881 F. Supp. 2d 1132

APPLE INC., Plaintiff, v. SAMSUNG ELECTRONICS CO., LTD., a Korean corporation; Samsung Electronics America, Inc., a New York corporation; and Samsung Telecommunications America, LLC, a Delaware limited liability company, Defendants.

Case No. C 11-1846 LHK (PSG).

United States District Court, N.D. California, San Jose Division.

July 25, 2012.

*1134Michael A. Jacobs, Harold J. McElhinny, Jason R. Bartlett, Jennifer Lee Taylor, Morrison & Foerster LLP, San Francisco, CA, for Plaintiff.

ORDER GRANTING-IN-PART APPLE’S MOTION FOR AN ADVERSE INFERENCE JURY INSTRUCTION

PAUL S. GREWAL, United States Magistrate Judge.

In this patent infringement suit, Plaintiff Apple Inc. (“Apple”) seeks an adverse inference jury instruction against Defendants Samsung Electronics Co., LTD. (“SEC”), Samsung Electronics America, Inc. (“SEA”), and Samsung Telecommunications America, LLC (“STA”) (collectively “Samsung”).1 Samsung opposes.2 At issue is whether Samsung took adequate steps to avoid spoliation after it should have reasonably anticipated this lawsuit and elected not to disable the “auto-delete” function of its homegrown “mySingle” email system.3

Because the answer to this question is no, the court GRANTS-IN-PART Apple’s motion for an adverse inference jury instruction.4

I. INTRODUCTION

Samsung’s auto-delete email function is no stranger to the federal courts. Over seven years ago, in Mosaid v. Samsung, the District of New Jersey addressed the “rolling basis” by which Samsung email was deleted or otherwise rendered inaccessible.5 Mosaid also addressed Samsung’s decision not to flip an “off-switch” even after litigation began.6 After concluding that Samsung’s practices resulted in the destruction of relevant emails, and that “common sense dictates that [Samsung] was more likely to have been threatened by that evidence,”7 Mosaid affirmed the imposition of both an adverse inference and monetary sanctions.8

Rather than building itself an off-switch — and using it — in future litigation such as this one, Samsung appears to have adopted the alternative approach of “mend it don’t end it.” As explained below, however, Samsung’s mend, especially during the critical seven months after a reasonable party in the same circumstances would have reasonably foreseen this suit, fell short of what it needed to do.

*1135II. LEGAL STANDARDS

A. The Court’s Inherent Authority to Impose Spoliation Sanctions

Courts are vested with inherent powers arising out of “ ‘the control necessary] ... to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.’ ”9 This inherent power has been recognized in American jurisprudence for almost two centuries as essential to the orderly administration of the judicial process.10 More recently, the Ninth Circuit has explicitly recognized trial courts’ “inherent discretionary power to make appropriate evidentiary rulings in response to the destruction or spoliation of relevant evidence,”11 and that sanctions for spoliation of evidence may be imposed under the court’s inherent powers to manage its own affairs.12 The court’s inherent powers includes the ability to levy appropriate sanctions against a party who prejudices its opponent through the spoliation of evidence that the spoliating party had reason to know was relevant to litigation.13

B. The Various Forms Spoliation Sanctions May Take

A trial court’s discretion regarding the form of a spoliation sanction is broad, and can range from minor sanctions, such as the awarding of attorneys’ fees,14 to more serious sanctions, such as dismissal of claims 15or instructing the jury that it may draw an adverse inference.16 *1136The court’s discretion is not, however, without its limits. Courts must weigh several factors when deciding which type of sanction to impose on a spoliator. Any remedy applied to a spoliator “should be designed to: (1) deter parties from engaging in spoliation; (2) place the risk of an erroneous judgment on the party who wrongfully created the risk; and (3) restore ‘the prejudiced party to the same position he would have been absent the wrongful destruction of evidence by the opposing party.’ ”17 Sanctions under these “inherent powers must be exercised with restraint” and should be appropriate to the conduct that triggered the sanction.18

