[ The National Law Journal ] A pair of recent court rulings are giving unions new and potentially potent ammunition against furloughs of public employees.

On Aug. 18, a federal judge struck down a furlough plan in Prince George’s County, Md., holding that the plan violated the U.S. Constitution by unilaterally cutting wages guaranteed through collective bargaining. On July 29, a state judge in Hawaii issued a similar ruling, saying a furlough violated the state constitution and criticizing officials for ordering unpaid leave without first negotiating with public employee unions.

Furloughs are the strategy du jour in states and municipalities hard hit by the recession. To date, more than 728,500 public employees in at least 21 states have taken or will soon be forced to take furloughs, according to the National Conference of State Legislatures. If other courts agree, the argument that furloughs illegally ignore union contracts could have wide implications: More than 3 million public employees nationwide are covered by collective-bargaining agreements, according to U.S. Department of Labor statistics.

Already, in furlough battles across the country, word of the Hawaii and Maryland rulings is spreading quickly. Bruce Lerner of Washington, D.C.’s Bredhoff & Kaiser, who represented the Fraternal Order of Police in the Maryland case, said he has received a handful of phone calls from unions that want to see his complaints and arguments. And unions in Ohio and Florida have called the Fraternal Order of Police, expressing interest in resurrecting failed furlough challenges, said a police union official.

In California, where state employees are suing in state court over furloughs ordered by Gov. Arnold Schwarzenegger, Paul E. Harris III, chief counsel of the Service Employees International Union Local 1000 in Sacramento, said he plans to cite the Maryland ruling in upcoming oral and written arguments. “We hope to achieve similar results here,” he said.

THEY HAD A CONTRACT

As in the Maryland case, California employees are targeting the furloughs as contract violations. SEIU Local 1000 alleges that state employee furloughs announced in December and July are illegal pay cuts, and that Schwarzenegger used false pretenses to declare a state of emergency so that he could order unnecessary furloughs without prior negotiation. Harris described the Maryland ruling as “persuasive authority” for the California court.

Persuasive maybe, although the ruling must survive on appeal first, said Peter Conrad of New York’s Proskauer Rose, who handles labor disputes on behalf of employers. That said, he’s not counting on a reversal, and he predicted that unions will use this “to the maximum extent possible.”

Unions will have a lot of fodder to use, Lerner said. During oral arguments before the U.S. District Court for the District of Maryland, he compared Prince George’s County to a lawyer who loses his job and calls the mortgage company claiming he can’t pay his loan, only to get caught later with a huge savings account. Or, in this case, $97 million in reserve funds that the county could have tapped, said Lerner.

It was a detail that didn’t go unnoticed. “[A]lthough the County suggests to the Court that it faced dire circumstances and had no other reasonable alternatives, the record suggests otherwise,” Judge Alexander Williams Jr. ruled on Aug. 18. He concluded that county furloughs ran “roughshod” over the unions “who in good faith negotiated a binding contract.”

[ The Associated Press ] Former Greenwood, Miss., attorney and judge Bobby Fisher’s cooperation with federal authorities has allowed him to remain free more than three years after pleading guilty to a mortgage scam.

Fisher says he continues to help U.S. attorneys on mortgage fraud cases and will be sentenced once those wrap up.

In January 2006, Fisher and former real estate agent Jim Pruett pleaded guilty to a scheme of falsifying mortgage application documents. Pruett was sentenced and died in prison in 2007.

Fisher said the current matters do not relate to his original case and do not concern local situations. He said he would like to speak further about what happened but cannot because of the ongoing investigations.

Fisher previously served as a Greenwood Municipal Court judge.

[ New Jersey Law Journal ] Aggressive lawyering at two of New Jersey’s high-profile litigation firms — Sills Cummis & Gross and Nagel Rice — is under attack in cases the state Supreme Court has added to its agenda for the term that begins Sept. 14.

A case in which Sills Cummis of Newark, N.J., is facing sanctions and disqualification gives the Court an opportunity to make significant refinements in the law governing companies’ control over employees’ electronic communications.

And the issue in a case against Bruce Nagel of Nagel Rice of Roseland, N.J., is whether he or his client should pay a frivolous pleading fee award to an opponent.

The two appeals were among 23 the Court added to its docket on Aug. 24 along with the usual smattering of criminal matters, two eminent domain disputes and a product-liability case being followed closely by construction lawyers.

The central issue in Stengart v. Loving Care Agency, Inc., A-16-09, is whether a company defended by Sills Cummis in a discrimination suit owns the e-mails the plaintiff sent to her lawyer on a company computer before the suit, or whether the communications are privileged.

