In an unusual ruling, Judge Pender imposed severe, dispositive sanctions on Respondents in Certain Opaque Polymers (Inv. No. 337-TA-883) for bad faith spoliation of evidence.
In an Initial Determination (“ID”) (Order No. 27) dated October 20, 2014, ALJ Thomas B. Pender sanctioned Respondents Organik Kimya San. ve Tic. A.S., Organik Kimya Netherlands B.V., and Organik Kimya U.S., Inc. (collectively “Organik Kimya”) for spoliation of evidence. As a sanction for bad faith spoliation of evidence in the investigation, Judge Pender found Oranik Kimya in default with regard to allegations by Complainants Rohm and Haas Company, Rohm and Haas Chemicals, LLC, and the Dow Chemical Company (collectively, “Dow”) of trade secret misappropriation. Judge Pender also imposed monetary sanctions of almost two million dollars against both Organik Kimya and its counsel, Finnegan, Henderson, Farabow, Garret & Dunner LLP (“Finnegan”).
As background, the investigation is based on a complaint filed on May 20, 2013, by Dow against Organik Kimya, alleging violations of Section 337 arising from the importation, sale for importation, and sale after importation into the United States of certain opaque polymers that infringe claims of four patents. The number of asserted patents was later decreased to two. In an amended complaint, filed on November 27, 2013, Dow added a misappropriation of trade secrets claim against Respondents.
During discovery, in February 2014, Judge Pender granted in part Dow’s motion to compel Organik Kimya to make certain of its computers and networks available for forensic inspection, copying and analysis. In a subsequent motion for default or other sanctions filed on May 19, 2014, Dow alleged that instead of making the information available, Organik Kimya deleted or overwrote many of the computer files, and further wiped out recoverable data that was previously deleted. Dow further alleged that Organik Kimya even backdated the clock on a laptop to make it appear that the data was overwritten before the investigation began.
Two days after Dow filed its motion for sanctions, Respondents moved to unilaterally terminate the investigation based upon entry of a proposed consent order. The proposed consent order specified that, inter alia, Respondents would withdraw the accused opaque polymers from the U.S. market.
On July 8-9, 2014, Judge Pender held a hearing on Dow’s motion for default and other sanctions against Organik Kimya for spoliation of evidence, and also on Respondent’s motion for a consent order.
On October 20, 2014, Judge Pender found Organik Kimya in default with regard to Dow’s allegations of trade secret misappropriation.
As addressed by Judge Pender in the ID, spoliation was at issue with regard to three separate laptops and related files: Dr. Perez’ laptop, Mr. Strozzi’s laptop, and Dr. Nene’s laptop. Regarding Dr. Perez’ laptop, Judge Pender found that Organik Kimya had intentionally made 108 copies of the Program Files folder in order to render previously deleted data permanently unrecoverable and the deletion of the files was an effort to hide that the copies had been made. Similarly, Judge Pender found that a program called WinHex was most likely used after the Program Files folder was copied to review the laptop to determine if any previously deleted data was still recoverable, and then a program called CCleaner was used to delete and overwrite the entirety of the D drive and a large portion of the C drive. Additionally, Judge Pender found that back-dating of Dr. Perez’ laptop was done to cause false timestamps to be recorded by the computer and hide that the Program File copies were made days before Dow’s inspection of the laptop. These actions were taken subsequent to Judge Pender’s Order No. 16, which granted in part Dow’s request to compel the forensic inspection of certain computers. Judge Pender noted that Organik Kimya’s explanation, that the IT department had copied the Program Files, and had run the WinHex and CCleaner programs to fix the laptop from a recent drop, and that the laptop’s clock was back-dated because the IT department was also troubleshooting an ongoing time server problem, was not plausible, and concluded that portions of Organik Kimya’s story “completely concocted.” See Order No. 27, at 74.