C. A Litigant’s Duty to Preserve Relevant Evidence

The common law imposes the obligation to preserve evidence from the moment that litigation is reasonably anticipated.19 For example, in Sampson v. City of Cambridge, Md.,20 the defendant’s duty arose no later than the date when plaintiffs counsel, prior to filing the complaint, asked the defendant by letter to preserve relevant evidence.21 However, a future litigant is not required to make such a request, “and a failure to do so does not vitiate the independent obligation of an adverse party to preserve such information” if the adverse party knows or should *1137know of impending litigation.22

D. The Scope of a Litigant’s Preservation Duties

The duty to preserve evidence also “includes an obligation to identify, locate, and maintain, information that is relevant to specific, predictable, and identifiable litigation.” 23 It is well-established that the duty pertains only to relevant documents.24 Relevant documents include:

[A]ny documents or tangible things (as defined by Rule 84(a)) made by individuals “likely to have discoverable information that the disclosing party may use to support its claims or defenses.” The duty also includes documents prepared for those individuals, to the extent those documents can be readily identified (e.g., from the “to” field in e-mails). The duty also extends to information that is relevant to the claims or defenses of any party, or which is “relevant to the subject matter involved in the action.” Thus, the duty to preserve extends to those employees likely to have relevant information-the “key players” in the case.25

At the same time, it generally is recognized that when a company or organization has a document retention policy, it “is obligated to suspend” that policy and “implement a ‘litigation hold’ to ensure the preservation of relevant documents” after the preservation duty has been triggered 26

*1138 E. The Court’s Test for Spoliation Sanctions

There is not complete agreement about whether spoliation sanctions are appropriate in any given instance, and, more specifically, whether an adverse inference instruction is warranted. The majority of courts use some variation of the three-part test set forth by Judge Scheindlin in Zubulake TV for determining whether to grant an adverse inference spoliation instruction.27 That test is as follows: “[a] party seeking an adverse inference instruction (or other sanctions) based on the spoliation of evidence must establish the following three elements: (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a ‘culpable state of mind;’28 and (3) that the evidence was ‘relevant’ to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.”29 After considering these factors, a court must then consider all available sanctions and determine the appropriate one.30

III. DISCUSSION

A. Samsung’s Preservation Efforts

1. Samsung’s “mySingle” Email System

Samsung’s default email system is titled “mySingle.”31 mySingle was “set up” in 2000.32 The system is proprietary and was created by a Samsung subsidiary named Samsung Data Systems (“SDS”).33 mySingle went operational in 2001,34 and is web-based.35 mySingle stores received and sent employee emails on company-wide servers,36 as opposed to dividing the servers *1139by business unit,37 and Samsung employees access their mySingle email accounts through a web-based interface.38 mySingle contains a “general guideline [that] calls for all e-mails to be automatically deleted after the passage of two weeks.”39 This functionality operates and stores email companywide in Korea, has no exceptions,40 and has been in place since mySingle went operational.41 Samsung uses my-Single in this way because: (1) “it avoids the danger that confidential business information will be misappropriated in the event the computer itself is lost or stolen”; 42 (2) it is cheaper than using a 30-day retention period;43 (3) it “reduces the amount of information that could inadvertently be disclosed through misdirected *1140email, or stolen through unauthorized access or hacking into an employee’s email account on the system;”44 and (4) the policy best complies with Korean privacy law.45

Employees using mySingle can save any emails they deem relevant.46 The mySingle interface has a “Save AH” button that employees can “click” to save all email in their inbox and sent folders to their computer’s hard drive.47 If an employee clicks this button every two weeks, all of that employee’s emails will be saved.48 Employees also have the option of selecting individual emails or groups of emails, rather than all emails, and saving just these specific emails to their hard drives.49 *1141Samsung gives its employees the option of using Microsoft Outlook.50 Microsoft Outlook, unlike mySingle, allows employees to automatically view and archive emails they receive on their local hard drives.51 mySingle’s 14-day destruction policy does not apply to locally saved emails on Microsoft Outlook.52 Samsung employees do not require permission to use Outlook for storing email, but they do need its permission to use Outlook for sending email.53