Either way, should Sills Cummis have looked at them before notifying the plaintiff’s lawyers at Short Hills, N.J.-based Budd Larner?

Lower courts split on the issue. A trial judge ruled that because the e-mails were sent from a computer owned by the company they were the company’s property, more so because there were policies warning employees that the company had a right of access to information generated by the computers.

But an appeals court reversed in June, ruling that the attorney-client privilege trumped the company’s rights to the material. The panel remanded the case for a determination of whether Sills Cummis should be disqualified and sanctioned for looking at the material once it saw a law firm was the recipient of the messages.

What makes the case particularly worthy of the attention of lawyers who deal with electronic-age legal issues is the finding by appeals judges that employees using company computers for e-mails have an expectation of privacy for matters unless the employer’s interests are affected.

“The past willingness of our courts to enforce regulations unilaterally imposed upon employees is not limitless; the moral force of a company regulation loses impetus when based on no good reason other than the employer’s desire to rummage among information having no bearing upon its legitimate business interests,” Judge Clarkson Fisher wrote in an opinion joined by Judges Linda Baxter and Christine Miniman.

WHO FOOTS FEE FOR FRIVOLOUS CASE?

In Rabinowitz v. Wahrenberger, A-1-09, the Court is reviewing a finding that Nagel, on behalf of his plaintiff in a medical malpractice suit, pursued frivolous pleadings against the defense lawyer in the case, Judith Wahrenberger of Wahrenberger, Pietro & Sherman in Springfield, N.J.

The suit claimed that Wahrenberger’s questioning of the plaintiff at a deposition about the circumstances of the alleged malpractice was unnecessarily callous and inflicted emotional distress. But trial courts and an appellate panel ruled that Wahrenberger’s questions were privileged, that she was just doing her job and that the suit against her was frivolous.

[ The National Law Journal ] The Supreme Court on Wednesday issued a pair of statements on the death of Sen. Ted Kennedy, D-Mass. — one from Chief Justice John Roberts Jr., and the other from Justice Stephen Breyer, who worked for Kennedy 30 years ago as chief counsel to the Senate Judiciary Committee. Kennedy pushed for Breyer’s nomination to the high court in the early 1990s, and opposed Roberts’ nomination in 2005.

Said Roberts: “I am very saddened by Senator Kennedy’s passing. He was — all his life — a sincere, dedicated, and tireless public servant.”

Breyer’s statement: “The country has lost a great senator. We who worked for him remember and will always cherish his practical wisdom, his sense of humor, his determination, and his love of his country and its history. He was dedicated to helping others. Our hearts go out to Vicki and to his family. Senator Kennedy was a great American.”

KENNEDY’S NOTE TO REHNQUIST

Many of the appraisals of Kennedy, who died Tuesday night, make the point that Kennedy was adept at making alliances and extending courtesies across the aisle and with adversaries. One example can be found in the papers of the late Chief Justice William Rehnquist, recently opened at the Hoover Institution Archives at Stanford University.

Kennedy was a leader of the opposition to Rehnquist’s confirmation as chief justice in 1986, but that did not stop him from wishing Rehnquist well in his battle with thyroid cancer in 2004 and 2005. Soon after Rehnquist’s diagnosis was announced, Kennedy sent him a handwritten note: “Dear Mr. Chief Justice — I was saddened to hear about your illness — I wish you a speedy recovery — Best Wishes, Ted Kennedy.”

[ Law.com ] Deduplication has become a mainstay of electronic data discovery processing where documents, such as word-processing files and e-mail messages, are assigned an algorithmically calculated alphanumeric value (typically an MD5 hash) and compared to all other electronic files in a data set. Documents with the same MD5 hash values are considered duplicates. As simple as this process seems, there are two different bases for deduplication: by custodian and by case. Both have their advantages and pitfalls.

Deduplicating documents by custodian results only in the removal of duplicates within one person’s data set. A custodian is the owner of the electronic data harvested from one person’s hard drive, company network or e-mail account. If the data is collected only once, typically only a small number of duplicates exist. But if the custodian’s data is harvested on a rolling basis over time, the percentage of deduplicated items will increment with successive collections. For example, a file containing one week of e-mail messages will contain a relatively small amount of new data compared to the previous week’s messages. Examples of duplicate documents per custodian may be, for example, copies of e-mail messages created automatically by an “AutoArchive” rule established by the custodian.

Deduplication by custodian is the basis preferred by vendors for several reasons. One obvious reason: deduplicating data sets by custodian results in fewer duplicates than deduplication by case and thus more documents can be generated for review — vendors that offer to print data sets on demand can possibly earn the most income by deduplicating by custodian. For a more subtle reason, custodian deduplication provides the fewest headaches and worries to the EDD processing vendor and makes it easier to communicate to the law firm how data sets were deduped using the hash comparison explained above. But it is not as easy to conduct and explain deduplication by case, or global deduplication.

