UPDATE: In a February 20, 2008 filing with the District Court, Qualcomm stated that it had accepted and paid the full $8.5 million sanction imposed for discovery violations. In a March 5, 2008 Order, the District Judge: (a) vacated the sanctions against the six outside attorneys to allow a further hearing: (b) held in effect that Qualcomm, by attacking its own former attorneys, had waived the attorney-client privilege.

A federal magistrate in California has put businesses on notice—especially those that have their own in-house legal staff—that they may be held responsible for failure to produce discovery, even if they get bad advice from outside counsel. That is the stark lesson from Qualcomm, Inc. v. Broadcom Corp., a patent infringement case pending in San Diego.

The Qualcomm case has drawn national attention because of claims by Broadcom, the defendant and counterclaimant, that Qualcomm deliberately failed to produce relevant emails during the discovery process and presented misleading testimony at trial. The trial judge referred the claims of discovery misconduct to Magistrate Judge Barbara L. Major.

Now, the Magistrate Judge has issued a detailed opinion on the discovery misconduct issue. That opinion can be found at 2008 U.S. Dist. Lexis 911, and 2008 WL 66932 (S.D.Cal. January 7, 2008), or by clicking here.

Although the decision of the Magistrate Judge is still subject to review and appeal, it offers an object lesson as to the importance of effective teamwork between the client, including its inside counsel, and outside counsel to avoid discovery errors. As the opinion states, "attorneys and clients must work together to ensure that both understand how and where electronic documents, records and emails are maintained and to determine how best to locate, review and produce responsive documents." In the Qualcomm case, the discovery errors found by the Court led not only to sanctions but may have contributed to Qualcomm losing the case on the merits. These errors might have been avoided if the right questions about computer searches for relevant email had been asked at the outset.

  • What was the case about? Qualcomm sued Broadcom for infringing patents that relate to the coding of video files. A critical issue was whether Qualcomm had participated in an industry standards-setting body, the Joint Video Team (JVT), before May 2003 when the JVT issued a new standard referred to as "H.264." If Qualcomm did participate in the JVT before May 2003, then its patents were waived.

  • What did the company do wrong? The Court concluded that Qualcomm (and its lawyers) failed "to produce more than 46,000 emails and documents that were requested in discovery and that Qualcomm agreed to produce," including "tens of thousands of emails showing that it actively participated in the JVT in 2002 and 2003 . . . ." Qualcomm claimed that "the discovery failures . . . were not the product of bad faith, but the result of miscommunications, oversights and misjudgments." However, as the opinion describes, the Magistrate Judge found that the failure was unjustified and intentional misconduct.
    Among other points emphasized in the opinion: Qualcomm failed to search the computers of the two employees who were designated as knowledgeable about Qualcomm’s participation in the JVT and who were produced for deposition, Qualcomm failed to search other computer files for appropriate terms such as JVT and H.264, and while Qualcomm claimed to be unaware of the participation of its employees in the JVT, it was later found that the relevant emails had been received by many different Qualcomm employees and consultants.

  • Why did the Court sanction the company and not just the outside lawyers? In its briefs to the Magistrate Judge, Qualcomm seeks to place responsibility for these errors on the outside attorneys and to exonerate itself. But the Magistrate Judge found that the company was responsible for identifying the right employee and performing the right computer searches. "Qualcomm . . . has not presented any evidence that outside counsel knew enough about Qualcomm's organization and operation to identify all of the individuals whose computers should be searched and determine the most knowledgeable witness. And, more importantly, Qualcomm is a large corporation with an extensive legal staff; it clearly had the ability to identify the correct witnesses and determine the correct computers to search and search terms to use. Qualcomm just lacked the desire to do so."

  • What penalty did the Court impose on Qualcomm? The Magistrate Judge ordered Qualcomm to pay all of Broadcom's attorneys' fees and litigation costs ($8.6 million) as a discovery sanction. (The District Judge had already awarded the same attorneys' fees, and Qualcomm will not have to pay twice.) The Magistrate Judge also referred six of Qualcomm's outside attorneys to the State Bar of California for investigation of possible ethics violations and ordered these six attorneys as well as Qualcomm and five named in-house attorneys to participate in a corrective "Case Review and Enforcement of Discovery Obligations" (CREDO) program in order "to craft alternatives that will prevent such failures in the future, to evaluate and test the alternatives and ultimately, to create a case management protocol which will serve as a model for the future."

  • How else was Qualcomm hurt? In many cases, early review of problematic documents can help a company find an explanation, or a different argument, or another way to prevail in the case. The time to learn about bad documents is not in the middle of the trial.

  • Are there other cases like this? Yes. A few recent examples: In Re September 11th Liability Insurance Coverage Cases, 243 F.R.D. 114 (S.D.N.Y. 2007) (insurance company was required to pay attorneys’ fees after failure to timely produce insurance forms, "culpable state of mind" shown by the fact that it failed to produce a printed copy and deleted an electronic copy), Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2d Cir. 2002) (directing the District Court, which had found that corporation was "purposefully sluggish" in producing emails, to consider an adverse inference as to the evidence, even if there was no bad faith or gross negligence), CSI Investment Partners II, L.P. v. Cendant Corporation, 507 F.Supp.2d 384 (S.D.N.Y. 2007) (corporation that lost data during a conversion project prior to start of litigation, and then delayed admitting the loss for three and a half years after data was requested, required to pay attorneys' fees).

  • How can Ballard Spahr help? When litigation occurs, outside counsel can help ask the right questions and can design and carry out document searches that find the documents that need to be found. Ballard Spahr's litigators have substantial experience in doing just this, both for paper files and for electronic files like the ones involved in the Qualcomm case. Ballard Spahr attorneys can also help business clients before litigation arises, by training in-house teams to address potential discovery matters and by developing proactive internal procedures for document retention and document discovery, including regular auditing procedures to insure compliance.

Copyright © 2008 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This newsletter is a periodic publication of Ballard Spahr LLP and is intended to alert the recipients to new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and specific legal questions you have.