Judge Pender found that one day after he issued a Preservation Order requiring that Mr. Strozzi’s laptop be copied and preserved by Dow’s forensic experts, and also specifically stated that he would be “mortally annoyed if anything was done to alter, destroy or otherwise mess with the evidence in this case,” over 2,700 user-created files and folders were deleted from Mr. Strozzi’s laptop in a special manner such that they were not placed in the Recycle Bin, but rather had to be recovered using forensic tools. See Order No. 27, at 26, 84. Then, after Dow’s inspection of the laptop, Organik Kimya inexplicably returned the laptop to Mr. Strozzi, who then allegedly lost the laptop when he took it inside a rest stop bathroom and accidently left it there. Moreover, Organik Kimya was already on notice of the massive spoliation of evidence of Dr. Perez’ laptop at the time Judge Pender issued the Preservation Order. Organik Kimya argued that it was not responsible for the deletion of files from Mr. Strozzi’s laptop because Mr. Strozzi was a rogue employee who made a unilateral decision to delete those files prior to delivering his computer to Organik Kimya for forensic inspection. Judge Pender found the deletion of files and loss of the laptop attributable to Organik Kimya because the company-issued laptop was used in the course of Mr. Strozzi’s employment, the laptop was legally owned by Organik Kimya, and Organik Kimya had an absolute right to obtain the laptop back from Mr. Strozzi upon request, as evidenced by the return of the laptop for forensic inspection.
Though Judge Pender found that Dr. Nene had intentionally deleted evidence from his laptop and external storage devices, and found that Organik Kimya was reckless in its disregard of its duty to preserve Dr. Nene’s evidence, no sanction-worth spoliation was found with respect to Dr. Nene’s laptop because all of the documents were either produced during discovery or recovered forensically from Dr. Nene’s laptop.
In the ID, Judge Pender ruled that Dow was entitled to recover $1.3 million in attorney’s fees, and almost $600,000 in certain of its costs as sanctions for the bad faith spoliation of evidence. The monetary sanctions were imposed against both Organik Kimya and its counsel, Finnegan, jointly and severally, for several reasons: Organik Kimya is a Turkish chemical company with no significant operations in the U.S., and thus a judgment solely against Organik Kimya would be difficult to enforce; counsel for Organik Kimya was present to oversee the inspection of Dr. Perez’ laptop when the spoliation occurred; Organik Kimya’s explanations for the destruction of evidence on Dr. Perez’ laptop and the behavior thereafter were not credible on their face and any diligent effort by counsel to check the veracity of the explanations before filing would have revealed them as false; and there was no evidence that a litigation hold memo was ever issued or disseminated.
Concurrent with Order No. 27, Judge Pender issued Order No. 28, denying Respondents’ motion to terminate the investigation based on a consent order stipulation as moot. In the ID, Judge Pender noted that “[p]ermitting Organik Kimya to unilaterally terminate at this stage in the investigation would be an affront to the judicial process. It would permit Organik Kimya to exit this investigation without accepting the full measure of its responsibility for its egregious actions and would therefore fail to deter the future spoliation of evidence. . . . Additionally, granting the motion to terminate would not protect Dow’s interests or remedy the prejudice to Dow flowing from Organik Kimya’s bad faith behavior.” See Order No. 27, at 101.
With regard to the patent case, Judge Pender noted in the hearing on Dow’s motion for default and other sanctions against Organik Kimya that a default would not be entered in the patent case because the evidence did not warrant that result and because of an outstanding invalidity defense. Dow indicated in the hearing that if Judge Pender entered a default solely as to the trade secret cause of action and that default was affirmed by the Commission, Dow would voluntarily terminate the patent case without prejudice. Judge Pender noted in the ID that he expected Dow to move to withdraw its remaining patent infringement claims now that Organik Kimya had been found in default with respect to trade secret misappropriation. Thereafter, on October 30, 2014, Dow filed an unopposed motion to withdraw the remaining two patents from the investigation, which Judge Pender granted in an ID on November 3, 2014 (Order No. 29).