CALIFORNIA ANTITRUST AND UNFAIR COMPETITION LAW UPDATE: PROCEDURAL LAW

By Thomas Greene¹

I. INTRODUCTION

This outline provides a selection of litigation developments that may be of particular interest to members of the Antitrust, Unfair Competition Law and Privacy Section, presenting procedural developments in the area of jurisdiction, arbitration, motion practice, discovery, trial, evidence, patent and copyright procedures, and new federal and state laws, regulations and rules.

II. JURISDICTION

A. California Supreme Court Clarif ies Special Jurisdiction in State Courts

Bristol-Myers Squibb Co. v. Superior Court²

This case arises from multiple actions filed in San Francisco Superior Court against Bristol-Myers Squibb, the manufacturer of Plavix, a drug for the treatment of cardiovascular disease, and McKesson Corporation, a San Francisco-based distributor of Plavix and other drugs. These actions alleged that defendants misled consumers by claiming that Plavix was more effective than other similar drugs, and safer and easier on a person’s stomach than aspirin. The complaints alleged that the clinical value of the drug was outweighed by undisclosed risks of heart attack, stroke and death.

Cases before the San Francisco Superior Court included approximately 86 cases on behalf of California consumers and 592 cases on behalf of residents of 33 other states. The parties agreed that jurisdiction was proper for claims of California residents because they were injured in California. The question before the California Supreme Court was whether California trial courts also had jurisdiction over Bristol-Myers with respect to the claims of non-residents.

Referencing recent U.S. Supreme Court decisions, the court rejected the argument that state courts had general jurisdiction over Bristol-Myers. General jurisdiction exists when a firm is "at home" in the forum state, as determined by the U.S. Supreme Court’s decisions in Goodyear³ and Daimler.^{4 5} Under the high court’s jurisprudence, a corporation is typically "at home" in a state in which it is incorporated or has its principal place of business.⁶ This was not the case with Bristol-Myers and California.

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Although California did not have general jurisdiction over the company, the court found that California courts had special jurisdiction over Bristol-Myers. According to the court, "[t]he question of whether a court may exercise specific jurisdiction over a nonresident defendant involves examining (1) whether the defendant has ‘purposely directed’ its activities at the forum state; (2) whether the plaintiff’s claims arise out of or are related to these forum-directed activities; and (3) whether the exercise of jurisdiction is reasonable and does not offend ‘traditional notions of fair play and substantial justice.’"⁷ Perhaps the most interesting aspect of this formulation is that it ignores recent U.S. Supreme Court’s decisions on jurisdiction.

Turning to the facts of the case, the court found meaningful that:

• Bristol-Myers sold 187 million Plavix pills from 2006 to 2012 to California consumers, reaping $918 million in revenue;
• The company’s major distributor and co-defendant, McKesson, is headquartered in California; and
• The company maintained five offices in California, employing approximately 164 researchers and 250 sales personnel.

The court also observed that:

• Since the company would necessarily be defending itself in San Francisco on the California claims, its lawyers would be commuting to California regularly; and
• The actual discovery would likely occur where Bristol-Myers officers and employees were located.

Concluding its opinion, the majority found that:

[I]n light of BMS’s extensive contacts with California, encompassing extensive marketing and distribution of Plavix, hundreds of millions of dollars of revenue from Plavix sales, a relationship with a California distributor, substantial research and development facilities, and hundreds of California employees, courts may, consistent with the requirements of due process, exercise specific personal jurisdiction over nonresident plaintiffs’ claims in this action, which arise from the same course of conduct that gave rise to California plaintiffs’ claims.⁸

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The majority opinion drew a strongly worded dissent from Justice Werdegar. She argued that "[t]he key issue here is therefore whether the claims of the real parties in interest (plaintiffs residing in states other than California) arise out of, or are otherwise related to, BMS’s activities in California."⁹ She noted that "the post-International Shoe decisions in which the high court actually found a factual basis for specific jurisdiction, each featured a direct link between forum activities and the litigation."¹⁰ Here, she says, there is no such link, and that the court is seeking to create "the equivalent of general jurisdiction in California courts."¹¹

This decision has been stayed "to permit defendants to file a petition for writ of certiorari with the Supreme Court of the United States."¹² Assuming that certiorari is not granted or the case survives review, this is potentially one of the most important procedural decisions of the year.

III. ARBITRATION

A. California Supreme Court Determines "Who Decides" Whether an Arbitration Agreement Permits or Precludes Classwide Arbitration

Sandquist v. Lebo Automotive, Inc.¹³

The issue before the California Supreme Court in this case was "who decides whether [an arbitration] agreement permits or prohibits classwide arbitration, a court or the arbitrator," when the parties have not specified who makes the choice?¹⁴

As a condition of employment at Lebo Automotive, petitioner was required to sign about 100 pages of preprinted forms. Anxious to start work as a salesman, petitioner did not review the forms closely. Included in the papers were three different—but substantively similar—arbitration agreements in which he agreed to arbitrate all but a handful of specific issues. Petitioner, who is African-American, ultimately sued Lebo, alleging that he had been subject to discrimination, harassment and retaliation. His complaint brought claims on behalf of himself and "a class of current and former employees of color."¹⁵ Lebo responded with a motion to compel individual arbitration based on the form agreements.

