Finally, the court pointed out that “to this day” the auto-delete feature was not suspended “even as to key custodians” and that Defendant had presented no evidence that its employees had “at all complied with the instructions they were given.”  Thus, the court concluded that Defendant had “consciously disregarded” its preservation obligation.

Summing up its findings, the court concluded that Defendant’s preservation efforts failed because 1) Defendant failed to suspend the auto-delete functionality, 2) Defendant “failed to issue sufficiently distributed litigation hold notices” and failed to follow up with affected employees for seven months, and 3) Defendant “at all times” failed to monitor employees’ preservation efforts to ensure compliance.  “In effect,” the court opined, Defendant “kept the shredder on long after it should have known about this litigation, and simply trusted its custodial employees to save relevant evidence from it.”

Accordingly, after finding that Plaintiff had been prejudiced by Defendant’s spoliation, the court ordered that the jury be instructed that Defendant had failed to preserve evidence and that they may presume that such evidence was both relevant and favorable to the plaintiff.

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

Update/District Court Review:

Apple, Inc. v. Samsung Elecs., Co. Ltd., No. 11-CV-01846-LHK, 2012 WL 3627731 (N.D. Cal. Aug. 21, 2012)

On August 21, 2012, District Court Judge Lucy H. Koh found that although an adverse inference instruction against Defendant Samsung Electronics Co., Ltd. (“SEC”) was warranted, “Apple ha[d] not made a showing of prejudice sufficient to warrant a strong adverse inference instruction that permits the jury to find Samsung’s spoliation ‘determinative’ of all issues in the case,” and thus revised the instruction ordered by the Magistrate Judge accordingly.  The court also found that the sanction would apply only to SEC, and not the other Samsung defendants.

In that same order, the District Court also addressed Samsung’s motion for spoliation sanctions against Apple Inc. (the plaintiff) and found that such sanctions were appropriate where Apple failed to issue a litigation hold for the first eight months after its duty to preserve arose and further delayed distribution of a litigation hold to several key custodians.  In so finding, the court rejected Apple’s assertion that its duty to preserve arose after the Defendants’ because “[o]nly Samsung knew that its continuing conduct would provoke litigation between the parties” and its assertion that it had no duty to issue hold notices because so many of its employees were already subject to other litigation holds.  In the end, the court ordered the same “mild” adverse inference that was ultimately ordered against Defendant SEC, namely that Apple failed to preserve evidence despite a duty to do so and that the jury would therefore be allowed to determine whether that fact was important to it in reaching a verdict on the issues.

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