It is within each Samsung employee’s discretion whether to save relevant documents.54 Samsung has never attempted to verify whether Samsung employees are complying with the instructions they were told to follow.55 mySingle does have a feature, however, that reminds employees *1142when the time for biweekly deletion of their emails is near.56 “The ‘Help’ page in mySingle explains in both English and Korean how to use the ‘Save All’ function,”57 as well as “how to save individual emails or groups of emails.”58

2. Samsung’s Issuance of Litigation Hold Notices

On August 4, 2010, Apple presented Samsung with information regarding Samsung’s infringement of certain Apple patents.59 Soon after, in an email dated August 28, 2010, Samsung emailed litigation hold notices to certain Samsung employees.60 The notice reads, in relevant part: “[T]here is a reasonable likelihood of future patent litigation between Samsung and Apple unless a business resolution can be reached.”61 The email then goes on:

The key issue that courts consider in determining whether or not a duty to preserve exists centers on whether the party had notice of the relevance of the evidence in question to anticipated litigation. The notice can arise from many different things, including prior lawsuits, prelitigation communications, or any preparatory steps and efforts undertaken for the anticipated litigation.62

The notice requests that employees “preserve any and all such documents that may *1143be relevant to the issues in a potential litigation between Samsung and Apple until it is fully resolved.”63 The notice lists ten discreet categories of documents that Samsung employees receiving the email “should nevertheless retain and preserve.” 64 No significant further action was taken over the next seven months.

On April 15, 2011, Apple filed this lawsuit. On April 21, 2011, Samsung again sent litigation hold notices, this time to 2,300 Samsung employees, detailing the scope of the documents subject to preservation.65 Over the next few weeks, Samsung sent additional amended litigation hold notices to over 2,700 Samsung employees.66 Samsung continued to update both the population of employees receiving notices, as well as the content of the notices, as the litigation between Apple and Samsung took shape.67 The litigation hold notices included the following language: “if you have any doubt as to whether you should preserve particular documents, you are instructed to retain them. Please dis*1144tribute this message to anyone who may have such relevant documents.”68 The notice goes on to admonish employees, in bolded capital letters, not to destroy any responsive documents, but to instead preserve them.69 Between May 2 and May 4, 2011, Samsung’s outside counsel sent several members of its firm to Korea to assist Samsung’s in-house counsel with educating Samsung employees on their duty to preserve relevant documents and Samsung’s collection efforts.70

S. Samsung’s Efforts to Follow-up with its Relevant Employees

After sending litigation hold notes to its employees, Samsung explained to its relevant department heads the specifics of Samsung’s litigation hold efforts.71 Samsung’s in-house IP legal team, as well as Samsung’s outside counsel, all were involved in these efforts.72 Samsung’s in-house document preservation team provided relevant Samsung employees with numerous explanations on numerous occasions about the litigation hold notice, its importance, and the necessity and methodology of document preservation.73 More specifically, at the end of April 2011, Samsung’s IP Legal Team Director held four follow-up meetings with over 300 Samsung employees.74 The purpose of these meetings was to educate key employees about the United States’ litigation discovery system, and the requirements of Samsung’s computer system for document preservation.75 Samsung also imparted to its employees the importance of actively saving emails and other electronic documents, and exactly how to do so.76 Samsung employees were also told to contact the IP Legal Team if they had additional questions.77 All Samsung employees attending these meetings were instructed to pass what they had learned on to their “junior managers.” 78

B. Application of the Court’s Spoliation Test

1. Samsung’s Duty to Preserve Relevant Evidence

Apple argues that Samsung’s discovery obligation arose in August 2010 based on the August 4, 2010 presentation Apple gave to Samsung regarding Apple’s contention that certain Samsung products infringe certain Apple patents.79 Apple goes on to argue that Samsung must have known in August 2010 that it had no plans to alter its products, and thus a reasonable party in Samsung’s place would have known that litigation with Apple was imminent, if not inevitable.80

*1145Samsung responds that its preservation obligations arose on April 15, 2011, when Apple filed its complaint in this matter. According to Samsung, mySingle and its 14-day destruction policy were adopted for legitimate business purposes, Samsung could not have known in August 2010 which claims Apple might assert against it, and a negotiated settlement with Apple was still possible in August 2010 because licensing discussions with Apple were ongoing.

