Although the existence of a party’s obligation to preserve relevant evidence in connection with litigation is generally well known, uncertainty often exists among attorneys and their clients regarding when the obligation arises and when and how a litigation hold should be implemented to mitigate the risk of sanctions for failing to preserve relevant evidence. This brief overview addresses some basic aspects of litigation holds in intellectual property cases, including with respect to administrative proceedings at the USPTO.
A litigation hold should be implemented as soon as a party becomes obligated to preserve documents and other potential evidence in connection with litigation. A party’s duty to preserve evidence, however, is not limited only to the time period after a complaint is filed. Rather, “[t]he duty to preserve evidence begins when litigation is pending or reasonably foreseeable.” Micron Tech., Inc. v. Rambus, 645 F.3d 1311, 1320 (Fed. Cir. 2011) (emphasis added); see also Silvestri v. GMC, 271 F.3d 583, 591 (4th Cir. 2001) (“The duty to preserve material evidence arises not only during litigation but also extends to that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation.”).
The determination of when litigation is reasonably foreseeable is an objective inquiry, but is also flexible and highly fact-dependent. See Micron, 645 F.3d at 1320. Thus, the “mere existence of a potential claim or the distant possibility of litigation” is likely not sufficient to impose a duty of preservation on a party, but future litigation also need not be “imminent, or probable without significant contingencies” in order for the obligation to exist. Id. Courts instead must look at the “totality of the circumstances.” Id. at 1325.
From a prospective plaintiff’s point of view, the determination is often straightforward because the plaintiff effectively controls the timing of the litigation. Once the plaintiff has taken steps in furtherance of initiating litigation, such as preparing a complaint, claim charts, or other documents in anticipation of litigation, the duty to preserve will typically be triggered and the party should initiate a litigation hold.
On the other hand, whether an accused infringer or other potential defendant might reasonably foresee that a complaint will be filed against it is often a more difficult inquiry and will almost certainly vary with the specific facts of each case. Although not specific to intellectual property cases, one state supreme court suggested that the following non-exhaustive list of factors may be instructive: “(1) the type and extent of injury; (2) the extent to which fault for the injury is clear; (3) the potential financial exposure if faced with a finding of liability; (4) the relationship and course of conduct between the parties; (5) the frequency with which litigation occurs in similar circumstances; (6) what the defendant did or did not do in response to the incident, including the initiation and extent of any internal investigation; (7) whether the defendant notified counsel or an insurer; or (8) any expression by the defendant that it was acting in anticipation of litigation.” See Pate v. Veolia Transp. Servs., No. 1:15-CV-02425-CAP, 2016 U.S. Dist. LEXIS 203669, at *16 (N.D. Ga. Dec. 1, 2016) (citing Phillips v. Harmon, 774 S.E.2d 596, 605 (Ga. 2015)).
Communications between the parties, such as cease and desist letters, may also trigger the duty for both the sending party and the receiving party, particularly if the communication threatens litigation or requests the receiving party to put a litigation hold in place in anticipation of potential litigation. See, e.g., Regulatory Fundamentals Grp. LLC v. Governance Risk Mgmt. Compliance, LLC, No. 13, 2014 U.S. Dist. LEXIS 107616, at *16, *39 (S.D.N.Y. Aug. 5, 2014) (duty to preserve triggered by letter alleging copyright infringement and threatening “legal recourse” for non-compliance with demands). A communication that merely recognizes the existence of a potential dispute between the parties and suggests an amicable resolution, however, may not be sufficient to trigger a litigation hold. See, e.g., Cache La Poudre Feeds, LLC v. Land O’Lakes Farmland Feed, LLC, 244 F.R.D. 614, 623-24 (D. Co. 2007) (letter putting receiving party on notice of sending party’s trademark rights and suggesting a “non-litigious resolution” was not sufficient to trigger duty to preserve).