The court starts with a finding, urged by Lebo, that the question of who decides the issue of classwide arbitration "must be conducted, at least initially, through the prism of state law."¹⁶ Focusing on the likely "expectations" of the parties based on the language of the agreements, the court found that the language favored resolution by the arbitrator. This was buttressed by two presumptions. First, "under state law as well as under federal law, when the allocation of a matter to arbitration or the courts is uncertain, we resolve all doubts in favor of arbitration [citations omitted]." Second, "[w]here, as here, the written agreement has been prepared entirely by the employer, it is a ‘well established rule of construction’ that any ambiguities must be construed against the drafting employer and in favor of the nondrafting employee."¹⁷

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The court rejects Lebo’s argument that prior California appellate cases had established a presumption that class arbitration was a matter for courts. Rejecting Lebo’s reading of, among other cases, City of Los Angeles v. Superior Court,¹⁸ the court concludes that "[n]either City of Los Angeles nor any other state case establishes a presumption [that] the availability of class arbitration is to be decided by courts."¹⁹

Turning to federal cases, the court relied on the U.S. Supreme Court’s decision in Green Tree Financial Corp. v. Bazzle,²⁰ where a plurality concluded that "nothing in the FAA [Federal Arbitration Act] subjects the ‘who decides’ question to any contrary pro-court presumption." Accordingly, the plurality concluded "this matter of contract interpretation should be for the arbitrator, not the courts, to decide."²¹

The court distinguished between "gateway questions," which are properly decided by courts, and other questions, which are presumptively left to the arbitrator. Gateway questions under federal law include "whether there is an enforceable arbitration agreement or whether it applies to the dispute at hand."²² "Once gateway questions have been settled, . . . the FAA switches presumptions for issues affecting the manner in which an arbitration is to be conducted," such that, procedural questions are "presumptively not for the judge, but for the arbitrator to decide."²³

The court rejects the argument that the importance of the class arbitration issue makes it a gateway question that should be resolved by a court. In so ruling, the court focused on the expectations of the parties, concluding that the parties "most likely intend and expect that the arbitrator should resolve all issues." If the parties’ intent was otherwise, the court argued, they could and would "express their contrary intent."²⁴

Reviewing respondent’s argument that class arbitration affects others who signed the arbitration agreement, the court argued that the class arbitration rules used by JAMS and the American Arbitration Association fully protect the rights of absent class members.²⁵ The majority opinion then remands the question of classwide arbitrability to the arbitrator.²⁶

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Justice Kruger dissented, arguing that U.S. Supreme Court decisions after Green Tea Financial eroded its apparent holding. Moreover, she argued, "at least to date, every federal court of appeals to consider the issue on the merits has held that the availability of class arbitration is a question for a court, rather than an arbitrator, ‘unless the parties clearly and unmistakably provide otherwise.’"²⁷

This is an important decision because it concludes that an arbitrator may decide whether an arbitration agreement precludes class arbitration in the absence of clear language in the arbitration agreement. This may well pave the way for more arbitration class actions in the future. In the short term, this decision is also an invitation to review your clients’ arbitration agreements to determine if they need to be clearer about whether class arbitration is available.

Although an important decision, it is also one that appears to be in tension with more recent decisions of the U.S. Supreme Court and federal circuit courts. It is highly likely that this case, or another case relying on this decision, will be subject to a petition for certiorari. This is an instance in which the make-up of the U.S. Supreme Court may be dispositive.

IV. MOTION PRACTICE

A. California Supreme Court Clarifies SLAPP Treatment of "Mixed" Claims

Baral v. Schnitt²⁸

California law provides for a special motion to strike if a party is challenging a Strategic Lawsuit Against Public Participation (SLAPP). Originally designed to protect activists, this has evolved into one of the most powerful tools available to state court defendants. Specifically, "[u]nlike any other motion in the procedural toolbox, the filing of an anti-SLAPP motion (1) stays all discovery absent court permission; (2) precludes amendment of the complaint; (3) forces the plaintiff to make an early proffer of proof generally without the benefit of discovery; (4) provides for an award of attorney fees if the moving party prevails; and (5) provides for automatic appeal if the motion is denied and stays all other proceedings in the case."²⁹ In antitrust practice, such motions might lie against bogus claims of Noerr-protected speech or sham litigation.

The issue before the California Supreme Court was "[h]ow does the special motion to strike operate against a so-called ‘mixed cause of action’ that combines allegations of activity protected by the statute with allegations of unprotected activity?"³⁰ A unanimous court in an opinion by Justice Corrigan concludes that:

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The anti-SLAPP procedures are designed to shield a defendant’s constitutionally protected conduct from the undue burden of frivolous litigation. It follows, then, that courts may rule on plaintiffs’ specific claims of protected activity, rather than reward artful pleading by ignoring such claims if they are mixed with assertions of unprotected activity.³¹

The court concludes its opinion with a brief tutorial on SLAPP procedures:

For the benefit of litigants and courts involved in this sometimes difficult area of pretrial procedure, we provide a brief summary of the showing and findings required by section 425.16(b). At the first step, the moving defendant bears the burden of identifying all allegations of protected activity, and the claims for relief supported by them. When relief is sought based on allegations of both protected and unprotected activity, the unprotected activity is disregarded at this stge. If the court determines that relief is sought based on allegations arising from activity protected by the statute, the second step is reached. There, the burden shifts to the plaintiff to demonstrate that each challenged claim based on protected activity is legally sufficient and factually substantiated. The court, without resolving evidentiary conflicts, must determine whether the plaintiff’s showing, if accepted by the trier of fact, would be sufficient to sustain a favorable judgment. If not, the claim is stricken. Allegations of protected activity supporting the stricken claim are eliminated from the complaint, unless they also support a distinct claim on which the plaintiff has shown a probability of prevailing.³²

If you are in state court, this can be a potentially powerful tool, and one that has just been broadened by the California Supreme Court.

B. Mediation Does Not Toll 5-Year Time-To-Trial Deadline; Case Dismissed

Gaines v. Fidelity National Title Insurance Co. ³³

Litigants in California state trial courts operate under a 5-year, time-to-trial deadline.³⁴ The issue in this case was whether an order entered pursuant to a stipulation vacating the trial date while the parties engaged in mediation and completed discovery tolled this rule.