DEDUPLICATION BY CASE

Deduplication of documents on a case basis will result in the removal of duplicate documents within the data set for the entire case. In this manner, duplicate documents are removed not only by comparing documents within each custodian’s data set, but also by a custodian-to-custodian comparison of documents. The advantage to this basis, often called global deduplication, is that it removes the greatest number of duplicates from the review database. As a result, the attorneys have the smallest number of documents to review. Here are some examples of global duplicates: Members of the same company department might have comparably imaged computers, often storing comparable documents; spam and e-mail sent to a group, to which all or some of the case custodians belong.

Global deduplication complicates matters, especially when processing e-mail. The deduping process cannot distinguish which duplicate document is the original and which is the copy. Duplicates are designated by the order the document was processed. Therefore, a processor may remove the original e-mail sent to a group by one of the case custodians, and only one of the duplicates is kept.

For example, e-mails from three custodians, A, B and C, may be processed in that order. The EDD processing application considers custodian A’s e-mails the originals and global duplicates will come mostly from B’s and C’s e-mails. The problem in this example is that the attorney may want an original message from B’s e-mail account. But that message was designated as a duplicate and removed from the review database. Custodian B was the original sender, but the attorney has in the database only A’s e-mail received from B.

It may look awkward to the court that the attorney produced a message that was delivered to a recipient and not the message from the original sender. The need to produce original documents from the custodian under investigation is particularly important for cases that require proof that the investigated custodian actively sent a certain message and did not passively receive it.

Another pitfall of global deduplication comes from a court order to produce all documents from one custodian and only some documents from other custodians. To comply with such an order, it is recommended (if not necessary) that you include all duplicate documents from the one custodian’s data set in the document set produced. Otherwise, as explained above, a processor could remove identified duplicate documents from the custodian described in the order, while keeping original documents stored in another custodian’s data set.

It is imperative for the litigation support analyst and attorney to understand the deduplication process when electronic data is organized into a review database. Different EDD processing applications have different deduplication processing rules. Compariing e-mails is relatively easy, as explained above, but what about attachments?

DETECTING DUPLICATE E-MAIL ATTACHMENTS

Some EDD processing applications create a hash value for an attached file separate from its parent e-mail message. Using this method, duplicate attachments and loosely stored electronic files can be found. This may be advantageous because a greater number of duplicates can be removed from the review database. Nonetheless, the recommended process for attachments is to apply no hash value or use the same hash value as the parent e-mail message. That way, an e-mail and its attachment are considered a set. Then, the deduplication process can compare and remove duplicate e-mail sets: the messages and their attachments, together.

Creating separate hash values for e-mail messages and their attachments can cause a pitfall for reviewers. For example, a litigation support analyst receives an e-mail account file that contains e-mails and attachments as well as a DVD of electronic documents harvested from the client’s document management system and the custodian’s hard drive. The DVD contains a document that is also an attachment to an e-mail the custodian sent. These two documents may be considered duplicates by their calculated hash values. Let us say the deduping application assigns the original status to the document from the DVD and duplicate status to the attachment. It may be imperative to the case to prove that the custodian disseminated that document via e-mail to recipients who allege that they never saw it. But in the review database, the attorney sees only the original document, the one from the DVD. The attorney may not know that the custodian e-mailed the document to several recipients.

Finally, it is imperative for the attorney to understand how their client’s or opponent’s document management system stores e-mail and related attachments. A DMS may allow users to store an attachment separately from its e-mail message. But this separation can cause problems when it comes time to harvesting data relevant to litigation or investigation. In many cases litigation hinges on document content – knowledge of who sent what and when is not crucial. But for those cases where knowledge of document content is important, the separation of attachments from their parent e-mail messages can prove disastrous. For this reason alone, some DMS vendors remove the ability to save attachments separate from e-mail messages.

CONCLUSION

With the pros and cons of deduplicating by custodian or by case, attorneys can decide which deduplication process best fits the case in hand. Attorneys may prefer casewide (global) deduplication because the data set to review is reduced the most. This choice is optimal for cases premised on document content, as opposed to document context, such as the knowledge of who had what, when and where. Alternatively, for cases revolving around document context, custodian-based deduplication or no deduplication becomes the safest choice.

[ New York Law Journal ] A rare joint letter to the U.S. Securities and Exchange Commission from a group of defense law firms over shareholder proxy access is receiving an even rarer response from nine of the country’s largest plaintiffs law firms.

