On May 25, 2016, the Commission affirmed a finding of default—the most severe sanction possible—based on a respondent’s bad-faith spoliation of evidence in Certain Stainless Steel Products, Inv. No. 933, which concerned claims for trade secret misappropriation. This decision follows the Commission’s ruling in Opaque Polymers, Inv. No. 883, which affirmed default and monetary sanctions for spoliation in another trade secret misappropriation investigation. These opinions show the Commission’s willingness to impose severe sanctions for spoliation in trade secret investigations, which often place a premium on evidence in the respondent’s possession.

The complaint in Stainless Steel Products alleged that respondent Viraj Profiles Ltd. (Viraj) misappropriated trade-secret customer lists and operating practices for manufacturing stainless steel products. Per the complaint, Viraj induced a former employee of the complainant to steal these trade secrets by downloading them to a folder titled “s.s. secrets” on his laptop.

During discovery, a forensic inspection ordered by Administrative Law Judge Essex revealed that Viraj installed a new operating system on the computer of its R&D chief, which occurred after the Commission instituted the investigation and after Viraj received the complaint, the complainant’s discovery requests, and a litigation-hold notice from its counsel. The forensic inspection also found that this OS installation destroyed relevant data, including a folder suspiciously titled “s.s. secrets,” and that 36 USB storage devices subsequently were attached to the computer. Judge Essex found that Viraj violated his discovery order by failing to identify or produce these storage devices and issued an initial determination imposing default sanctions.

On review, the Commission concluded that Viraj’s bad faith warranted default sanctions. As the Commission explained, bad faith existed because, not only did Viraj violate Judge Essex’s order by failing to identify and produce the storage devices, but it also lied about its misappropriation of the complainant’s trade secrets and, in opposing forensic inspection, about its document searches and production. The Commission concluded that the OS installation amounted to intentional destruction of evidence during the course of the investigation and noted that Viraj failed to explain its conduct. The Commission distinguished cases in which courts declined to find default under their inherent authority, which necessitates restraint in imposing sanctions, observing that the Commission Rules expressly authorize default sanctions for disobeying discovery orders.

Based on the default, the Commission issued remedial orders covering Viraj’s products made using the complainant’s trade secrets. Rejecting Viraj’s request to limit those orders to certain products, the Commission required Viraj to prove its products do not use the asserted trade secrets in separate, ancillary proceedings before it could import them into the U.S.

The Commission vacated two portions of Judge Essex’s initial determination. First, while Judge Essex limited the complainant to the 47 trade secrets it asserted in discovery, the Commission crafted its remedial orders to encompass all 60 trade secrets alleged in the complaint, explaining that the spoliation prejudiced the complainant’s ability to identify and prove which trade secrets Viraj misappropriated. Second, while Judge Essex ordered Viraj to disgorge the misappropriated trade secrets, the Commission found the default finding rendered that relief unnecessary.