Justice Corrigan, writing for the majority, concluded that tolling was not appropriate, and sustained the lower court’s dismissal of the action pursuant to California Code of Civil Procedure section 583.310. She focused on the distinction between a complete stay (which tolls the 5-year statute) and a continuance (which does not).³⁵ A complete stay stops "’the prosecution of the action altogether,’ making it impossible to bring the action to trial."³⁶ In this case, the court found that the stipulation and order merely extended an existing trial date to a date well within the 5-year statutory period. The Court also noted that the stipulated postponement was "not occasioned by an extrinsic proceeding, court order, or law barring action" and so did "not qualify for automatic tolling."³⁷

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The majority also rejected the argument that the 5-year statute should be tolled because of circumstances that make it "impossible, impracticable or futile" to bring the action to trial.³⁸ "Ordinary delays," according to the court, are already built into the generous 5-year, time-to-trial period.³⁹ And the delay here was occasioned by "ordinary steps in the prosecution of the action," specifically mediation, the need for a defendant to make an appearance and conduct discovery and for another party to file defensive pleadings. The court concluded that the "trial court was within its discretion to find that the conduct of mediation and partial stay of proceedings were not so exceptional, extenuated or beyond [plaintiff’s] control as to qualify as a circumstance of impossibility, impracticability, or futility" within the meaning of the statute.⁴⁰

Justice Kruger dissented, arguing that the plaintiff was being penalized for trying to mediate his claim against multiple defendants. She specifically argued that "[t]he stay at issue in this case operated, in all relevant respects, precisely in the same manner as a ‘complete’ stay subject to automatic tolling."⁴¹

The decision results in dismissal of plaintiff’s action. This harsh result has at least three potential fixes. First, the 5-year rule is not Draconian so all counsel need to be mindful of when a case is getting close to the deadline. Missing this deadline is an invitation to a malpractice suit. Second, any agreement to adjust the trial date or temporarily stay the proceeding should be a complete stay, rather than a partial stay. Third, in the alternative, any partial stay should be accompanied by a stipulation that the partial stay will toll the 5-year trial period.

V. DISCOVERY

A. Federal Courts Implement Proportionality and Spoliation Rules

1. Proportionality

Last year’s amendments to Federal Rule of Civil Procedure 26(b)(1) provide that:

Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.⁴²

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The effect of this language was to include the concept of "proportionality" in the scope of federal discovery. Although the concept had appeared in other parts of the federal rules before this amendment, this new placement touched off a wave of decisions interpreting this provision.

a. Decisions on Proportionality by California Federal Courts

Razo v. Timec Co.⁴³ is a case of alleged age discrimination against a long-time employee. Plaintiff sought discovery related to the company’s "on the Run Welders Group," a group of skilled employees that included plaintiff. Defendant objected to what it characterized as national discovery. Plaintiff responded by limiting the request to a 2-year period and only as to California, the local area where he worked. With these limitations, the court found plaintiff’s discovery demand proportional.

Oracle America, Inc. v. Google Inc.⁴⁴ involved a request by Oracle to add 27 Google custodians for ESI collection and production. Google objected that the request was disproportionate to the needs of the case. The trial court noted that neither party "submitted a proper analysis of the Rule 26 proportionality factors."⁴⁵ Although this may be explainable by the fact that the new rules had just become effective, this case strongly suggests that counsel who do not address the proportionality factors do so at their peril.

Carroll v. Wells Fargo & Co.⁴⁶ revolves around pre-certification discovery in a putative wage-and-hour class action. Plaintiffs sought "contact information for each putative class member."⁴⁷ Preliminarily, defendant argued that such discovery was not proper until a class was certified. The court rejected this attack, noting that the "United States Supreme Court has recognized the importance of permitting counsel to communicate with potential class members for the purpose of gathering information, even prior to class certification."⁴⁸

Turning to its proportionality analysis, the court concluded that an offer from plaintiffs to limit their request to a 25% sample was "fair and proportional to the needs of the case."⁴⁹

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MicroTechnologies, LLC v. Autonomy, Inc.⁵⁰ presents a discovery battle over the deposition of Sushoven Hussain, a former executive for Autonomy, in London. The trial court reviewed each of the proportionality factors in Rule 26, finding that "the deposition of Hussain would be proportional to the needs of this case."⁵¹ This summary analysis provides a good overview of how courts address these factors.

The court also rejected Hussain’s arguments that the deposition would be oppressive, specifically that his deposition would be contrary to the Hague Convention and increase his risk of facing criminal charges in England and the United States.

Goes Int’l AB v. Dodur Ltd⁵² reports on the resolution of a discovery dispute arising from the alleged illegal copying of a video game, which copies were distributed around the world. A significant conduit for these sales was Apple’s iTunes Store. The plaintiff sought information on worldwide sales of the allegedly stolen software. The court found that the discovery request was relevant to plaintiff’s case, and concluded that "[t]he production requests here . . . should not be an excessive burden."⁵³ The court also noted that since the parties were "moving toward settlement discussions," the "requested discovery may ‘likely benefit’ both parties in that endeavor by helping to accurately fill out the picture of this developing lawsuit."⁵⁴

b. Decisions on Proportionality by Federal Courts Outside of California

Wagoner v. Lewis Gale Medical Center, LLC⁵⁵ involved a fired security guard. He subsequently filed suit alleging that the medical center did not reasonably accommodate his dyslexia.

Plaintiff sought discovery of potentially relevant e-mails of two custodians over a four month period and specified search terms like his name and dyslexia. Defendant countered that its system did not automatically preserve e-mails for more than three days, so recovering the requested e-mail would be disproportionally expensive for the case at hand.⁵⁶

The court concluded that the requested discovery was relevant. It also concluded that proportionality does not simply weigh the costs of responding to discovery, citing a case for the proposition that "the Court cannot relieve Defendant of its duty to produce those documents [relevant e-mails] merely because Defendant has chosen a means to preserve evidence which makes ultimate production of relevant documents expensive."⁵⁷ The court also rejected a request that plaintiff pay for the recovery of the requested e-mail.

