On April 30, 2015, the International Trade Commission ("the Commission") issued the public version of its opinion in Certain Opaque Polymers (Inv. No. 337-TA-883).  By way of background, the investigation is based on a complaint filed by Rohm and Haas Company, Rohm and Haas Chemicals, and The Dow Chemical Company (collectively, "Dow") alleging violation of Section 337 in the importation into the U.S. and sale of certain opaque polymers that infringe one or more claims of U.S. Patent Nos. 6,020,435; 6,252,004; 7,435,783; and 7,803,878 and were developed by misappropriating Dow trade secrets.  See our May 22, 2013 and June 20, 2013 posts for more details on the complaint and notice of investigation, respectively.  During the investigation, it was uncovered that Respondents Organik Kimya San. ve Tic. A.Ş; Organik Kimya Netherlands B.V.; and Organik Kimya US, Inc. (collectively, "Organik Kimya") had destroyed evidence responsive to Dow's discovery requests as well as violated certain discovery orders by presiding ALJ, Thomas B. Pender. 

As summarized in our December 2, 2014 post, Dow consequently moved for default and monetary sanctions against Organik Kimya under Commission Rule 210.33. Subsequently, ALJ Pender issued Order No. 27 as an initial determination ("ID") finding that Organik Kimya spoliated evidence and consequently Respondents were in default. He also ordered Organik Kimya, jointly and severally with its counsel under Rule 201.33(c), to pay attorney fees and costs that Dow incurred as a result of the spoliation. Organik Kimya was represented by U.S. counsel Finnegan, Henderson, Farabow, Garrett & Dunner, LLP ("Finnegan") and Turkish counsel, Mr. Ömür Yarsuvat ("Yarsuvat").

The Commission affirmed the ALJ's final ID that Organik Kimya was in default as a sanction for spoliation of evidence and issued a limited exclusion order to the subject opaque polymers and a cease and desist order directed to Organik Kimya U.S.  The Commission further affirmed that Organik Kimya and Finnegan are jointly and severally liable for monetary sanctions but Mr. Yarsuvat is not liable for such sanctions.

The Default Sanction

The Commission first reviewed ALJ Pender's determination of default, adopting all of the ID's factual findings in the manipulation and destruction of evidence by Organik Kimya and associated parties in bad faith despite orders to preserve it.

The Commission identified "the most egregious spoliation in this investigation" to be the tampering and deletion of files on the computer of Dr. Perez, an employee of the Organik Kimya and former employee of Rohm and Haas with access to Dow's proprietary information, after an order to submit the computer for forensic inspection.  This alone, the Commission noted, "was more than sufficient to justify the sanctions ordered by the ALJ."  Regarding another former employee's deletion of files before he was ordered to turn his computer over for inspection, Organik Kimya argued that Dow had recovered all of the deleted files through computer forensics.  However, the Commission found that ALJ Pender was nevertheless entitled to consider this deletion "circumstantial evidence of Organik Kimya's mens rea."

Organik Kimya further argued that default was an inappropriate sanction as it had already agreed to a termination consent order and the ID ascribes preclusive effect in any future district court action.  The Commission declined to consider the preclusive effect of its final determination and held that it "has always reserved the right to deny termination by consent in appropriate circumstances[;] and "[t]he bad faith exhibited by Organik Kimya in this investigation is such an appropriate circumstance justifying denial of the consent-order motion."

The Commission also addressed Organik Kimya's argument that "the spoliated evidence would not have proved [sic] every element of Dow's trade secret misappropriation claim."  The Commission responded that the ALJ could properly presume that the information destroyed was relevant to the trade secret claim and that the Commission would presume as true Dow's "plausible, concrete suggestions" as to what the spoliated evidence might have been.  Accordingly, Dow would have "met any burden it had to show that Dow keeps its trade secrets confidential and that the secrets have independent economic value."  Furthermore, the Commission noted that, pursuant to 19 C.F.R. § 210.16(b)(4), a defaulting party loses any right to contest the allegations at issue in the investigation.

The Commission concluded that, as Organik Kimya was in default, it would presume as true all allegations concerning trade secret misappropriation contained in Dow's amended complaint; and that as such, these allegations are sufficient to make a determination that Organik Kimya was in violation of Section 337.