The firms, more typically seen in shareholder litigation than in regulatory squabbles, include Labaton Sucharow; Bernstein Litowitz Berger & Grossman; and Cohen Milstein Sellers & Toll. The letter, dated Tuesday, supports the SEC’s proposal to allow shareholders to nominate directors, exactly what the defense firms argued against last week.

The defense firms that sent the joint letter were Wachtell, Lipton, Rosen & Katz; Simpson Thacher & Bartlett; Cravath, Swaine & Moore; Sullivan & Cromwell; Davis Polk & Wardwell; Latham & Watkins and Skadden, Arps, Slate, Meagher & Flom.

“These are the same firms that brought us the poison pill,” said Lawrence A. Sucharow, a name partner at New York’s Labaton Sucharow, which took the lead on the letter. “Not exactly exemplars of shareholder rights.”

At the center of the dispute is a proposal before the SEC that would allow shareholders to nominate and elect individual directors to corporate boards. If approved in its current form, public companies would be required to include in their proxy materials shareholder nominees for directors that could comprise up to a quarter of the board. Shareholders also could put forward proposals for broader access to the ballot than the commission’s regulations would require.

In an Aug. 17 letter, the seven corporate law firms urged the SEC not to adopt the proposal and, if it did, to be “to be cautious in implementing what all participants in this debate acknowledge will be one of the most significant rule changes in SEC history”

The defense firms said they did not support requiring companies to allow shareholder nominations. But they said they were open to allowing shareholders to submit proposals for governance changes that would allow them to nominate directors.

The bulk of the defense firms’ 40-page letter focused on the functionality of the proposal and how the rules should be implemented.

Sucharow argued that the defense firms’ suggestions would strip the proposal of most of its weight.

“In the guise of modification they actually sought to strip the proposed amendment of any hope of viability,” he said. “It’s just kind of interesting the approach that they took.”

In particular, the plaintiffs firms urge the SEC not to adopt any provision that would allow corporations to “opt out” of the requirements.

“Shareholders, as the owners of the companies, should have a simple and straightforward method for nominating director candidates, and the SEC’s proxy disclosure rules should not impede the shareholders’ rights in this regard,” the plaintiffs lawyers’ letter says.

The plaintiffs firms’ letter acknowledges it is coming after the SEC’s comment period ended Aug. 17. But the firms claimed the need to “address certain of the arguments set forth” by “seven law firms representing various corporate interests.”

The other plaintiffs firms who signed the letter were Milberg; Kaplan Fox & Kilsheimer; Barroway Topaz Kessler Meltzer Check; Berman DeValerio; Grant & Eisenhofer; and Pomerantz Haudek Grossman & Gross.

Sucharow acknowledged that it is uncommon for such highly competitive plaintiffs firms to work together.

“The defense bar has consistently been more organized than the plaintiffs bar,” Sucharow said. “[Corporate firms] meet and discuss these things more than we do. They communicate more openly with each other. … Maybe this is a step in the right direction for our bar as well.”

Sucharow said the plaintiffs firms “reached out to several different additional firms that were either going to take an independent view or decided not to participate at this time.”

[ The Recorder ] The Justice Department’s aggressive steroids probe has led the 9th U.S. Circuit Court of Appeals to enunciate a new set of Fourth Amendment protections for the digital age.

In an en banc opinion Wednesday that split conservatives on the court, Chief Judge Alex Kozinski said federal agents were wrong to seize swaths of drug test results from labs in Nevada and California. The computer files taken by the government revealed information about far more people — including professional baseball players and others — than allowed by a search warrant.

The decision reverses an earlier panel upholding the search. It also represents the second high-profile drubbing that the U.S. Attorney’s Office for the Northern District of California has received from the 9th Circuit in as many weeks: The appeals court just tossed former Brocade CEO Gregory Reyes’ backdating conviction because of prosecutorial misconduct.

“When, as here, the government comes into possession of evidence by circumventing or willfully disregarding limitations in a search warrant,” Kozinski wrote of the steroids probe, “it must not be allowed to benefit from its own wrongdoing by retaining the wrongfully obtained evidence or any fruits thereof.”

The steroids case has been long litigated. Following a deal in 2002 with its players union, Major League Baseball conducted drug tests that were supposed to remain anonymous. However, federal agents investigating the use of steroids in professional sports learned the names of 10 players who had tested positive and obtained a search warrant for their drug testing records.

After obtaining an electronic spreadsheet from the drug testing lab, though, the government reviewed the records of hundreds of players and many other people.

In the years since, drug dealers, athletes and coaches have been prosecuted for perjury, and the names of other baseball players who tested positive for steroids were leaked to the media.