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The defendant was ordered to produce the requested e-mails during the period specified using the search terms selected by plaintiff.⁵⁸

First Niagara Risk Management v. Folino⁵⁹ is a case against First Niagara’s former First Vice President for violating a sales contract that contained non-compete and anti-employee solicitation provisions. This action was based on Folino’s creation of a competing company, Trident Risk Advisors.

Niagara demanded that Folino search his personal electronic devices and personal e-mail account for a long list of names, including the names of 78 clients.⁶⁰ Although the court agreed that the request was "rather broad," it nonetheless found that the request was proportional. The court observed preliminarily that limited discovery had already revealed significant evidence that Folino had violated the non-compete and anti-poaching provisions of his contract. Looking at the factors, the court found that:

• Importance of the issues at stake: The court found that Folino’s alleged activities are of "grave importance" to Niagara, so this factor favors the plaintiff.
• Amount in controversy: This was unknown at this time so this factor favors Folino.
• The parties’ relative access to information: Folino has had complete access to this information and plaintiff has had none. This favors Niagara.
• Parties’ resources: Niagara is a corporation but Folino recently sold his business to Niagara for $5 million so this factor favors neither party.
• Importance of discovery: This factor tilted "heavily in favor of First Niagara."
• Expense of discovery v. benefits: Admittedly, the court concludes, this may be expensive to Folino but this expense is outweighed by the needs of the case.⁶¹

In an effort to counter this conclusion, Folino argued that Sedona Conference Principle 6 should decide the question. Principle 6 provides that the responding party is in the best position to determine what is available and, therefore, should be able to dictate device discovery. The court rejected this analysis noting that the federal rules trump the Sedona principles. The court ordered the requested discovery, but denied First Niagara’s motion for costs and fees.

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Elkharwily v. Franciscan Health System⁶² is a case about denial of hospital privileges. Plaintiff sought "all emails and text messages concerning Plaintiff between employees, agents or attorneys of Defendant." Another request demanded all email messages between any of Defendant’s employees and any employee of a major insurer; any former employer of plaintiff and communications with the National Practitioners Data Bank.⁶³

Defendant demurred, arguing that it does not maintain an archiving system so costs to restore backup tapes would be an estimated $157,000. Defendant further argued that:

• The requested e-mail from the archives were of minimal discovery value;
• Plaintiff had not exhausted more easily accessible information;
• Plaintiff had not identified what kind of material might be found in the archived e-mail, characterizing the request as "an extremely expensive fishing expedition."⁶⁴

Plaintiff did not apparently dispute these points, but argued that the defendant should have preserved e-mail in an accessible format.

The court denied the request but did allow the discovery to proceed, but "only at Plaintiff’s expense, payable in advance."⁶⁵

In re Bard IVC Filters Products Liability Litigation⁶⁶ involved requested discovery directed at foreign firms handling regulatory filings for the defendant. Defendant argued that while some local subsidiaries in foreign countries did communicate with local regulators, "Bard’s United States operations ‘supply all the pertinent information, answer all the questions [and] [t]hey provide the documentation and translations back and forth.’"⁶⁷ Based on testimony supporting this proposition, the court concluded that "most of the communications with foreign regulators originate in the United States and thus will be captured by the ESI searches currently underway."⁶⁸

Although the court concedes limiting discovery to U.S. sources may not capture everything, the "relevancy of these [other] communications is uncertain."⁶⁹ The court concludes that "the burden and expense of searching ESI from 18 foreign entities over a 13-year period outweighs the benefit of the proposed discovery—a mere possibility of finding a foreign communications (sic) inconsistent with United States communication."⁷⁰

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c. Proportionality—Analysis

As the Rolling Stones observed:

"You can’t always get what you want
But if you try sometimes well you might find
You get what you need."⁷¹

This could be the overarching way to think about proportionality issues, specifically:

• Courts will reward those who seek what they need, rather than what they want;
• Courts will expect all parties to address the proportionality factors;
• Relevant evidence need not be produced if such discovery is disproportionate;
• Courts will typically rely on the responding party for information on the costs of producing requested discovery;
• If the proposed discovery does not seem likely to generate useful information, the burden on the demanding party is essentially insurmountable, particularly if costs are substantial;

An archaic computer system will not save a responding party if the proportionality factors otherwise favor production.

2. Spoliation—Sanctions

Last year’s rule amendments added a new subsection (e) to Federal Rule of Civil Procedure 37. This change limited the circumstances under which the most powerful spoliation sanctions could be imposed. This subsection provides that:

If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:

1. upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
2. only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:
1. presume that the lost information was unfavorable to the party;
2. instruct the jury that it may or must presume the information was unfavorable to the party; or
3. dismiss the action or enter a default judgment.

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a. Decisions on Spoliation Sanctions by Federal Courts in California

Nuvasive, Inc. v. Madsen Medical, Inc.⁷² is a decision vacating a prior order for sanctions for spoliation because "the Court did not make any finding that NuVasive intentionally failed to preserve the text messages so that defendant could not use them in this litigation".⁷³ "Instead, the Court found that NuVasive was at fault for not enforcing compliance with the litigation hold."⁷⁴

Based on this record, the court vacated its prior sanction order. However, the court noted that the amended rule does not preclude a jury from hearing about destruction of evidence. As a consequence, the court allows the parties "to present evidence to the jury regarding the loss of electronically stored information and will instruct the jury that the jury may consider such evidence along with all other evidence in the case in making its decision."

InternMatch, Inc. v. Nxtbigthing, LLC⁷⁵ was a trademark case. Plaintiff claimed that defendant had hijacked its trademark. Defendant countered that it had used the mark before plaintiff, but that the original electronic documents supporting that claim had been destroyed by a power surge caused by lightning strikes.