Remedy, Bonding, and the Public Interest

Dow had sought a limited exclusion order of 25 years and a cease and desist order based on Organik Kimya U.S.'s domestic "commercially significant inventory."  Organik Kimya challenged these remedies, arguing that Dow's trade secrets were not secret.  However, the Commission held that the issues implicated by this response go to this investigation's merits which Organik Kimya waived by default.

The Commission determined that a limited exclusion order prohibiting the importation of articles, imbued by the trade secrets enumerated by Dow, was appropriate.  Based on how long Dow had maintained its trade secrets and the estimated product start-up time in the absence of these trade secrets, the Commission determined that the 25 years sought by Dow would be an appropriate exclusion period.

The Commission also rejected Organik Kimya's public interest arguments – that the ALJ failed to identify the trade secrets in the investigation and thus an exclusion order will encompass what is publicly known and not legitimately protected.  The Commission bluntly dismissed this argument as having no evidentiary support and "tak[ing] issue with the very existence of remedial orders in default cases, a matter to which Congress has already spoken."  The Commission also found no evidentiary support for the negative consequences to competitive conditions predicted by Organic Kimya.

The Commission thus issued "an exclusion order directed to opaque polymers manufactured or imported or on behalf of Organik Kimya and its affiliates" and a "cease and desist order directed to Organik Kimya U.S."  Due to the "extraordinary facts of this case," the Commission required Organik Kimya to obtain a ruling from it prior to importation of opaque polymers, declining Organik Kimya's request for a certification provision that would have permitted Organik Kimya's importation of opaque polymer products based upon representation to the CBOP that the products do not use Dow's misappropriated trade secrets.

A bond during the Presidential review period was not sought and thus not imposed.

Attorneys' Fees Assessed Against Organik Kimya

Organik Kimya did not challenge the imposition of fees and costs but instead, their calculation.  The Commission found the ALJ's calculations were "carefully calibrated to compensate Dow solely for such fees and expenses that were caused by the failure to obey the ALJ's discovery orders."  Accordingly, the Commission affirmed and adopted both the ID's award of fees and costs and their calculations, subject to its analysis of the joint and several liability of Organik Kimya's counsel.

Joint and Several Liability of Counsel

The Commission affirmed the ALJ's determination that Finnegan be jointly and severally liable with Organik Kimya for monetary sanctions to compensate Dow for costs and fees caused by their discovery abuses.  However, the Commission excused Mr. Yarsuvat from such liability.

Finnegan had argued its due process rights were violated by the penalty imposed as it did not have adequate notice of possible sanctions based on its client's discovery abuses.  The Commission reviewed Fed. R. Civ. P. 37 which defines the extent to which the Commission may issue monetary sanctions.  It concluded that motions such as the one filed by Dow for default and other sanctions for discovery abuse provide adequate notice to attorneys that they may be liable for sanctions.  Furthermore, the Commission found that Dow's motions, Finnegan's replies, and certain revelatory statements made by Finnegan to the ALJ, amongst other events, indicate that Finnegan was aware Dow's spoliation accusations were directed to it as well.  Moreover, the ALJ had advised Finnegan to raise a defense with evidence, and a hearing was held on discovery misconduct.  Accordingly, the Commission concluded that Finnegan had been afforded notice and due process and articulated the larger point that "Counsel's conduct is always potentially at issue."

In the ID, ALJ Pender gave four reasons for joint and several liability:  (1) monetary sanctions would be difficult to enforce because Organik Kimya is a Turkish company with no significant operation in the United States; (2) the Finnegan attorney in Turkey overseeing the inspection of the Perez laptop failed to prevent its tampering; (3) Finnegan defended Organik Kimya's destruction of files on the Perez laptop in a letter with little factual support; and (4) there is no evidence that counsel gave litigation hold instructions or undertook any other measures to preserve evidence in this investigation.  The Commission vacated the first basis as the difficulty to collect judgment is "not a cognizable factor for imposing liability on counsel," but the Commission affirmed the imposition of joint and several liability on Finnegan on the other three bases.