But Kozinski didn’t limit the opinion to the steroids case, to the chagrin of some of his colleagues. Instead, the chief took on broader Fourth Amendment jurisprudence — specifically the plain view doctrine as it relates to government searches of computer files.

Because incriminating data sought by law enforcement are often stored with thousands of other records, the government necessarily opens some of those non-relevant files in its search. The problem, Kozinski wrote, occurs when agents stumble across incriminating material outside the scope of the search warrant, and then try to legalize the discovery under the plain view exception.

That tactic renders limiting language in search warrants meaningless, Kozinski wrote. “Seizure of, for example, Google’s e-mail servers to look for a few incriminating messages could jeopardize the privacy of millions,” he wrote.

As a remedy, magistrate judges should force prosecutors to renounce the plain view doctrine when it comes to data searches, or require more impartial computer specialists to search the data before agents get their hands on it, he wrote.

Kozinski wasn’t the only Republican appointee to back these measures: Judges Andrew Kleinfeld and Milan Smith Jr. joined the opinion as well. Judge Carlos Bea agreed with the result in the steroids case, but took issue with Kozinski’s broader language on the plain view doctrine.

Meanwhile, Judges Consuelo Callahan and Sandra Ikuta — herself a former Kozinski clerk — dissented, calling the chief’s new guidelines “prophylactic” dicta and an assault on the common law approach to jurisprudence. The two conservatives who wrote the panel opinion — Judges Diarmuid O’Scannlain and Richard Tallman — weren’t drawn for the en banc court. (Neither was the third panelist, Judge Sidney Thomas, who had dissented.)

“Instead of tailoring its analysis of the plain view doctrine to the facts of this case, the majority takes the bold step of casting that doctrine aside,” Callahan wrote. “Rather than adopting this efficient but overbroad approach, the prudent course would be to allow the contours of the plain view doctrine to develop incrementally through the normal course of fact-based case adjudication.”

One former federal prosecutor thinks the Fourth Amendment guidance will have a significant impact on cases, forcing agents and prosecutors to seek broader warrants from magistrates when they come across data they didn’t originally expect to find.

“Judge Kozinski did not exercise his usual judicial restraint and limit himself to this case, but frankly I think it was timely, and maybe a little overdue,” said Scott Frewing, now a white-collar defense lawyer at Baker & McKenzie.

The U.S. Attorney’s Office is reviewing the opinion and considering its options, a spokesman said.

Elliot Peters, the Keker & Van Nest partner who argued the case for the baseball players union, said the opinion wouldn’t have had such broad import but for the government’s own overreaching.

“Bad decisions by government agents and lawyers at a whole bunch of levels make for law they don’t like down the road. That’s kind of a rule of thumb,” Peters said. “To the extent they don’t like these proscriptions, they only have themselves to blame.”

Also joining Kozinksi in the en banc opinion in United States v. Comprehensive Drug Testing Inc. , 09 C.D.O.S. 11022, were Judges Susan Graber, Kim Wardlaw, William Fletcher, Richard Paez and Marsha Berzon.

[ Corporate Counsel ] Hard times bring opportunities, and the network of small and midsize law firms called Meritas hopes that more general counsel come knocking as their companies look for ways to cut costs.

Cost savings isn’t the only reason to use one of Meritas’ 170 firms, which are based in more than 60 countries (and 49 states). The firms and their clients also tout personal service, geographic reach and quality control. But the potential savings compared to fees charged by larger shops isn’t something companies are likely to sniff at these days. Clients say they save up to 25 percent, with hourly rates that average $150 to $200 less than megafirms charge.

James Wilber, a principal at legal consultants Altman Weil Inc., believes the group’s prospects are “very strong.” It delivers “value for the dollar,” says Wilber, who got to know the organization a few years ago when he was hired to help it replace an executive. He was also impressed by its focus on quality: “I have seen law firms with more than one office where they didn’t have near the amount of control that Meritas seems to have.”

Savings may be one of the selling points, but it wasn’t the impetus that got the group started. Meritas was founded in 1990 by lawyer Leon Steinberg, who was frustrated by the difficulty of finding and hiring qualified lawyers outside his jurisdiction. While practicing at a medium-size Minneapolis law firm, Steinberg devised a method of selecting the best law firms in their regional markets. Within a year he managed to sign up 65 of the 72 he’d identified, says Steinberg, currently CEO of a company that develops community wind projects.

Quality assurance is key, notes Jean-Paul Bignon, who became Meritas’ chairman this spring. Firms are carefully scrutinized both before and after they’re invited to join, says Bignon of Bignon Lebray & Associés in Paris (which joined in 1996). Client feedback is incorporated into a firm’s ratings, which are publicly accessible on the Meritas Web site. Nor are ratings a pro forma exercise: A firm was kicked out just last year. “We are the only organization with such a system,” Bignon says.