Because of the destruction of the electronic originals, defendant was going to use paper copies of these documents at trial, created just before the lightning strike incident. The court noted this created a critical problem because the paper documents did not "include valuable information such as the creation and modification history of the files."⁷⁶

After an extensive review of the evidence that supported defendant’s claim, including defendant’s failure to notify his landlord of the supposed damage from an otherwise unrecognized lightning strike; rejection of his insurance claim; and dissembling about his relationship with an electrician who supposedly repaired damage from the strike, the court concluded that defendant had "willfully failed to preserve relevant evidence." The court:

• Imposed an adverse inference instruction;
• Denied the ability of the defendant to use the paper documents at trial;
• Ordered defendant to pay a monetary sanction.

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b. Decisions on Spoliation Sanctions by Federal Courts Outside of California

O’Berry v. Turner⁷⁷ arose from an accident involving a truck and a car. At issue in this decision was a demand for the truck driver’s driving log and electronically stored information from PeopleNet concerning the truck he was driving.

Electronic driver logs contain information on miles driven, hours driven, and starts and stops. The PeopleNet data includes information generated 30 seconds before and 30 seconds after a "triggering event,’ like an accident. For these 30-second periods, the data retained includes speed, revolutions per minute, switches and odometer data.⁷⁸

The truck driver’s manager did not retain the electronic versions of either the driver log or the PeopleNet data. Rather, he printed reports of the log and placed it in a manila folder. The manila folder was lost during a move during which the manager was absent.

The court concluded that "[a]ll of these facts, when considered together, lead the court to conclude that the loss of the at-issue ESI was beyond the result of mere negligence. Such irresponsible and shiftless behavior can only lead to one conclusion—that ADM and Archer Daniels Midland Company acted with the intent to deprive Plaintiff of the use of this information at trial."⁷⁹ Based on this assessment, the court imposed an adverse inference instruction sanction on defendants.

Cat3, LLC v. Black Lineage, Inc.⁸⁰ was a case about alleged infringement of a trademark. Of particular importance was when the defendant became aware of the other trademark.⁸¹ After an extended investigation that included a forensic examiner, it was found that plaintiff had two versions of critical e-mails. In the set initially turned over to the defendants, the e-mail domain names included the disputed trade name. However, just underneath these versions, the examiner found a virtually identical copy with domain names that did not contain the disputed mark.

Magistrate Judge Francis determined that he could proceed either under Rule 37 or under the inherent powers of the court. If, however, he proceeded under the inherent powers of the court, he determined that "clear and convincing evidence" of spoliation is required.⁸² The court concludes: "There is clear and convincing evidence, then, that the plaintiffs manipulated the emails here in order to gain an advantage in litigation. To be sure, that evidence is largely circumstantial. But circumstantial evidence may be accorded equal weight with direct evidence."⁸³

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Although more substantial sanctions could have been imposed, the court imposes a two-part remedy: (1) plaintiffs cannot use their versions of the disputed e-mails at trial, and (2) plaintiffs must pay all reasonable costs and fees "incurred by the defendants in establishing plaintiffs’ misconduct and securing relief."⁸⁴

GN Netcom, Inc. v. Plantronics, Inc.⁸⁵ was a case involving alleged monopolization, unfair competition and tortious interference arising from Plantronics’ implementation and enforcement of its Plantronics Only Distributor program.⁸⁶

Just as the case commenced, Plantronics’ vice president for sales, the executive responsible for the Plantronics Only program, directed his subordinates to delete specific e-mails and e-mail chains. He himself also permanently deleted between 36,000 to 90,000 e-mails.

Plantronics sought to defend itself by arguing that the company had set a litigation hold, so should not be responsible for the VP’s actions. The court found this unpersuasive because (1) the company would get the benefit of his actions and (2) evidence indicated that Plantronics was on notice that the executive was destroying e-mails. Specifically, the court found that the vice president "acted in bad faith with an intent to deprive GN of discovery, and given his position as a senior executive. . . [so his] actions undertaken in bad faith can properly be attributed to Plantronics."⁸⁷

The court imposes dramatic sanctions: (1) Monetary sanctions for reasonable fees and costs incurred by plaintiff leading up to the order; (2) A "punitive sanction" in the amount of $3 million; (3) A possible evidentiary sanction if requested by plaintiff and considered reasonable when requested; (4) An adverse inference instruction.

c. Spoliation Sanctions-Analysis

Courts are not finding it difficult to impose substantial sanctions on egregious instances of spoliation behavior under amended Rule 37. A few specific observations:

• Courts are willing to proceed under either Rule 37 or their own inherent power to protect the integrity of the judicial process;
• Courts are drawing inferences from circumstantial evidence to support the intent requirement of Rule 37(e);
• Courts are prepared to punish bad conduct severely.

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VI. TRIAL

A. Northern District Court Judge Requires Disclosure of Social Media Use in Jury Selection

Oracle America, Inc. v. Google, Inc.⁸⁸

Judge Alsup of the Northern District gave lawyers a choice. They could choose to check out the jury venire on social media sites such as Facebook or LinkedIn. However, if they made this choice, they would have to reveal to the venire that they had been rummaging around potential jurors’ social media posts.

