Addressing the imposition of sanctions for spoliation in a US International Trade Commission (ITC) case, the US Court of Appeals for the Federal Circuit upheld the ITC’s imposition of default judgment sanctions and an exclusion order for the willful destruction of evidence, twice citing the administrative law judge’s characterization of the behavior as “gross bad faith.” Organik Kimya, San. Ve Tic. A.S. v. ITC, Case No. 15-1774 (Fed. Cir., Feb. 15, 2017) (O’Malley, J).
The case relates to trade secrets for opaque polymers, hollow spheres that are added to paint to increase its opacity. Dow filed an ITC complaint seeking an investigation into Organik Kimya’s product based on infringement of four patents. During the course of discovery, Dow added trade secret misappropriation claims after discovering that Organik may have worked with three former Dow employees to develop its opaque polymers.
Dow sought discovery related to the three former employees and, in the process, “discovered spoliation of evidence on a staggering scale.” The list of evidence destroyed is extensive, but it includes use of specialized software to wipe a laptop hard drive after the ITC authorized Dow to review it, physically destroying other computer equipment, and “accidentally” losing a laptop and external drives in a rest stop bathroom (shudder quotes in original). As a result, the ITC imposed a default judgment sanction on Organik, as well as a 25-year exclusion order. Organik appealed.
The Federal Circuit affirmed both the default judgment sanction and the exclusion order. The court determined that the ITC was within its authority to impose a default judgment sanction for non-compliance with a discovery order. The Court acknowledged that such a sanction is extreme and reserved for only the most serious of cases. However, the Court also noted that sanctions are reviewed only for abuse of discretion, and that in this case the ITC made numerous factual findings supporting its determination. The Court further noted that this case falls “squarely” within the type of conduct that merits default judgment, although not all discovery non-compliance would do so.
In terms of the ITC’s 25-year exclusion order, Organik challenged the length of the order, which was intended to last as long as it would take to independently develop the misappropriated trade secrets. Again the Federal Circuit affirmed the ITC, noting that the ITC found that Dow’s expert credibly testified that it would take Organik 15 to 25 years to develop the technology in question and Organik’s only arguments to the contrary were based on re-litigating the merits of the trade secret dispute it had already lost.