Meritas lawyers are loath to oversell pricing. “You get good value for your money,” allows Judith Lockhart of Meritas member Carter Ledyard & Milburn in New York (member since 2005). It’s not “bargain basement.”

Yet the people doing the hiring are acutely aware of the bottom line. When Tricia Martinez was hired in 2006 as an assistant GC at Dallas-based Greyhound Lines Inc. (now a division of international transportation company FirstGroup PLC), she had just left a Meritas firm. Her new company used a mix of firms, but she knew that the thinking was changing. “The fact that there were alternatives to the Skaddens of the world — it was being talked about a lot,” she recalls.

When Martinez needed a lawyer for an employment matter in a distant state, she introduced her colleagues to Meritas. They hadn’t heard of it, but they liked what she told them. They liked it even more when they saw hourly rates that averaged $150 to $200 less than their large national firms charged.

Even more important to some companies is the way Meritas facilitates hiring. For Ken Pugh, a vice president in the credit management group of Zions Bank in Salt Lake City, hiring firms beyond his local stable used to be “a torment.” He’d find himself cold-calling distant firms, trying to guess their size and talent pools, while they were trying to figure out “who the heck this Zions Bank was,” he laughs. It was assumed that each job would be a one-off, so “we paid top price for everything,” he complains. And firms rarely treated Zions as a priority.

Sometimes he asked firms he liked to work outside their normal market, but that was costly and cumbersome. He stumbled on a better approach when he asked his go-to firm in Orlando to recommend a lawyer in Arkansas. That’s how he learned that his Florida lawyers were part of a network he’d never heard of. Now Meritas firms handle at least 75 percent of the work Zions sends out, Pugh says. The network was exactly what he needed. Before he calls a new firm, “I know that Meritas has already checked them out.” He estimates that Zions saves 20 percent to 25 percent compared to its pre-Meritas billings.

Today, about 6,500 lawyers are affiliated with Meritas. The network is evenly split between U.S. and international firms. The largest boast more than 200 lawyers; the smallest as few as 30. Most tend to be in the 35 to 50 range. They pay annual membership dues that run from thousands to tens of thousands of dollars, depending on location and size.

One challenge Meritas faces is weak name recognition. It’s not nearly as well known as rival Lex Mundi, which has a similar number of firms but three times as many lawyers and a global footprint that touches 100 countries. The Meritas headquarters in Minneapolis has marketed more aggressively in recent years, taking booths at conferences, and even sending staff to pitch companies directly.

They seem to be making progress. Paul Marcela first heard of Meritas at a legal conference seven years ago. An assistant GC at Dow Corning Corp. at the time, Marcela struck up a conversation with the marketing director, and was asked to join an advisory board that helps firms understand what law departments are looking for. A couple of years later he began hiring Meritas firms himself. He expects he will continue to use them after he takes over as GC of The Traxis Group B V (a subsidiary of Cerberus Capital Management, LP) in September.

Meritas may be making inroads, but its law firms may need to pitch in. “No one hires Meritas,” observes Brad Hildebrandt, founder of the consulting agency that bears his name. “They hire the law firms.” But if firms don’t highlight the affiliation, he points out, no one may know it exists.

All the same, business is humming. From February through April, Meritas reports, firms received a 16.5 percent uptick in referrals, compared to the previous three months. “I would say they are not well known to my peers,” Pugh says of Meritas firms. “But growing,” he adds. “I think the word is getting out.”

[ The National Law Journal ] The obligation that can arise to preserve documents when litigation is contemplated holds true in patent cases. There are many types of events that will almost certainly lead to a duty to preserve, such as a breakdown of licensing negotiations and conducting litigation firm “beauty contests.” There also are things that could lead to an earlier duty to preserve, such as developing licensing and litigation strategies, identifying potential targets and creating claim charts. In addition, one must consider more administrative tasks, such as litigation budgeting and setting litigation-oriented employees’ goals. Finally, one must be conscious that a duty to preserve may be imposed even before the cause of action exists.

On Jan. 9, the U.S. District Court for the District of Delaware issued a surprising decision, holding that Rambus Inc.’s patents-in-suit were unenforceable against Micron Technology Inc. due to spoliation. Micron Tech. Inc. v. Rambus Inc., 255 F.R.D. 135 (D. Del. 2009). The decision was surprising because the U.S. District Court for the Northern District of California reached a contrary decision two years earlier, has since upheld that decision and has awarded Rambus nearly $400 million against HynixSemiconductor Inc. Hynix Semiconductor Inc. v. Rambus Inc., 591 F. Supp. 2d 1038 (N.D. Calif. Jan. 5, 2006). However, while both courts looked at essentially the same facts, there were differences in the two cases that caused them to reach very different conclusions.

