Micron Tech., Inc. v. Rambus Inc., No. 2009-1263 (Fed. Cir. May 13, 2011) (Judges Newman, Lourie, Bryson, Gajarsa, and Linn)

The Federal Circuit has now joined a long list of courts (and judges) that are grappling with complex e-discovery issues and imposing sanctions for bad behavior by litigants.  The court issued two opinions involving Rambus patents covering various aspects of synchronous dynamic random access memory (“SDRAM”).  (Hynix Semiconductor, the other case, is discussed below.)  In both cases, the Federal Circuit considered the question of whether Rambus engaged in spoliation relating to two simultaneous defensive litigations filed by potential infringers.

Before these lawsuits were filed, Rambus planned a litigation strategy designed to leverage its SDRAM patent portfolio for years.  It recognized the need to have a document retention/destruction policy in place prior to commencement of the litigation plan.  Yet the policy it developed explicitly stated that destruction of relevant and discoverable evidence did not need to stop until the commencement of litigation.  And in-house counsel instructed employees to look for helpful documents to support the litigation, despite the policy’s stated goal of destroying all documents once they were old enough to fall off the retention schedules.  Rambus also destroyed all but one of its email backup tapes and held document shredding parties.  The one backup tape that Rambus saved was restored with great effort and had a helpful document that could be used to establish a Rambus patent priority date.

Rambus rolled-out its cease and desist letter and litigation strategy.  When it did not have active patent litigations, it instructed Rambus licensing attorneys to discard draft licensing documents relating to negotiations with other companies involving SDRAM technology.

After Rambus approached a number of companies about licensing its patents or ceasing their production of SDRAM technology, Micron filed a declaratory judgment action against Rambus in Delaware and Hynix filed another one in the Northern District of California the next day.  During the Delaware litigation, Micron was granted access to communications involving the adoption of Rambus’s document-retention policy and the court determined that Rambus’s adoption of the policy on the advice of its counsel raised the likelihood that Delaware and California criminal statutes prohibiting destruction of evidence had been violated.  Thus, the court applied the crime-fraud exception to breach the attorney-client privilege covering those policy-related communications.  The court later held a bench trial on the unclean-hands claim, and found that Rambus engaged in spoliation and Micron was entitled to a judgment of unclean hands and patent unenforceability as a spoliation sanction.

On appeal to the Federal Circuit, Rambus argued that the litigation must be “imminent, or probable without significant contingencies” before the duty to retain documents arises and that it did not engage in prohibited document spoliation when this standard is applied in this case.  The appellate court strongly disagreed:

“This court declines to sully the flexible reasonably foreseeable standard with the restrictive gloss proposed by Rambus in light of the weight of contrary authority and the unnecessary generosity that such a gloss would extend to alleged spoliators. . . . Moreover, it would make little sense to enjoin document destruction only when the party clears all the hurdles on the litigation track, but endorse it when the party begins the race under the reasonable expectation of clearing those same hurdles.”  Slip op. at 13-14.

After concluding that the district court did not clearly err in finding that litigation was foreseeable no later than December 1998—when in-house counsel had articulated a time frame and a motive for implementation of the Rambus “battle-ready” litigation strategy—the court affirmed the district court’s spoliation determination.  However, the court sent the sanction issue back to the district court, requesting an explanation of why a case-dispositive sanction is appropriate in this case, in light of bad faith and prejudice determinations and (1) the public’s interest in expeditious resolution of litigation; (2) the court’s need to manage its dockets; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions.  Slip op. at 30-31.  Finally, the court agreed with the district court’s use of the crime-fraud exception to pierce the attorney-client privilege and denial of Rambus’s motion to transfer the suit to California.

Judge Gajarsa dissented from the court’s determination that the dispositive sanction issue should be returned to the district court for further analysis.  “In vacating the sanctions award, the majority has called the firing squad to the ready, the squad cocking their guns and taking aim, but instead of shooting the appropriate and culpable party, the squad aimed at the district court’s proper determinations of fact.”  Slip op. at 7 (dissent).  In his view, the appellate court trampled on the inherent power of the district court to control litigants that come before them, and improperly inserted its own views for those of the district court.

Read the Micron opinion here.


Hynix Semiconductor Inc. v. Rambus Inc., Nos. 2009-1299, -1347 (Fed. Cir. May 13, 2011)

Hynix Semiconductor is the companion case to Micron.  The parties litigated the issue of whether Rambus had destroyed relevant documents after it had a duty to begin preserving documents in both suits, but the Northern District of California came to the opposite conclusion—that no spoliation occurred.

This district court reached the spoliation issue first.  Following a bench trial, the court ruled that Rambus did not actively contemplate litigation or believe litigation against any particular DRAM manufacturer to be necessary or wise before its negotiation with Hitachi failed, in November of 1999.  The district court concluded that this made Rambus’s adoption of its document-retention policy in mid-1998 a permissible business decision, and the destruction of documents pursuant to that policy did not constitute spoliation.