The court posited three major legal reasons for limiting searches of prospective jurors’ social media presence:

• This would erode respect for the court’s standard admonition that jurors not conduct their own Internet searches on the lawyers and the case;
• Information from social media sites about jurors would facilitate improper personal appeals to particular jurors via jury arguments or examinations patterned after preferences discernable from social media research;

Jurors are not "public" persons, therefore, their privacy should be protected.⁸⁹

Although the court indicated that it had discretion to impose an outright ban on social media searches, it offered additional time for voir dire if all parties would foreswear use of social media searches of potential jurors.⁹⁰ In making this offer, the court observed that a recent ABA ethics opinion permitted lawyers to conduct "passive reviews" of potential jurors’ social media. However, the ABA "cautioned that judges may limit the scope of the searches that counsel could perform regarding that juror’s social media ‘if a judge believes it to be necessary, under the circumstances of a particular matter. . .’"⁹¹

This is a reasoned decision that many judges may find attractive given the concerns jurors (and judges) have about jurors losing their privacy simply because they serve on a jury. On the other hand, Judge Alsup nicely summarizes the kinds of useful information that can be obtained from popular social media sites like Facebook, LinkedIn and Twitter.⁹²

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VII. PATENT PROCEDURE

A. U.S. Supreme Court Affirms PTAB Procedures

Cuozzo Speed Technologies, LLC v. Lee⁹³

This is the first case to reach the U.S. Supreme Court on the operations of the Patent Trials and Appeals Board (PTAB).⁹⁴ The Court affirmed two major aspects of PTAB’s procedures:

• Ina challenge to PTAB’s decision to consider the obviousness of claims not specifically raised by the petitioner, the Court affirmed the statutory "no appeal" rule, except in circumstances in which the decision involved are "closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review."⁹⁵
• The Court rejected petitioner’s argument that PTAB should use the standard used by the Federal Circuit on the scope of claims, endorsing PTAB’s regulatory authority to use a "broadest reasonable interpretation" standard, and suggesting that such a standard encourages patent applicants to "draft [their claims] narrowly."⁹⁶

This continues PTAB’s impressive string of victories protecting its stringent review of low quality patents.

VIII. COPYRIGHT PROCEDURE

A. U.S. Supreme Court Clarifies Standard for Determining Fee Awards in Copyright Actions

Kirtsaeng v. John Wiley & Sons, Inc.⁹⁷

Petitioner came to the United States to study mathematics. While at Cornell, he observed that textbooks sold in the U.S. were far more expensive than those available in his native Thailand. He began importing books from Thailand, and was ultimately sued by Wiley for infringement of their copyrights. Petitioner successfully argued that the first-sale doctrine applied, and he could do what he wished with books he had purchased abroad.

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Petitioner sought $2 million in fees and costs from Wiley under the Copyright Act. The Supreme Court noted that Section 505 of the Copyright Act⁹⁸ "authorizes fee-shifting, but without specifying standards that courts should adopt, or guideposts they should use in determining when such awards are appropriate."⁹⁹

The high court concludes that "objective reasonableness" of the losing party’s case is "an important factor in assessing fee applications—not the controlling one."¹⁰⁰ The Court notes that trial courts "must take into account a range of considerations beyond reasonableness," including potential litigation misconduct and repeated instances of overaggressive assertions of copyright claims. The case was remanded because of the Court’s perception that in Second Circuit courts, the objective reasonableness test had ossified into the exclusive test of whether fees could be shifted.¹⁰¹

IX. NEW FEDERAL LAWS, REGULATIONS AND RULES

A. Congress Creates New Federal Cause of Action for Taking of Trade Secrets

Defend Trade Secrets Act of 2016¹⁰²

The new Defend Trade Secrets Act was enacted on May 11, 2016. The Act provides for:

• A private action, under which the trade secret owner may seek an ex parte order "providing for the seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action."¹⁰³
• Potential remedies include injunctive relief and damages for actual loss and unjust enrichment.¹⁰⁴
• An increase in the fine available in a criminal action from a maximum of $5 million to "the greater of $5,000,000 or 3 times the value of the stolen trade secret to the organization, including expenses of research and design and other costs of reproducing the trade secret that the organization has thereby avoided."¹⁰⁵

The Defend Trade Secrets Act provides a federal alternative to actions under California’s Uniform Trade Secrets Act.¹⁰⁶ If you handle trade secret issues, this is a statute you need to review closely.

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1. FTC Increases Penalties Pursuant to the Federal Civil Penalties Inflation Adjustment Act

Adjustment of Civil Monetary Penalty Amounts¹⁰⁷

The Federal Civil Penalties Inflation Adjustment Act of 1990¹⁰⁸ authorized federal agencies to increase civil penalties to reflect inflation. On June 30, 2016, the Federal Trade Commission amended 16 C.F.R. section 1.98 to reflect these increases. While all penalties were increased, those most important to Section members are:

• Section 7(A)(g)(1) of the Clayton Act (premerger filing notification violations under the Hart-Scott-Rodino Act)—Increase from $16,000 to $40,000.
• Section 11(i) of the Clayton Act (violations of cease and desist orders issued under Clayton Act section 11(b)—Increase from $8,500 to $21,250.
• Section 5(l) of the FTC Act (violations of final Commission orders under section 5(b) of the FTC Act)—Increase from $16,000 to $40,000.
• Section 5(m)(1)(A) of the FTC Act (unfair or deceptive acts or practices)—Increase from $16,000 to $ 40,000.
• Section 5(m)(1)(B) of the FTC Act (unfair or deceptive acts or practices)—Increase from $16,000 to $40,000.

These new penalties became effective on August 1, 2016, and apply to violations that predate the effective date.¹⁰⁹

2. New Rules Effective December 1, 2016

On April 28, 2016, the U.S. Supreme Court forwarded Congress proposed changes in the Federal Rules of Bankruptcy Procedure, Appellate Procedure, Civil Procedure and Criminal Procedure.¹¹⁰ Changes most likely to affect Section members include:

(1) Appellate Procedure. The major change is a recalculation of the page limits available for appellate briefs and motions. In 1998, the rules converted pages based on an estimated 280 words per page. In this round of changes, it was assumed that one page represented 260 words. For a principal brief, this conversion results in a limit of 13,000 words, rather than the prior 14,000 words.¹¹¹ This represents a reduction of 3-4 pages, depending on which conversion factor one uses.