The court agrees with Apple. The phrase “reasonably foreseeable” as it relates to a party’s preservation duties sets an objective standard.81 On August 4, 2010, Apple presented Samsung with more than just a vague hint that it believed Samsung had violated its intellectual property. Apple delivered, in person, a comprehensive summary of its specific patent infringement claims against specific Samsung products. Whatever hopes Samsung might have subjectively held for a. license or other non-suit resolution, this would certainly put a reasonably prudent actor on notice that litigation was at least foreseeable, if not “on the horizon.”82 If there were any doubts about this, Samsung itself resolved them. Shortly after Apple’s presentation Samsung sent litigation hold notices to a small number of Samsung employees that read, in relevant part: “there is a reasonable likelihood of future patent litigation between Samsung and Apple unless a business resolution can be reached.”83 And yet other than exhorting these employees to circumvent the otherwise certain destruction of relevant materials, for seven months Samsung did no follow-up training at all. And at no time, even up to the present day, did Samsung engage in any audit of these employees to gauge what effect, if any, its exhortations were having.

Samsung cannot on the one hand tout its prudence and responsibility in regards to its post-complaint preservation efforts, and simultaneously argue that it was ignorant of the possibility of litigation pre-complaint. This is not a matter of “punishing” a party for taking prudent steps to avoid controversy. It is a matter of holding a party to what could not be a plainer admission. In sum, the court finds that Samsung’s duty to preserve evidence arose on August 23, 2010, the date Samsung issued litigation hold notices to its employees following Apple’s infringement presentation to Samsung.84

*1146 2. Samsung’s Requisite Mental State

Even as litigation with Apple was “reasonably foreseeable,” Samsung kept its auto-delete policy in place at all times. Apple argues that Samsung’s actions evidence the necessary “culpable state of mind.”85 According to Apple, Samsung’s later efforts to educate its employees, and its issuance of litigation hold notices, do not negate this.86 It is Samsung’s continued use of its biweekly email destruction policy, Apple argues, without any methodology for verifying whether Samsung employees at all complied with the instructions they were given, that is dispositive to the instant question.87 In other words, it is Samsung’s failure to monitor its employees’ efforts downstream, as opposed to its immediate efforts to educate its employees after Apple filed this lawsuit, which violates Samsung’s duty to preserve relevant documents.

Samsung responds that Apple has not met its burden of showing that the spoliation was “intentional” or “willful,” and that Apple’s complaint that Samsung might have “done more” to preserve relevant evidence is “insufficient as a matter of law to establish ‘bad faith’” in the Ninth Circuit.88

*1147The court agrees with Apple. Samsung may be right that the record does not establish any bad faith on its part. But bad faith is not the required mental state for the relief Apple seeks. All that the court must find is that Samsung acted with a “conscious disregard” of its obligations.89 In light of its biweekly automatic destruction policy, Samsung had a duty to verify whether its employees were actually complying with the detailed instructions Samsung claims it communicated to them.90 As far as the court can see, Samsung did nothing in this regard.91 Samsung failed to send litigation hold notices in August 2010, beyond a select handful of employees, when its duty to preserve relevant evidence arose. Samsung provided no follow-up, and instead waited to send such notices and to follow-up with individual employees for seven more months, after Apple filed its complaint. And again, at all times, Samsung never checked whether even a single Samsung custodian was at all in compliance with the given directives, while at all times the 14-day destruction policy was in place. This is more than sufficient to show willfulness.

