Organik Kimya v. ITC: Federal Circuit Affirms Dispositive Sanctions For Bad Faith Spoliation of Evidence

Paint CansOn February 15, 2017, the Federal Circuit affirmed the Commission’s imposition of severe, case dispositive sanctions on Respondents for bad faith spoliation of evidence as well as the issuance of a 25-year limited exclusion order in Certain Opaque Polymers, Inv. No. 337-TA-883.

The appeal was decided by a panel consisting of Judges Lourie, Mayer, and O’Malley, with Judge O’Malley delivering the opinion. The case is Organik Kimya et al. v. International Trade Commission et al. (Case Nos. 2015-1774, 2015-1833) (Fed. Cir. Feb. 15, 2017).

Background

Morrison & Foerster has reported on the Certain Opaque Polymers Investigation in several prior posts, including:

In the Opaque Polymers ITC Investigation, the Commission affirmed Judge Pender’s finding of default by Respondents with regard to allegations of trade secret misappropriation as a sanction for bad faith spoliation of evidence. Specifically, Judge Pender found that, after he ordered Respondents Organik Kimya San. ve Tic. A.S., Organik Kimya Netherlands B.V., and Organik Kimya U.S., Inc. (collectively “Organik Kimya”) to make certain computers and networks available for forensic inspection, Respondents deleted or overwrote many of the computer files, wiped out recoverable data that was previously deleted, and backdated the clock on a laptop to make it appear that the data was overwritten before the investigation began. The default sanction resulted in a finding of violation by Organik Kimya based upon misappropriation of 52 trade secrets identified by Complainants Rohm and Haas Company; Rohm and Haas Chemicals, LLC; and the Dow Chemical Company (collectively, “Dow”).

The remedy imposed by the Commission consisted of a limited exclusion order barring, for 25 years, the importation of opaque polymers made by or for Organik Kimya using the misappropriated trade secrets, along with a coterminous cease-and-desist order directed to Organik Kimya U.S. The Commission also imposed an unusual requirement regarding potential future importations – a requirement that Organik Kimya first obtain an advisory opinion or modification ruling from the Commission that particular products are outside the scope of the exclusion order before it can certify to Customs that its opaque polymers are not made with Dow’s misappropriated trade secrets.

On October 7, 2016, the Federal Circuit heard oral arguments in an appeal from the Commission’s decision in Certain Opaque Polymers, and the oral argument focused on two issues:

  1. (1) whether Judge Pender and the Commission abused their discretion in ordering the case‑ending sanction of a default judgment; and
  2. (2) whether the Commission committed error when it refused to take Organik Kimya’s evidence into account with respect to remedy.

Federal Circuit’s Decision

The Federal Circuit affirmed both the Commission’s entry of default judgment and the 25-year limited exclusion order against Organik Kimya.

  1. Default Judgment

First, the Federal Circuit ruled that the proper standard for reviewing the Commission’s decision to impose default judgment sanctions against Organik Kimya was 19 CFR § 210.33 and Federal Rule of Civil Procedure 37(b). 19 CFR § 210.33 gives Judges in ITC investigations the authority to issue non-monetary sanctions for failure to comply with an order compelling discovery, and Rule 37(b) allows a court to render a default judgment against the disobedient party if the party fails to obey a discovery order. Fed. R. Civ. P. 37(b)(2)(A)(vi). The Federal Circuit held that 19 CFR § 210.33 and Rule 37(b) applied because Judge Pender and the Commission based their decisions on Organik Kimya’s express disobedience of Judge Pender’s discovery orders. The Federal Circuit rejected Organik Kimya’s argument that Micron Technologies, Inc. v. Rambus Inc., 645 F.3d 1311 (Fed. Cir. 2011), controlled the decision and required the Federal Circuit to analyze the Commission’s findings with respect to:

  1. (1) Bad faith,
  2. (2) Prejudice to the opposing party caused by the spoliation, and
  3. (3) Availability or efficacy of lesser sanctions.

But the Federal Circuit also noted that the result would be the same if analyzed under Micron.

The Federal Circuit held that the Commission did not abuse its discretion in implementing default sanctions because Organik Kimya destroyed potentially hundreds of thousands of files, despite explicit orders from Judge Pender to preserve documents, and then tried to deceive Judge Pender as to its actions. The Federal Circuit noted that “these facts put this case squarely within the Supreme Court’s admonition that ‘the most severe in the spectrum of sanctions provided by statute or rule must be available to the district court in appropriate cases’ to penalize a party’s sanctionable conduct and to deter future parties from repeating such conduct.”  (citing Nat’l Hockey League v. Metro Hockey Club, Inc., 427 U.S. 639, 643 (1976).

  1. Limited Exclusion Order

The Federal Circuit also affirmed the Commission’s issuance of a 25-year limited exclusion order against Organik Kimya. On appeal, Organik Kimya argued that the Commission committed legal error by failing to consider its arguments regarding the proper remedy, including the 25-year term. But the Federal Circuit rejected this argument. The Commission had considered Organik Kimya’s briefing but determined that its arguments regarding scope of the exclusion order relied entirely on arguments concerning the merits of the trade secret allegations, which Organik Kimya could not relitigate at the remedy stage because it defaulted on those claims due to the discovery sanctions. The Commission had also found Dow’s expert credible when he testified that it would take Organik Kimya between 15 and 25 years to develop opaque polymers independently. Finally, the Commission included a provision in the limited exclusion order that would allow Organik Kimya to bypass the exclusion order period at any time if it could show that it had developed its opaque polymers without using Dow’s misappropriated trade secrets. Thus, the Federal Circuit found no abuse of discretion or legal error in the Commission’s decision.