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This slim-down is reflected in all appellate pleadings. The fastest way to assess the new limits is to review the Appendix, located after a new Form 7.

Amended Rule 29(b) provides new guidance on amici briefs during consideration of whether to grant rehearing. Amici briefs supporting a petition for rehearing are due "no later than 7 days after the petition is filed."¹¹²

(2) Civil Procedure. This year’s amendments are far less substantial than last year’s. Rule 4(m) provides that if a defendant is not served within 90 days after the complaint is filed, the court must dismiss without prejudice. There are exceptions to this rule recognizing that service in other countries can take longer than 90 days. Prior to this year’s amendments, these exceptions were handled as cross-references to Rule 4(f) (service on an individual in a foreign country) and Rule 4((j)(1) (service on a foreign country). This left unclear what happens when serving a corporation or other similar entity. This is fixed by adding a new cross-reference to Rule 4(h)(2), which addresses service on business entities at a place outside any judicial district of the United States.

Amended Rule 6 may be a sleeper. Hitherto three days were added to time limits for responding to motions or other pleadings on the assumption that such paper would be served by mail. This makes no sense for electronic filings. Rule 6(d) is clarified to limit this 3-day extension to situations other than electronic filings.

(3) Criminal Procedure. There are two major changes in the Rules of Criminal Procedure. Rule 4 is adjusted to address a "gap" in the current rule, which currently makes no provision for organizational defendants who fail to appear in response to a criminal summons.¹¹³

The second is an amendment to Rule 41(b)(6) that provides that "a magistrate judge with authority in any district where activities related to a crime may have occurred has authority to issue a warrant to use remote access to search electronic storage media and to seize or copy electronically stored information located within or outside the district."¹¹⁴ This authority is cabined in by amended subparagraphs (b)(6)(A) (location of information not known) and (b)(6)(B) (if the media have been damaged or the information is contained on computers in multiple districts).

B. New State Laws and Rules

1. New State Law: AB 1909 (Lopez)—Falsifying Evidence

This legislation amends section 141 of the Penal Code. Prior law made it a misdemeanor for a person and a felony for a peace officer to knowingly plant, manufacture or conceal evidence with the specific intent that the action would result in a person being charged with a crime.

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This law makes it a felony for any "prosecuting attorney" to "alter, modify, or withhold" "relevant exculpatory material or information" with the specific intent that the evidence will be concealed "upon a trial, proceeding or inquiry." Governor Brown signed this legislation on September 30, 2016, and it will become effective January 1, 2017. This bill was prompted by alleged withholding of evidence by the Orange County District Attorney’s Office.¹¹⁵

2. New State Rules

The California courts have issued a number of new rules effective in 2016.¹¹⁶ There are two that may be significant to Section members.

First, until recently, a grant of review by the California Supreme Court resulted in automatic depublication of the relevant lower court opinion. This, in turn, made such decisions uncitable. Amended Rule 8.1105, effective July 1, 2016, ends this practice, but requires that any such lower court decision be "accompanied by a prominent notation advising that review by the Supreme Court has been granted."¹¹⁷ The Supreme Court retains authority to order that an opinion certified for publication by a lower court is not to be published or that an opinion not certified for publication be published. The Court also retains the power to order depublication of part of an opinion at any time after granting review.¹¹⁸

A distant second are amendments to the rules applicable to expedited jury trials.¹¹⁹ Adjustments appear to be minor. For example, the time allowed for each side—including voir dire—is increased from 3 hours to 5 hours.¹²⁰

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——–

Notes:

^1. Thomas Greene is a Trial Attorney with the United States Department ofJustice Antitrust Division and prior to that was Special Trial Counsel with the Federal Trade Commission. The views expressed in this Article are those of the author and do not necessarily reflect those of Antitrust Division or Federal Trade Commission. This Article is adapted from a presentation delivered at the Golden State Antitrust, Unfair Competition and Privacy Law Institute on November 3, 2016 and reflects developments as of that date.

^2. 1 Cal. 5th 783 (2016).

^3. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011).

^4. Daimler AG v. Bauman, 134 S.Ct. 746 (2014).

^5. Bristol-Myers Squibb, 1 Cal. 5th at 797, et seq.

^6. Id. at 796.

^7. Id. at 799 (internal citations omitted).

^8. Id. at 813.

^9. Id. at 817.

^10. Id. at 818 (citations omitted).

^11. Id. at 816.

^12. Bristol-Myers Squibb Co. v. Supreme Court, 2016 Cal. LEXIS 7897, at *1 (Sept. 21, 2016).

^13. 1 Cal. 5th 233 (2016).

^14. Id. at 241 (emphasis in original).

^15. Id. at 241-42.

^16. Id. at 244.

^17. Id. at 247-48 (citations omitted).

^18. 56 Cal. 4th 1086 (2013).

^19. Lebo Automotive, 1 Cal. 5th at 250.

^20. 539 U.S. 444 (2003).

^21. Lebo Automotive, 1 Cal. 5th at 250.

^22. Id. at 251-52.

^23. Id. at 252 (emphasis in original omitted) (citations omitted).

^24. Id. at 255-56 (citations omitted).

^25. Id. at 258.

^26. Id. at 261.

^27. Id. at 267 (citations omitted).

^28. 1 Cal. 5th 376 (2016).

^29. Baral v. Schnitt, 233 Cal. App. 4th 1423, 1442 (2015).

^30. Baral v. Schnitt, 1 Cal. 5th 376, 381 (2016) (emphasis in original).

^31. Id. at 393.

^32. Id. at 396.

^33. 62 Cal. 4th 1081 (2016).

^34. Cal. Code Civ. Proc. § 583.310.

^35. Fid. Nat’l Title, 62 Cal. 4th at 1091-92.

