E-Discovery and the Legal Nightmare It Can Become--A Cautionary Tale

Pretty much everyone in the legal and corporate worlds is aware that the legal landscape is changing and electronic discovery (e-discovery or EDD) is driving that change. E-discovery refers to any process by which electronic data is sought, located, secured, and searched with the intent of using it as evidence in a civil or criminal legal case. Even a small company can have millions of electronic and paper documents which somehow need to be located, copied, digitized, reviewed and, if necessary, produced during litigation. While existence of this data in a digital form can greatly speed review and searching, the penalty for a poorly designed system or poorly trained litigation team is extreme.

In the process of electronic discovery and recovery, data of all types can serve as evidence. This can include text, images, calendar files, databases, spreadsheets, audio files, animation, web sites, and computer programs. And as the lines between different technology hardware gets more and more blurry, potentially any electronic device can become a source of potential electronically stored data. The obvious sources are PC's, network servers and laptops. But now data is also stored on jump drives, portable hard drives, CD's, DVD's, Blue Ray Disks, memory chips, PDA's, and even i-Pods and cellular phones.

Most lawyers, even those who don't practice in Federal Court, are vaguely aware of recent amendments to the Federal Rules of Civil Procedure, including 16, 26, 33, 34 and 37. As a result of these amendments, the old "The dog ate my homework" excuse won't work anymore. There is no excuse for failing to maintain or produce electronic data and a party can be severely sanctioned for failing to comply. Many states are also bringing their own rules of civil procedure and into line with the Federal Rules--with similar penalties for violations.

The recent case in involving Qualcomm is instructive. Based in San Diego, Qualcomm licenses semiconductor technology and software to cell phone and DVD makers that makes the devices work. But there are other companies in this business. One competitor of Qualcomm's is Broadcom and for several years the two companies have been engaged in a pitched battle over who has infringed whose patents. One of the battle fronts is in the San Diego Federal District Court. Qualcomm was sued Broadcom over two of these patents covering technology that Broadcom had incorporated into its video players.

You can imagine the e-discovery issues involved when two giant chip/software/hardware makers with thousands of patents go after each other. Broadcom alleged as an affirmative defense that Qualcomm had waived its right to assert patent infringement, arguing that Broadcom's products were based on the JVT (Joint Video Team) international standards. Companies are entitled to base their products on such standards without fear of being sued for infringement. This is why your DVD movie can play in virtually any DVD player because they all use the same standards.

Broadcom claimed that Qualcomm waived its patent rights by participating in the standards process without disclosing that the resulting standard would violate existing patents held by Qualcomm. Broadcom's argument was essentially that Qualcomm engaged in a giant game of sandbag. On the one hand, Qualcomm helped to establish an industry standard that all companies could use, while at the same time knowing (without disclosing to the JVT committee) that it also held the patents on the very technology being incorporated into the standard. The secret ownership of these patents would, in turn, allow Qualcomm to sue any company using the standard for patent infringement. Smart if it works--REALLY dumb if you get caught. Qualcomm got caught.

The San Diego case went to trial and in January a jury ruled that the Qualcomm loses: it had violated Broadcom’s patents to the tune of $8.5 million. But even before the verdict, Qualcomm sustained a huge (and apparently unforseen) body blow as the trial was drawing to a close. One of Qualcomm's engineers revealed the existence of a mere 200,000 pages of e-mails that were not previously disclosed during discovery. Broadcom contended these e-mails should have been produced. Discovery is the pre-trial process where the parties take depositions and exchange documents. About 21 of the e-mails that should have been produced were the smoking gun kind that every lawyer dreams of. Qualcomm's lawyers said "Oops--Our bad" and sent letters of apology to the judge. They explained that they had used an improper "keyword search" during the review process that failed to kick out these e-mails so they remained buried in the millions of other documents being poured over and were never produced to Broadcom.

So all is forgiven, right? Qualcomm lost, afterall. End of story. Well, not exactly. That apology and dog-ate-the-emails fable wasn’t enough for the judge on the case, Rudi Brewster. On August 6 he issued a savage 54-page ruling accusing Qualcomm of not only of failing to turn over the more than 200,000 pages of relevant email and electronic documents during discovery, but of engaging in a long campaign of "constant stonewalling, concealment and repeated misrepresentations." He described it as "an organized program of litigation misconduct" and asked the federal magistrate in the case to consider sanctions against the outside attorney. Brewster ordered Qualcomm to pay Broadcom’s litigation costs, and voided two of its patents that had been incorporated into the JVT. David Rosmann, the vice-president of intellectual property litigation at victorious Broadcom, estimates that its fees will be around $10 million.

Bottom Line in this cautionary tale: Even assuming that Qualcomm's excuse for why it didn't produce the e-mails was legitimate (doubtful, but plausible even for parties who are trying hard to play by the rules), the penalties for that mistake are staggering. So, if you find yourself in a litigation situation, make sure your attorneys, IT department and any third-party e-discovery management company are all on the same page. If you don't have a spare $10 mil lying around, a mistake like the one in Qualcomm's case could put you out of business. Oh, and, not surprisingly, Qualcomm has new legal counsel now. So e-discovery mistakes can be just as deadly for the lawyers as for the actual parties.