Specifically, the ALJ's order, mandating the inspection of the Perez computer, imposed upon Finnegan and its client a duty to preserve all evidence on the laptop – a duty Finnegan failed to fulfill due to its lax supervision.  Furthermore, Finnegan had conveyed its client's representations in a letter to the ALJ without having any basis supporting their veracity.  The Commission noted that counsel has "ongoing obligations to protect the integrity of the evidence and the representations provided to the Commission and opposing parties on behalf of its client and itself."  The Commission accused Finnegan of blind deference to its client and indicated that Finnegan should have recognized the inappropriateness of its client's explanation for the spoliation.

Regarding the litigation hold issue, Finnegan acknowledged it had a duty to preserve evidence independent of its client's duty but argued that it would have presented evidence of a litigation hold had it received notice that it would share sanction liability.  The Commission rejected this argument that "overzelousness or recklessness is allowed until counsel is put on enhanced and particularized notice that it may share liability with the client."  The Commission also rejected Organik Kimya's assertion of privilege concerning the facts of the litigation hold.  That Organik Kimya may have produced more in discovery than Dow was also considered a frivolous argument.

On the other hand, the Commission determined that Organic Kimya's Turkish counsel, Mr. Yarsuvat, was not jointly and severally liable because the ALJ's analysis concerned the activities of Finnegan and its client.

Dissenting Views of Commissioner Rhonda K. Schmidtlein

Commissioner Rhonda K. Schmidtlein ("Dissent") joined the Commission's opinion regarding both the default and monetary sanctions against Organik Kimya as well as the determination on remedy, bonding, and the public interest.  However, the Dissent found that Organik Kimya's counsel was not provided with adequate notice and opportunity to be heard prior to the imposition of sanctions.  The Dissent argued that attorney fee sanctions under Rule 37(b), which underlies Commission Rule 210.33, is punitive and accordingly requires, per due process, notice and the opportunity to be heard prior to the imposition of sanctions.

As to Organik Kimya's letter to the ALJ signed by Finnegan, the Dissent noted that Dow's motion did not assert a violation of any discovery orders or that counsel acted unreasonably or without good faith in submitting the letter.  While the litigation hold issue was raised against Organik Kimya, Dow's motion did not specify that outside counsel, namely Finnegan, failed to implement the hold.  The Dissent contended that "to hold otherwise would make outside counsel a guarantor of the client's behavior."

As to adequate notice as required by procedural due process, the Dissent argued that Dow's motion sought sanctions against Organik Kimya and did not seek, propose, or argue for sanctions against counsel.  The Dissent distinguished or found contrary authority to the case law cited by the Commission for the proposition that a motion for Rule 37 sanctions provides sufficient notice of possible sanctions against counsel.  Furthermore, the Dissent distinguished Rule 37 from Commission Rule 210.33(c) as the latter provides the ALJ with discretion to impose sanctions.  Thus, the Dissent held, the mere citation of Rule 210.33(c) is insufficient to provide notice that counsel's conduct is also at issue.

Moreover, the Dissent contended that statements made by the ALJ would have suggested to counsel that its conduct was not at issue.  From the record, it appears the ALJ explicitly stated in several instances that he was not of the view that counsel's conduct was implicated in the discovery abuses, praised Finnegan's work under the circumstances, and stated that he did not "doubt the integrity of any of the counsel from either side . . . ."  Accordingly, the Dissent stated "[t]here would have been no reason for counsel to believe that they should have moved to intervene as a party in order to present exculpatory evidence and argument on their own behalf."

Without notice and the opportunity to present evidence and argument, the Dissent argued there was insufficient evidence to determine whether counsel was culpable for the spoliation of evidence resulting from their presence in Turkey and insufficient analysis as to the deficiencies in counsel's efforts to make a reasonable inquiry into the representations made in Organik Kimya's letter to the ALJ.  Indeed, the Dissent stated that the record does not support the Commission's conclusion that the letter would have been not credible on its face to outside counsel without IT forensic expertise.  Furthermore, that the statements were false could not be a basis by itself to impose sanctions on counsel.

Similarly, the Dissent argued there was insufficient information on the record to reach a conclusion on steps taken by counsel to identify and preserve evidence.  Rather, the Dissent pointed to certain declarations and ALJ statements on the record suggesting the contrary.

Finally, with respect to Mr. Yarsuvat, the Dissent contended that it is premature to determine whether sanctions should be imposed.  The Dissent pointed to a paucity of fact-finding on the issue, which she attributed to the lack of adequate due process.