S. The Relevance of the Destroyed Evidence to Apple

Apple points to the productions of several key Samsung employees that: (1) used the mySingle email system; (2) during the relevant time period; (3) failed to themselves produce much if any relevant emails; and (4) only after other custodian recipients produced one or more of these emails did Apple discover that Samsung may have destroyed relevant evidence. Apple points out that Samsung has produced no email or only a handful of emails from the custodial files of at least 14 key fact witnesses.92 The productions of the following custodians are particularly noteworthy:

• Won Pyo Hong, the head of Samsung’s Product Strategy Team, which includes the Design Group responsible for designing Samsung’s *1148“Galaxy” smart phones and tablet computers.93 Dr. Hong received the August 23, 2010 litigation hold notice.94 Dr. Hong did not produce any emails and only 18 documents.95 Dr. Hong failed to preserve his April 17, 2011 email regarding comparisons of Apple products that the court cited in granting Apple’s motion to compel his deposition.96 Dr. Hong also failed to preserve an email he received that described how Samsung needed to respond to the iPad2 with a slimmer Galaxy Tab.97

• Minhyouk Lee, the head Samsung designer responsible for the industrial design of Samsung’s accused Galaxy S products, did not produce any emails;98

• Joon-Il Choi, a senior manager in Samsung’s R & D Management Group, did not produce any emails.99 Mr. Choi, however, presided over and wrote notes for a meeting that Gee-Sung Choi, Samsung’s former President and CEO of its digital media division and current Vice Chairman of Corporate Strategy,100 attended on March 5, 2011, to discuss alterations to the Galaxy Tab 10.1 to make it more competitive with the newly released thinner iPad 2.101

• Don-Joo Lee, the head of sales and marketing for Samsung’s mobile business unit, and who is in charge of promoting and selling Samsung mobile products globally, including the Galaxy S products.102 Mr. Lee produced 16 emails, and failed to preserve emails regarding Samsung’s response to the iPad 2, including emails discussing Samsung’s need to fight the iPad 2 with a slimmer Galaxy Tab, and the response to Verizon’s iPhone and the impact it would have on Samsung.103

*1149• Nara Cho, a senior manager in Samsung’s wireless business division, handled product planning for Samsung’s tablet devices since early 2010.104 Samsung produced only two emails from Mr. Cho, none of which discuss the Galaxy Tab 10. 1, an accused product that was launched after Apple filed this lawsuit.105

In contrast, similarly-situated Samsung employees that use Microsoft Outlook, rather than mySingle, produced many times more. For example, Wookyun Kho produced 7,594 emails, and Junho Park produced 6,005 emails.106

While the nature of the auto-delete function is such that the court will never know how much relevant material was lost, the court cannot ignore the statistical contrast depicted above.107 Samsung acknowledges that “the majority of the accused products at issue here released prior to April 15, 2011,”108 meaning the most relevant emails were subject to Samsung’s biweekly destruction policy before Samsung undertook the bulk of its preservation efforts. Samsung had ample notice that the evidence was potentially relevant to litigation. Samsung to this day has not suspended its email system’s biweekly automatic destruction policy,109 even as to key custodians, nor has it presented any evidence that Samsung employees have at all complied with the instructions they were given. The court must conclude that Samsung “consciously disregarded” its obligation to preserve relevant evidence.110

*1150C. The Form of the Sanction

Individually, and certainly collectively, these facts support imposition of some form of sanction. Samsung’s failure to issue sufficiently distributed litigation hold notices on August 23, 2010, and Samsung’s failure to monitor its custodial employees’ preservation efforts in the face of its biweekly destruction policy once litigation holds issued, warrants sanctions. The court is mindful, however, that any sanction must be the least drastic available to adequately mitigate the prejudice Apple suffered.111

When applying the spoliation inference, courts are faced with a dilemma. By the very nature of the spoliation, there is no way to know what the spoliated evidence would have revealed, and so courts have to instruct the jury that they are allowed to infer a certain fact or set of facts from the absence of specific evidence. With this in mind, courts have formulated adverse inference instructions that range in their level of severity.