When a party knows or should know that litigation is pending or otherwise reasonably foreseeable, it should implement a litigation hold to ensure that it complies with its duty to preserve evidence. This involves both preventing the destruction of potentially relevant evidence and ensuring that such documents are preserved. See Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003) (“Once a party reasonably anticipates litigation, it must suspend it routing document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.”). The instructions to implement these policies should ideally be given in writing, rather than orally. See Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 685 F. Supp. 2d 456, 465 (S.D.N.Y. 2010) (“[T]he failure to issue a written litigation hold constitutes gross negligence because that failure is likely to result in the destruction of relevant information.”) (emphasis in original).
While the litigation hold need not preserve every document or email within the party’s possession, it must preserve any document or thing that the party “knows, or reasonably should know, is relevant to the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.” Zubulake, 220 F.R.D. at 217. This involves identifying all “key players” – typically “employees likely to have relevant information” – and ensure that all relevant documents created by or for, including communications sent from or to, those individuals are preserved. Id. at 218. Each of these individuals, as well as relevant IT personnel who may control the party’s abilities to implement document retention policies, should also receive a written litigation hold notice that describes the categories of documents to be preserved in sufficient detail. Notably, to the extent that any documents or information from former employees are relevant and remain in the party’s possession, custody, or control, they must also be preserved. See Pension Comm., 685 F. Supp. 2d at 465, 471.
Furthermore, it is important that compliance with the litigation hold is monitored by the party’s legal team. See Pension Comm., 685 F. Supp. 2d at 473 (criticizing the “total reliance on the employee to search and select what that employee believed to be responsive records without any supervision from counsel”). This includes monitoring the collection, review, and production of documents, as well as updating the parameters of the litigation hold as necessary to ensure that the party satisfies its duty to preserve documents. Id. Failure to do so could result in the destruction or loss of relevant documents, potentially exposing the party to sanctions for spoliation of evidence, which can range from fines or cost-shifting to an adverse inference instruction to the jury to dismissal or default judgment in the most extreme cases. Id. at 469-70.
Although inter partes proceedings before the Trademark Trial and Appeal Board (TTAB) and the Patent Trial and Appeal Board (PTAB) involve discovery that is typically much more limited than in federal court, discovery in such proceedings is governed by the Federal Rules of Civil Procedure. See, e.g., TBMP § 400 (“Ordinarily, the discovery provisions of the Federal Rules of Civil Procedure are applicable in Board inter partes proceedings . . . .”); 35 U.S.C. § 24 (“The provisions of the Federal Rules of Civil Procedure relating to the attendance of witnesses and to the production of documents and things shall apply to contested cases in the Patent and Trademark Office.”). Further, the TTAB and the PTAB both have the ability to award sanctions for violations of discovery rules, procedures, and orders. See TBMP § 411.05 (“In inter partes proceedings before the Board, a variety of sanctions may be imposed, in appropriate cases, for failure to provide disclosures or discovery pursuant to 37 C.F.R. § 2.120(h).”); 37 C.F.R. § 42.12 (permitting sanctions in PTAB proceedings). At the PTAB, such sanctions can range from an order excluding evidence to “providing for compensatory expenses, including attorney fees” to “[j]udgment in the trial or dismissal of the petition.” 37 C.F.R. § 42.12(b). The TTAB’s sanctioning power is more limited at least to the extent that the TTAB will not award expenses or attorneys’ fees as a sanction, but several other sanctions are available to the TTAB, including entering judgment against a disobedient party. TBMP § 411.05.
Because of the discovery obligations imposed on parties in TTAB and PTAB proceedings and the corresponding risk of spoliation sanctions, there is good reason to implement litigation holds to preserve relevant evidence when such proceedings are pending or reasonably foreseeable, applying the same guidelines outlined above. Indeed, the TTAB has previously awarded sanctions under Fed. R. Civ. P. 37(e) for a party’s failure to properly preserve evidence. See Busy Beauty, Inc. v. JPB Grp., LLC, Cancellation No. 92069340, 2019 U.S.P.Q.2d (BNA) 338392 (TTAB 2019) (finding party and its counsel “were at least careless in their data preservation” and precluding the party from relying on certain evidence”). Knowing when and how to implement an appropriate litigation hold will help attorneys and their clients to avoid such undesirable outcomes.