The Federal Circuit Advisory Council recently released a model order for e-discovery in patent disputes that could radically alter the landscape for litigants— for the better. Runaway expenses tend to force parties into less favorable settlements. Responding to this growing complexity and cost, the council’s model order changes both the timing and scope of production for emails and other electronically stored information (ESI). No one knows whether district courts will embrace the Federal Circuit’s model. Although the future remains murky, the rising tide of ESI production requests and accompanying costs threatens to drown both bar and bench unless costs can be contained.
Much Spent, Little Gained
It should come as no surprise that e-discovery is expensive, especially in patent disputes. Indeed, intellectual property cases cost almost 62% more than other categories of litigation.1 The goal of the model order, according to Chief Judge Randall Rader of the U.S. Court of Appeals for the Federal Circuit, is to focus litigants on the information gathering aspect of discovery and discourage “unlimited fishing expeditions.”2 The vast majority of ESI produced is basically useless—only 0.0074% of ESI documents produced ever make their way on to trial exhibit lists.3 This disparity between costs incurred and relevant documents produced often adversely impacts settlement negotiations and forces many nonmeritorious claims to settle merely to avoid the huge expense of e-discovery.
A Model for Reform
Recognizing these challenges, the advisory council sought to balance the need for discovery with the reality of litigation budgets. The result is a model order that reigns in escalating burdens through limitations on the extent of production, while at the same time allowing a party to seek additional discovery if it is willing to bear the costs. The order is short and worth reading in its entirety. This article will address the five key practices that the model order would change the most.
First, the model order implements a two-phase discovery process. Parties exchange core documentation about the patent, accused product, prior art, and finances. Only after these disclosures may the parties request email production requests.4 The advisory council concluded that gathering and producing huge amounts of information at the beginning of a case, before the issues emerge, “has come under increasing question.”5
Second, the model removes email from the scope of general ESI requests under Federal Rules of Civil Procedure 34 and 35. Parties seeking email discovery “must propound specific email production requests.”6 The exponential growth in volume of email has forced it into this second-class status. While finding the “smoking gun” is every litigator’s dream, the reality of producing, reviewing, and redacting millions of pages of painfully mundane emails is no longer sustainable. Litigants seeking email discovery must, under the model order, be more targeted with their requests.
The third, and perhaps most dramatic change involves limitations on the number of search terms and custodians. Under the model order, each requesting party may by default seek email production from no more than five custodians, with five search terms per custodian.7 Preemptively striking at creative lawyers, the order prohibits broad keywords (such as a product name, or the name of the company) unless they are combined with a limiting modifier. Conjunctive keyword searches (“gizmo” and “GadgetTech”) count as a single keyword, while disjunctive keywords (“cell phone” or “telephone”) count separately.
Fourth, despite these limitations, parties are free to mutually agree to an increased ceiling without leave from the court. If the parties cannot agree, then the requesting party must show good cause to deviate from the ceiling. All is not lost if the requester has a disagreeable opponent— emails from additional custodians, or based on additional keywords, may be sought under a cost-shifting framework. The requesting party bears the burden of all reasonable costs associated with discovery in excess of the defaults or any mutually agreed upon limit. “This will help ensure that discovery requests are being made with a true eye on the balance between the value of the discovery and its cost.”8
The final important change introduced by the model order affects waiver of privilege. The advisory council noted that a “large source of e-discovery cost” involves preproduction review aimed at avoiding inadvertent disclosure and waiver. In an effort to combat this cost-driver, the model order established strong non-waiver protections. Recipients shall not use ESI that the producer asserts is privileged, inadvertent production does not waive privilege in any pending case or proceeding, and mere production of ESI in litigation does not constitute waiver “for any purpose.”9 These changes were implemented to “minimize human preproduction review” and reign in the fear-driven costs associated with avoiding inadvertent waiver. This change also formalizes the already common practice of “claw back” agreements, thus institutionalizing a solution that many parties already agreed to voluntarily.