As one would expect of similarly oriented analyses of essentially the same facts, there is significant commonality between the two opinions. To start, both opinions discussed Rambus’ history, that it was founded and filed its first patent application in 1990. Both mentioned Rambus’ participation in the Joint Electron Devices Engineering Council from 1991 to 1995.

Even more interesting is that both courts acknowledged that Rambus’ chief executive officer wanted to get all infringers to pay royalties to license Rambus’ IP “OR sue.” Both courts discussed the 1997 hiring of Joe Karp as vice president for IP with the responsibility of preparing a licensing and litigation strategy. They both described the many steps Karp took to prepare and present that strategy at the meeting of Rambus’ board of directors in March 1998, with its proposed timetables and a tiered approach differentiating groups of “targets.” Both opinions noted the recognition that the proposed royalty rate of 5 percent would “probably push [Rambus] into litigation quickly.”

Both courts discussed a strategy update presentation in October 1998, following Intel Corp.’s investment in Micron. While both opinions referenced Karp’s expressed belief that Rambus could sue several manufacturers at that time, they acknowledged Karp’s advice against initiating licensing negotiations or litigation in 1999 and to “NOT ROCK THE … BOAT,” at least until the first quarter of 2000.

The courts began to diverge in the way they described Rambus’ document retention policy. Both acknowledged the use of the term “battle ready” as one of the reasons for implementing the document retention policy. They also recognized that the document retention policy was based on a generic sample provided by outside counsel and was “consistent with industry practice and was content neutral.” 255 F.R.D. at 142 n.5; 591 F. Supp. 2d at 1051-52. However, only the Hynix court concluded that there was no evidence “that Rambus intentionally designed its Document Retention Policy to get rid of particular damaging documents.” 591 F. Supp. 2d at 1065.

SIGNIFICANT DISCREPANCY

There is more significant discrepancy in how the courts described the manner in which the policy was presented in July 1998. For example, while both opinions acknowledged a directive to look for things to keep, only the Micron court noted that Karp apparently advised Rambus’ engineers that they should not keep “documents questioning the patentability of Rambus inventions.” 255 F.R.D. at 142 n.27; 591 F. Supp. 2d at 1051-52. The Micron court also said that the presentation characterized “the policy as a precursor to litigation” and focused “on the policy vis-a-vis litigation.” 255 F.R.D. at 142.

Both opinions described Rambus’ first “Shred Day” in September 1998, when approximately 400 banker’s boxes of documents were destroyed, as commonplace. However, only the Micron court noted that “Rambus employees did not keep records of what was destroyed during this, or any subsequent, shred day.” 255 F.R.D. at 142 n.32.

More telling is how differently each viewed Karp’s late 1998 or early 1999 “nuclear winter scenario” memo that was prepared to address the possibility of Intel pulling away from Rambus. The Micron court described the memo, saying that it “identified potential targets, causes of action, and … indicated specifically that Rambus already had claim charts showing that Micron infringed.” 255 F.R.D. at 144. This is the same language used to justify the Micron court’s imposition of a December 1998 duty to preserve, finding that “[b]y the close of 1998, Karp was preparing strategies [and] had identified potential litigation targets, causes of action, and … had claim charts asserting infringement against Micron.” Id. at 150. The Micron court “conclude[d] that litigation was reasonably foreseeable no later than December 1998, when Karp had articulated a time frame and a motive for implementation of the Rambus litigation strategy.” Id. As a result, the Microncourt decided that “a duty to preserve potentially relevant evidence arose in December 1998.” Id. The only thing the Micron court discussed regarding the December 1998 time frame is this “nuclear winter scenario” memo. Thus, the Micron court evidently placed significant weight on that memo.

In contrast, the Hynix court dismissed this same memo “as a potential last resort tactic.” 591 F. Supp. 2d at 1062-63. The Hynix court went on to describe the memo as actually supporting “the conclusion that, at least as of early 1999, Rambus was not contemplating initiating either licensing negotiations or litigation at that time.” Id.

Both courts also had differing opinions of how, in April 1999, Karp asked outside counsel to clean out their files for issued patents. 255 F.R.D. at 144; 591 F. Supp. 2d at 1054. For example, the Micron court noted that both outside counsel and in-house counsel for Rambus purged the “kinds of materials [that] are typically sought in discovery in patent cases.” 255 F.R.D. at 144 (quote in FN 44). In contrast, the Hynix court found that “no evidence suggests that any material evidence was discarded from any prosecution files. Prior art was retained.” The court noted that Rambus’ employees testified “that they had retained prior art.” 591 F. Supp. 2d at 1055-58.

