Sanctions For Failing To Disclose ‘Unstripped’ ESI, But Not For Deleting ‘Smoking Gun’ Email

Posted by Gregg Mayer on Thursday, March 27th, 2008   

In an ongoing intellectual property lawsuit between ClearOne Communications and WideBand Solutions, the judge was recently faced with two e-Discovery issues: (1) should he sanction WideBand for failing to disclose a “smoking gun” email, and (2) should he sanction WideBand for only disclosing a stripped version of a source code when ClearOne had requested another version of source code with comments.

In the end, the court sanctioned WideBand for misrepresenting it did not have a source code with comments. The court ordered an adverse inference instruction.

The court did not sanction WideBand for failing to disclose the “smoking gun” email. The court reasoned that since the email was automatically deleted from the company’s “sent” folders as part of its routine retention policy, then sanctions were not warranted. However, the court did describe this type of retention policy as a “significant irregularity” and “questionable.”

Here’s a more detailed rundown of the e-Discovery issues:

First, ClearOne sought a sanction against WideBand for failing to disclose an email sent by WideBand’s founder that was relevant to the litigation. The email surfaced when the company that received it disclosed the email in litigation. WideBand said the email had been automatically deleted from its system as part of its policy not to retain any items in the “sent” folder.

The court found WideBand’s deletion policy unusual:

For any business this is a significant irregularity; almost unimaginable for a technology company; and even more unlikely for a person of [the founder’s] importance in such a company.

However, since WideBand followed its routine policy in good faith, then the court opted not to sanction the company since it was not under a duty to preserve that email right after it was sent.

Second, ClearOne accused WideBand of stripping comments from source code that WideBand had provided to another party. The source code was at the heart of the infringement litigation.

ClearOne wanted “any and all versions, derivatives, and forms of the computer code.” WideBand only disclosed a stripped version of the code.

Of course, as it was discovered at the end of May, there was another copy of the source code and it does contain comments. Very shortly after this discovery, the source code with comments was provided to ClearOne.

During a deposition, a WideBand representative failed to disclose there existed a source code with comments, even though he was asked about it. As a result, the court ordered an adverse inference instruction against WideBand.

This is a serious remedy for a serious situation. It is not dispositive or case-terminating remedy, but it is significant. Such a jury instruction will have a considerable impact on the jury.

Read an analysis of the case and the court’s opinion here.

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