^36. Id. at 1094 (citing Bruns v. E-Commerce Exch, Inc., 51 Cal. 4th 717, 726, 730 (2011) (internal citations omitted).

^37. Id.

^38. Id. at 1100 (citing Cal. Civ. Proc. Code § 583.340(b)).

^39. Id. at 1102.

^40. Id. at 1105.

^41. Id. at 1110.

^42. Emphasis added.

^43. 2016 U.S. Dist. LEXIS 53769 (N.D. Cal. Apr. 21, 2016).

^44. 2015 U.S. Dist. LEXIS 163956 (N.D. Cal. Dec. 3, 2015).

^45. Id. at *8-9.

^46. 2016 U.S. Dist. LEXIS 121630 (N.D. Cal. Sept. 8, 2016).

^47. Id. at *2.

^48. Id. at *6.

^49. Id. at *9.

^50. 2016 U.S. Dist. LEXIS 32713 (N.D. Cal. Mar. 14, 2016).

^51. Id. at *6-7.

^52. 2016 U.S. Dist. LEXIS 13748 (N.D. Cal. Feb. 4, 2016).

^53. Id. at

^54. Id. at *12.

^55. 2016 U.S. Dist. LEXIS 91323 (W.D. Va. July 13, 2016).

^56. Id. at *8.

^57. Id. at *9 (citation omitted).

^58. Id. at

^59. 2016 U.S. Dist. LEXIS 106094 (E.D. Pa. Aug. 11, 2016).

^60. Id. at *10.

^61. Id. at *11-13.

^62. 2016 U.S. Dist. LEXIS 99795 (W.D. Wash. Jul. 29, 2016).

^63. Id. at *2.

^64. Id. at *6-7.

^65. Id. at *9.

^66. 2016 U.S. Dist. LEXIS 126448 (D. Az. Sept. 16, 2016).

^67. Id. at *125-26.

^68. Id. at *128.

^69. Id.

^70. Id. at *130.

^71. The Rolling Stones, "You Don’t Always Get What You Want" from the Rolling Stones’ 1969 album Let it Bleed. Lyrics at http://www.azlyrics.com/lyrics/rollingstones/youcantalwaysgetwhatyouwant.html.

^72. 2016 U.S. Dist. LEXIS 8997 (S.D. Cal. Jan. 26, 2016).

^73. Id. at *5 (emphasis in original omitted).

^74. Id. at *5-6.

^75. 2016 U.S. Dist. LEXIS 15831 (N.D. Cal. Feb. 8, 2016).

^76. Id. at * 15-16.

^77. 2016 U.S. Dist. LEXIS 55714 (M.D. Ga. Apr. 27, 2016).

^78. Id. at *7.

^79. Id. at *13.

^80. 164 F. Supp. 3d 488 (S.D.N.Y. 2016).

^81. Id. at 491.

^82. Id. at 499.

^83. Id. at 500.

^84. Id. at 502.

^85. 2016 U.S. Dist. LEXIS 93299 (D. Del. Jul 12, 2016).

^86. Id. at *2.

^87. Id. at *25.

^88. 172 F. Supp. 3d 1100 (N.D. Cal. 2016).

^89. Id. at 1102-03.

^90. Id. at 1103.

^91. Id. at 1107.

^92. Id. at 1105-06.

^93. 136 S. Ct. 2131 (2016).

^94. For further discussion of PTAB, please see Thomas Greene and Thomas A. Papageorge, Update on California State Antitrust and Unfair Competition Law and Federal and State Procedural Law, 23(1) Competition: J. Anti. & Unfair Comp. L. Sec. ST. B. Cat. (Spring 2014), and Thomas Greene and Thomas A. Papageorge, California State Antitrust and Unfair Competition Law and Federal and State Procedural Law, 24(1) Competition: J. Anti. & Unfair Comp. L. Sec. ST. B. Cat. No. 1 (Spring 2015).

^95. Cuozzo, 136 S. Ct. at 2141.

^96. Id. at 2144-45.

^97. 136 S. Ct. 1979 (2016).98 Codified at 17 U.S.C. § 505.

^99. Kirtsaeng, 136 S.Ct. at 1984-85.

^100. Id. at 1988.

^101. Id. at 1988-89.

^102. Pub. L. No. 114-153 (2016).

^103. 18 U.S.C. § 1836(b) (2)(A)(i).

^104. 18 U.S.C. § 1836(b)(3).

^105. 18 U.S.C. §1832(b).

^106. Cal. Civ. Code §§ 3426-3426.11.

^107. 16 CFR Part 1, 81 Fed. Reg. 42476 (June 30, 2016).

^108. Pub. L. No. 114-74 (2015).

^109. Adjustments of Civil Monetary Penalty Amounts, 81 Fed. Reg. 42478; see also Pub. L. No. 14-74, 701(b)(3).

^110. Amendments Adopted by Supreme Court-Pending Congressional Review, available at http://www. uscourts.gov/rules-policies/pending-rules-amendments; see also https://www.supremecourt.gov/orders /ordersofthecourt/15.

^111. See, e.g., Advisory Note to Amended Rule 32(a)(7).

^112. Amended Fed. R. App. P. 29(b)(5).

^113. Advisory Note for Amended Rule 4.

^114. Emphasis added.

^115. C. Goffard, Prosecutors who withhold or tamper with evidence now face felony charges, Los Angeles Times (Oct. 4, 2016), available at http://www.latimes.com/local/lanow/la-me-prosecutor-misconduct-20161003-snap-story.html.

^116. California Courts, New & Amended Rules, at http://www.courts.ca.gov/3025.htm.

^117. Cal. Rules of Court, rule 8.1105(e)(1)(B).

^118. Cal. Rules of Court, rule 8.1105(e)(2).

^119. Cal. Rules of Court, rule 3.1545 et seq.

^120. Cal. Rules of Court, rule 3.1550.