The Federal Circuit concluded that the district court applied a “narrow” standard that “vitiates the reasonable foreseeability test, and gives free reign to destroy documents to the party with the most control over, and potentially the most to gain from, their destruction.”  Slip op. at 16.  It also noted that Rambus concedes that whatever differences the facts of the two cases present, the “two cases” should not be decided differently.  Thus, the court vacated the district court’s judgment relating to Hynix’s motion to dismiss due to spoliation, and remanded the issue to the district court for further analysis in light of this opinion and the “reasonable foreseeability” test and framework articulated in the Micron opinion.  It also noted that these questions may be considered on remand: whether the Micron Federal Circuit opinion should be given preclusive effect, the “correctness” of the California district court’s determinations on prejudice and good faith, and the appropriate sanction for Rambus’s behavior.  The court hinted that Judge Whyte should revisit his no-sanction decision, on remand.

The Federal Circuit considered a number of additional issues raised by Hynix.  It affirmed the district court’s judgment that Rambus did not waive its right to litigate and is not equitably estopped from litigating the patent infringement issue by standard-compliant DRAM technology adoption.  It also came to the conclusion that its prior construction of the patent term “bus” in a different case governs in this case as well.  Finally, the court affirmed the district court’s denial of Hynix’s motions for JMOL and a new trial on the written description issue, its denial of a motion for a new trial on obviousness (as Hynix failed to move for JMOL and waived the right to appeal that issue), and its grant of Hynix’s motion for summary judgment relating to the claims at issue in Rambus’s cross-appeal.

Importantly, Hynix received a rare award of costs related to this appeal.

Both Rambus e-discovery and spoliation opinions will be important for their detailed analysis of Rambus’s discovery duties and violations, which are rarely considered in detail at the appellate level. The Micron and Hynix Semiconductor opinions also provide guidance to future litigants who will be engaging in pre-litigation activities that support suspension of existing document retention and destruction policies.

Read the Hynix Semiconductor opinion here.


In re Huai-Hung Kao, Nos. 2010-1307, -1308, -1309 (Fed. Cir. May 13, 2011) (Chief Judge Rader, Judges Linn and Moore)

The Federal Circuit was not entirely numb to Endo’s effort to obtain patent claims to extended-release oxymorphone tablets, which dissolve slowly and release the active pharmaceutical ingredient over a longer period of time than an immediate-release tablet.  Endo appealed the Board of Patent Appeals and Interferences (BPAI) rejection of three patent applications relating to oxymorphone tablets.  The art that the BPAI used to affirm the examiner’s rejection of all three applications (Maloney) discloses extended-release oxycodone tablets, a general pharmaceutical formula, and it also describes oxymorphone as a preferred compound.  In addition, Maloney provides dissolution data for the generic formula disclosed in the specification.

On appeal, the Federal Circuit determined that the BPAI failed to provide substantial evidence that one of the Endo applications is obvious in light of Maloney.  First, the active ingredient in the two applications is different, which means that the body’s metabolism of the two drugs would likely be different.  Second, the tablet dissolution test (read “dissolving test”) described in the Endo application is different than the dissolution test described in Maloney.  Third, Maloney describes a generic formula, but the record lacked any evidence that the substitution of oxymorphone for oxycodone in that formula would yield a formulation that met the claimed tablet-dissolution profile.

Additionally, Endo requested expedited examination of its claims, so only the independent claims of the patent were specifically considered by the BPAI.  The Federal Circuit concluded that Endo waived the right to have the BPAI separately consider one of its independent claims because it failed to separately argue the patentability of that claim before the BPAI.  Thus, that claim’s future rode on the patentability status of the sister independent claim.

The Federal Circuit concluded that the BPAI relied on “erroneous reasoning” in making the factual determinations that supported its obviousness conclusion.  Thus, it vacated that judgment and remanded this issue to allow the BPAI to consider whether the rest of the record could still support an obviousness determination in light of the secondary consideration evidence of nonobviousness.  The court also took the BPAI to task for disregarding relevant evidence of unexpected results associated with the invention and its commercial success.  The BPAI concluded that this evidence was not commensurate with the scope of the application claims and ignored it; the Federal Circuit instructed the BPAI to determine whether there is a nexus between the unexpected results and the product’s commercial success and the invention (as distinct from the prior art).

Read the Huai-Hung Kao opinion here.


TiVo Inc. v. EchoStar Corp., No. 2009-1374 (Fed. Cir. May 10, 2011) (Order) (nonprecedential)

Do you remember the detailed en banc decision that the Federal Circuit issued a few weeks ago in the TiVo case?  The en banc court revised the standard for determining when a party’s effort to design around an adjudged infringed patent should be evaluated in a contempt proceeding or a new infringement suit involving the redesigned product.  (See our earlier blog post for a detailed discussion of the court’s en banc opinions and the revised standards.)  Evidently the parties settled the case nine days after the Federal Circuit issued its en banc ruling, which affirmed the district court’s exercise of its discretion to impose sanctions against the EchoStar entities.  After they settled, the parties notified the Federal Circuit of that fact and requested that the appeal be dismissed (but they did not request that the court vacate its en banc decision).

The court declined the parties’ request to dismiss the appeal, which was filed a few days before the mandate was scheduled to issue.  Like the Seventh, Ninth, and Eleventh Circuit courts, it concluded that a motion to dismiss an appeal that is filed after the opinion is published should be granted only in rare cases and for a good reason.  It noted that the case has been remanded to the district court, and that the parties are free to request that the lower court dismiss the complaint and vacate its sanction award, since the parties have settled the case.

Read the order denying the motion to dismiss here.