Additionally, while both opinions noted that, by July 1999, Karp’s documented goals included preparing a licensing strategy against three manufacturers and a litigation strategy against one of them, the Micron court highlighted that another goal was to be “[r]eady for litigation with 30 days notice.” 255 F.R.D. at 145; 591 F. Supp. 2d at 1055-56. The Micron court noted that “Karp testified at trial that, by June 1999, litigation was a written goal and that suing was ‘maybe a likelihood.’ ” 255 F.R.D. at 145.

Both opinions described Rambus’ second “Shred Day” in August 1999, when approximately 300 banker’s boxes of documents were destroyed. 255 F.R.D. at 145; 591 F. Supp. 2d at 1053. The Micron court pointed out that one of the patents-in-suit had issued by that time and that Rambus had received notices of allowance on two others. 255 F.R.D. at 145.

Furthermore, only the Micron decision noted that “Rambus contemplated … aggressive use of its intellectual property, characterized as its ‘patent minefield,’ ” as early as 1996. 255 F.R.D. at 149-50. The Micron court was also very concerned with what it deemed litigation misconduct, such as misrepresentations about Rambus’ contemplation of litigation before it implemented a document retention policy, the relationship between that policy and litigation preparations, Rambus’ involvement in JEDEC and efforts to ensure that Rambus’ patents covered competing designs.

Both opinions noted that the burden of proving the elements of the defense of unclean hands is on the respective parties opposing Rambus. 255 F.R.D. at 150; 591 F. Supp. 2d at 1067. However, the Micron court simply said that “Micron has carried its burden.” 255 F.R.D. at 150. As to that burden, Micron argued for, and the court applied, Schmid v. Milwaukee Electric Tool Corp., a 3rd U.S. Circuit Court of Appeals case, requiring one only to provide “plausible, concrete suggestions as to what [the] evidence might have been.” Id. at 149-50. Ultimately, the Micron court concluded that “[b]ecause the record demonstrates that there were documents relevant to” Micron’s case that were destroyed, “Micron has been prejudiced by Rambus’ conduct. That prejudice has been compounded by Rambus’ litigation conduct, which has been obstructive at best, misleading at worst.” Id. at 151.

In contrast, the Hynix court ultimately concluded that “[a]lthough Hynix has made a showing that Rambus destroyed some relevant documents, Rambus established that adequate similar and material documents or classes of documents were not destroyed.” 591 F. Supp. 2d at 1067. In doing so, the Hynix court decided that the duty to preserve did not arise until “late 1999,” after the first two shred days. Id. at 1064. The Hynix court also found that Hynix provided no evidence that the third shred day, in December 2000, destroyed any material documents.

On Feb. 3, the Hynix court denied Hynix’s motion for summary judgment based on the Micron decision. Hynix Semiconductor Inc. v. Rambus Inc., 2009 WL 292205 at 1 (No. 00-20905 N.D. Calif. Feb. 3, 2009). Rather than argue that different legal standards governed the cases, the Hynix court said that “[o]ne of the central issues,” the prejudice suffered, is a “subjective determination … on which reasonable minds can differ,” and invited U.S. Court of Appeals for the Federal Circuit review. Id. at 4. On March 11, Rambus filed an appeal of the Micron court’s decision to the Federal Circuit. We presume Hynix will also seek an appeal.

While there surely were different arguments presented to the different courts, the two courts ultimately viewed the events between December 1998 and late 1999 differently. The easiest explanation is differing subjective interpretations of those events. One might also point to the Micron court’s concern over litigation misconduct, which primarily amounted to conflicting testimony. But that too is often a subjective interpretation.

One is reminded of those types of events that will almost certainly lead to a duty to preserve, such as a breakdown of licensing negotiations and litigation firm “beauty contests.” One also should consider things that could lead to an earlier duty to preserve, such as development of licensing and litigation strategies with time frames, identified targets and causes of action, as well as creation of infringement claim charts. One also must be careful about more administrative tasks, such as budgeting for litigation and setting litigation-oriented goals. Finally, one must be conscious that a duty to preserve may be imposed before the cause of action even exists, because the Micron court imposed the duty as of December 1998, before the first patent-in-suit issued in June 1999.

The ultimate take-away from these cases is that counsel must carefully consider when the obligation to preserve documents takes effect. While there may be subjective or even objective differences of opinion on when that obligation begins, there can be dramatic implications for the outcome of the decision to maintain or discard documents. Obviously, the better risk-management approach is to preserve documents at the very earliest time that litigation is contemplated to avoid a potentially catastrophic outcome.