These five changes create a phased, more deliberate and less expansive discovery process that manages to provide sane defaults while granting the parties freedom to modify the order by joint agreement, or through unilateral assumption of the excess costs. Most discovery in patent litigation revolves around the patent itself, the products, and the prior art—“far reaching e-discovery . . . is often tangential to adjudicating these issues.”10 The advisory council clearly believes that refocusing on the core issues, and placing limits on both the scope and means of ESI production, is the most effective solution to the growing e-discovery tsunami.
Everything Old is New Again
Reining in excessive discovery with strict, and some would argue arbitrary, limits is not without precedent. Indeed, Chief Judge Rader has compared the model order to the limit imposed by Federal Rule of Civil Procedure 30 on the number and duration of depositions. When the rule was first imposed, “veteran lawyers panicked that these limits were arbitrary and would prevent the discovery of critical information.” Few would now question the wisdom of such limits, and most would agree that “the era of the endless deposition is fortunately over.”11
So far the model order has been used in two cases, both of which were before Magistrate Judge Paul Grewal in the patent-heavy Northern District of California. In DCG Systems, Inc. v. Checkpoint Technologies, the defendant Checkpoint Technologies moved for the court to adopt a discovery plan based on the model order.12 DCG Systems objected to the use of the model order, arguing that its purpose was to prevent non-practicing entities from seeking disproportionately burdensome discovery from their practicing defendants, and should not apply in a case like this where both parties are practicing competitors.
The court disagreed. Nothing in the model order restricts its utility or purpose to only cases involving non-practicing entities. More importantly, “there is no reason to believe that competitor cases present less compelling circumstances in which to impose reasonable restrictions on the timing and scope of email discovery.”13 In fact, the model order is most useful in disputes where the discovery burden is equally high for both parties—double the burden equates to double the benefit from reduced discovery. The court closed by noting that the model order is just that—a model—and only through experimentation can the courts “address what has to date been a largely unchecked problem.”14
The second case adopting the model order, In re Google Litigation, involved plaintiff Software Rights Archive seeking discovery from nonparty venture capital firm, Kleiner Perkins Caufield and Byers.15 While acknowledging that the model order was directed at discovery between parties, the court reasoned that the order’s logic was as applicable, if not more so, to discovery burdens imposed on those who are not party to the case in the first place. The court imposed a limit of five search terms, and followed the model order’s conjunctive/disjunctive definitions for what constitutes a term. If plaintiff served requests for more than five search terms, the court would shift all costs related to those excess terms.16
As knowledge of the order becomes more widespread, other magistrates and district court judges will surely begin adopting part or all of the model order when handling e-discovery. The first two cases have cut a wide path. While the model order likely arose in response to nonpracticing entities, the first two uses of the model order involved competitors with equal resources in one case and third-party discovery in the other case. This shows that the model order is useful in a wider arena of cases than might first meet the eye, and indeed seems to parallel the reform of depositions in FRCP 30.
In an address to the Eastern District of Texas Judicial Conference, Judge Rader argued that “the modern electronic age has rendered old discovery processes obsolete or, at least inappropriate for the vast complexity and volume of large patent disputes,” and it threatened to turn the judiciary into an “unhealthy tax on innovation and open competition.”17 Patent cases routinely generate tens of thousands of pages of electronic information that must be categorized for relevance, checked for privilege, and potentially redacted. Steps to curb the expense—by using contract attorneys or even off-shoring the task— address only the end result and not the root cause of the problem. The model order attempts to balance litigants’ needs with the onerous burden of e-discovery. The order is unlikely to be perfect, and its particularities may not be the ideal solution. Nevertheless, the order has and will encourage courts to experiment with their management of e-discovery. This publication will follow up later this year to determine exactly how judges are implementing the order. Expect experimentation. Be prepared for changes to the status quo.