Preparing for Future Discovery
by Vito A. Canuso III and Amy Christensen Chun
The year 2006 has been a busy one for patent protection and litigation in the United States. In February 2006, the United States Patent Office issued its seven millionth patent, and continues to issue hundreds of thousands of patents per year. In addition, patent lawsuits are a growing segment of Federal Court litigation. Not only do many patent lawsuits involve operating companies against their competitors, but many lawsuits are now being brought by "patent holding" companies - non-operating companies that purchase portfolios of patents for the primary purpose of enforcing those patents. These patent holding companies grant licenses in exchange for royalties and file lawsuits against those who refuse to take a license. Moreover, the significant increase in jury awards for patent infringement has lured companies into filing patent infringement lawsuits where they might not have done so before. Thus, it is clear that patent litigation is growing and will continue to do so in the future.
The downside of increased patent litigation is that it puts many more potential defendant companies at risk of being sued in the United States. While Japanese companies may not be able to prevent litigation in the United States, they can take steps to make sure they are better prepared to handle such litigation.
One of the most daunting aspects of patent litigation in the United States is the discovery process. This article reviews the discovery process in a United States patent lawsuit, explains the general rules governing the discovery process, and provides steps that a company can take before it is involved in a patent case that minimizes the risk the company faces during discovery.
A. Discovery in United States Patent Litigation
In the United States, patent cases are brought to the Federal Courts. As part of the patent case, the Federal Courts allow the party's "discovery" of the other party's information in order to gather and build evidence to support their case. Federal Courts typically treat the discovery process liberally, which means they generally permit discovery to be taken and grant limitations against discovery infrequently. Thus, the Federal Courts often make the parties disclose a broad range of information. This is in stark contrast to courts outside the United States that permit either no discovery or only very limited discovery. Understandably, dealing with discovery in the United States is a frequent concern of non-U.S. companies.
1. Typical Examples of Discovery Evidence
Depending upon the issues in dispute, patent litigation discovery may cover a wide variety of categories of information. Some examples of discovery that a party is often required to produce in a patent case include:
Based upon this list, it is apparent that a large amount of evidence may be subject to discovery in a patent infringement lawsuit.
2. Limits on Discovery
The general test for whether information is discoverable is whether the information sought is either "relevant" to the issues in the case, or whether the information sought is likely to lead to the discovery of admissible evidence. While litigants often debate the scope of "relevance," the Federal Courts routinely err in favor of permitting discovery. Nonetheless, there are certain limitations on discovery. By way of explanation, evidence can be divided into one of five categories:
(1) Evidence that is requested but is no longer available;
(2) Evidence that is requested and is relevant and not unduly burdensome to produce;
(3) Evidence that is requested and is relevant, but would be unduly burdensome to produce;
(4) Evidence that is requested but is privileged; and
(5) Evidence that is requested but is irrelevant.
Theoretically, only evidence in Category 2 above would be subject to discovery. Often, however, the parties will dispute what information is relevant. If it is deemed irrelevant, it falls within Category 5 and need not be produced.
Category 1 reflects information that cannot be possibly discovered because it no longer exists. But if such information were destroyed when the destroying party knew that such information would be subject to discovery in litigation, that party could be deemed to be in violation of the discovery rules, as discussed further below.
When relevant information would be unduly burdensome to produce, as suggested by Category 3, courts will often tailor a discovery order to minimize the burden on the producing party. That may lead to a significant reduction in the category of documents to be produced. The burden must be real, however.
Finally, evidence that is privileged is almost always immune from discovery. Privileged information consists of communications between a party and its attorney, and also attorney work product generated during litigation and/or in anticipation of litigation. While the privilege can be waived, courts are reluctant to compel the disclosure of privileged information.
Nonetheless, a litigant should understand how each of these categories of evidence applies in litigation so that the litigant ensures lawful compliance with the discovery rules.
3. Destruction of Evidence Can Be Unlawful
One important requirement of the Federal Courts is that parties cannot destroy evidence when a company is a party in a case or when a party anticipates that a lawsuit is likely to occur. Individuals who violate this rule may be subject to criminal punishment. In addition, the Federal Courts can issue sanctions in a patent case against the company that destroyed the evidence. Examples of sanctions include reimbursement of the opposing party's attorneys' fees, or a ban against the violating party's presentation of certain evidence to support its case. Given the penalties, destruction of relevant evidence is not a viable option once a patent case has begun.
B. The Problem
The liberal nature of discovery as well as the prohibition of destruction of evidence creates potential problems. First, much of a company's documentary evidence, particularly email correspondence, may serve to create a negative inference against the company. Most often, that is due to the uncontrolled commentary that exists in generating documents by company employees. Some common examples of unwanted commentary include statements by employees about competitor patents. These inferences and commentary can then be used by the other side to assert and support its allegations of copying, willful infringement, bad faith, and so forth. For example, consider an employee who sees a competitor's patent and knowing nothing about patent law reads only the background section of the patent and sends an email to a co-worker stating: "Wow, have you seen our competitor's patent? That is exactly what we do." The opposing party in a lawsuit will likely use this email to try and prove that the company infringes the opposing party's patents, even if the statement is completely incorrect.
C. The Solution
There are steps a company can and should take to minimize the risks a company may face during discovery, before a patent case is filed.
First, the company should set up a Document Retention (Destruction) Policy that ensures specific categories of documents are destroyed after a certain time period. "A document retention policy provides for the systematic review, retention and destruction of documents received or created in the course of business." In addition, "[a] document retention policy will identify documents that need to be maintained and contain guidelines for how long certain documents should be kept and how they should be destroyed." This policy allows the company to reasonably get rid of unnecessary documents.
Second, the company should employ Electronic Documentation Destruction Software that ensures that electronic documents are actually destroyed after being deleted. This software is important because even after an employee has deleted a file from his computer, copies of the file may still be available on the hard drive in retrievable form, or may also reside in backup files on a networked server. This evidence may be easily recovered by a technician that has access to the employee's computer or to the server. Courts are permitting litigants to inspect the servers and computers of opposing parties. Accordingly, use of software that ensures that all copies are deleted is of vital importance.
Third, the company should set up a Document Restriction Policy that limits commentary about third party patents and about in-house inventions to legal counsel only. A document restriction policy allows the company to have only those persons who understand patent law review, analyze, and discuss patents of third parties. In addition, those persons can be trained to limit commentary and to contact the legal department, if necessary.
These three steps help eliminate information that a company no longer needs and would also be potentially harmful in a future patent case. They help reduce the amount of information that is available for discovery if and when a patent case arises.
While the prospect of facing a patent suit may be daunting, one way to lessen the burden is to have companies put into place a policy for destroying unnecessary documents via Document Retention Policies. In addition, companies need to aggressively enforce their Document Retention Policies so that documents are actually destroyed. Finally, companies need to be aware of what evidence they have, who created the evidence, and who has access to the evidence. These steps help to minimize the risk companies face during discovery. JI