Pension Committee addressed just this issue.112 Pension Committee begins, “[l]ike many other sanctions, an adverse inference instruction can take many forms, again ranging in degrees of harshness.”113 The degree of harshness should be dictated by the “nature of the spoliating party’s conduct — the more egregious the conduct, the more harsh the sanction.”114 “In its most harsh form, when a spoliating party has acted willfully or in bad faith, the jury can be instructed that certain facts are deemed admitted and must be accepted as true. At the next level, when a spoliating party has acted willfully or recklessly, a court may impose a mandatory presumption.”115 At the other end of the spectrum, “the least harsh instruction permits (but does not require) a jury to presume that the lost evidence is both relevant and favorable to the innocent party. If it makes this presumption, the spoliating party’s rebuttal evidence must then be considered by the jury, which must then decide whether to draw an adverse inference against the spoliating party.”116

Apple has suffered prejudice as a result of Samsung’s spoliation of evidence. Apple has highlighted several key Samsung custodians, noted above, that both used mySingle and produced little or even no relevant documents. In contrast, Samsung custodians using Microsoft Outlook produced literally thousands of documents. Finally, the mySingle custodians Apple points to are senior Samsung employees whose internal communications would have been especially probative to the claims at issue in this litigation.

On this record, the court concludes that Samsung’s preservation efforts failed because: (1) Samsung did not to suspend mySingle’s automatic biweekly destruction policy; (2) Samsung failed to issue sufficiently distributed litigation hold notices after Samsung itself admitted that litigation was “reasonably foreseeable,” and to follow up with the affected employees for seven months as it later showed it knew how to do; and (3) at all times Samsung failed to monitor its employees’ preservation efforts to ensure its employees were at all compliant. In effect, Samsung kept the shredder on long after it should have known about this litigation, and simply trusted its custodial employees to save rel*1151evant evidence from it. The stark difference in production from mySingle and Microsoft Outlook custodians makes clear that this plan fell woefully short of the mark.

The court finally turns to the appropriate language for an adverse inference instruction in this instance. In the absence of any finding of bad faith, and the court’s finding that Samsung acted with conscious disregard of its obligations, or willfully, the court orders the jury be instructed as follows:

Samsung has failed to prevent the destruction of relevant evidence for Apple’s use in this litigation. This is known as the “spoliation of evidence.” I instruct you, as a matter of law, that Samsung failed to preserve evidence after its duty to preserve arose. This failure resulted from its failure to perform its discovery obligations.
You also may presume that Apple has met its burden of proving the following two elements by a preponderance of the evidence: first, that relevant evidence was destroyed after the duty to preserve arose. Evidence is relevant if it would have clarified a fact at issue in the trial and otherwise would naturally have been introduced into evidence; and second, the lost evidence was favorable to Apple. Whether this finding is important to you in reaching a verdict in this case is for you to decide. You may choose to find it determinative, somewhat determinative, or not at all determinative in reaching your verdict.117

IV. CONCLUSION

The discovery process in our federal courts is anything but perfect. The burden to the parties and to the courts in cases such as this can be extraordinary. This court has previously imposed custodian limits, sampling requirements, and other measures to put at least some boundary around what has to date largely been an unbounded problem.118 But it is no answer to that burden simply to leave in place an adjudicated spoliation tool and for seven months and take almost no steps to avoid spoliation beyond telling employees not to allow what will otherwise certainly happen. Nor can a party avoid any assessment whatsoever of the effect of the instruction it eventually puts into place. A modest, optional adverse jury instruction is the least restrictive means to remedy the prejudice from these past practices and deter such practices in the future. The court GRANTS-IN-PART Apple’s motion for an adverse inference jury instruction.

IT IS SO ORDERED.

Apple Inc. v. Samsung Electronics Co.
881 F. Supp. 2d 1132

Case Details

Name
Apple Inc. v. Samsung Electronics Co.
Decision Date
Jul 25, 2012
Citations

881 F. Supp. 2d 1132

Jurisdiction
United States

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