Your Data Can Curb Discovery Abuses In Patent Cases

Monday, April 5, 2010 - 01:00

Steven M. Bauer is head of the Litigation Practice in Boston and co-head of the Patent Law Group. He is a member of the firm's Executive Committee, and was the managing partner of the Boston office until 2008.

On the cover of our March issue, Paul Saunders, chair of the American College of Trial Lawyers (ACTL) Task Force on Discovery and Civil Justice, mentions a few of the important Principles (Principles) set forth in the Final Report of the Joint Project of the ACTL and the Institute for the Advancement of the American Legal System (IAALS). In the following interview the interviewee discusses how application of the Principles would address concerns arising from cases with which the interviewee is familiar.

Editor: Describe cases in which extensive e-discovery was threatened, but which were settled in order to avoid discovery costs.

Bauer: My patent litigation practice is mostly on the defense side, and extensive discovery is threatened in almost every case. The published average cost for discovery in patent litigation is $1 to $2 million. Many of my cases settle very early, because at the end of the day, it is better to settle in order to avoid the cost of e-discovery - which is an indictment of the crazy results our current broken system produces.

Editor: Describe cases in which extensive e-discovery took place and whether or not the information developed affected the outcome.

Bauer: In a patent case, the plaintiffs ask for the source code, computer code and every version of the code going back years, and the judges just say turn everything over because "people wouldn't ask for it if they didn't think it was relevant." So we are faced with turning over millions of pages, where not more than a hundred documents of the millions we turn over is ever seen again. We don't even think plaintiffs look at them - all they care about is using the threat of e-discovery to increase the settlement value of their cases.

Editor: Who brings these cases?

Bauer: Plaintiff's counsel who bring these actions are usually a prime financial beneficiary of these actions. They prospect for clients with facially plausible claims or represent what have become known as "patent trolls" ("non-practicing entities" is the more polite term). A NPE's business is using an inventory of patents. They don't make anything, but they try to negotiate the license of a patent or they sue. In the typical settlement negotiation, plaintiff's counsel says something like, "You can pay your lawyers $2 million with a 50 percent chance of success at trial, or you can pay me $1 million and I'll guarantee you that I'm going to go away. What is the better deal?"

These aren't cases where the plaintiff has been damaged. They don't come to you saying here's how much I've been damaged; these are cases where they ask for an amount of money based on your sales.

Editor: Do the costs of e-discovery include employee time?

Bauer: If you are defending a patent suit, you need a champion at the company to work with you who has clout within the company. It often is somebody at a senior level, a senior engineer or scientist, a product group manager or division leader who needs to spend half or more of his or her time attending to e-discovery matters. The client just can't say to you, "Here is a paralegal who will be your contact at the company."

It's a real drag on a company's business to have to have senior management spending a lot of time dealing with the mundane discovery rules, tracking down old documents and electronic files, and rounding up all the engineers who ever worked on a project to check their files or to come in to have their hard drives copied. It's a huge and very costly distraction.

Editor: Does the ACTL and IAALS approach, including the IAALS Pilot Program Rules, address the concerns you mentioned?

Bauer: The ACTL and IAALS approach would be an enormous help. It is important to have a judge start off at the beginning of a case saying to both sides, "What is it you need?" and then requiring them to articulate their needs. For example, I'm in a lot of cases where there is both a manufacturer and its customer in the same lawsuit, because the manufacturer makes the infringing product and the customer uses the infringing product.

If a judge isn't overseeing the case, the customer whose involvement relates only to having bought the thing has to track down every document it has ever received from the manufacturer.

Editor: Do you feel that the ACTL and IAALS approach of having the same judge throughout and having the parties make disclosures at the outset of whatever they know would go a long way to resolving the concerns you mentioned?

Bauer: Yes. Under the ACTL and IAALS approach, the plaintiff would have to disclose at the outset what it knows about your technology and product, and the defendant would have to furnish documents like engineering drawings sufficient to show the operation of your product. That provides each side with what they need, and is in fact usually all they ever use in these cases.

When you ask about the benefit of having the same judge handling the case throughout, in patent cases we usually have the same judge handle the case from beginning to end, but most judges still look at discovery as just a private dispute between the parties and don't want to get involved.

Editor: Do you see the ACTL and IAALS approach as addressing your concerns?

Bauer: I think it would be a huge step forward. Already some judges are more than halfway there. I've been in front of judges who ask each side to tell them what they need. They then phase discovery in two-month bites. When the plaintiff asks for broad e-discovery, the judge will turn to me and say, "Is that reasonable?" And then I can push back and say, "I shouldn't have to turn over every draft and email." Then, the judge will probably say to the other side, "Well that sounds right, doesn't it?" And at the end of the day you get an order, and then the judge will say that after you go through this round come back two months from now and tell me what more you think you need. When a judge proceeds in that manner, instead of a million documents sometimes only 10,000 documents are exchanged.

Although it takes only an hour at the beginning of the case to have that dialogue with the judge, the judge can save each side a significant amount of money - but, too few judges get involved to that extent. However, it's a terrific system and not too different from the ACTL and IAALS approach.

Editor: Let's talk about proportionality. Paul Saunders, chair of the ACTL and IAALS Taskforce, in talking about proportionality said it was the key Principle. Do you agree?

Bauer: There is something wrong with a system where nuisance value involves millions of dollars, and people are getting very rich working off of that. The ACTL and IAALS approach encourages judges to look at the real value of a case and control discovery based on that. It's easy for the plaintiff to say I am going to make the defendant spend $2 million with no cost to the plaintiff. You need a system that looks at the incremental value of discovery and have a judge who will deny it if the person seeking it can't justify it on that basis.

Editor: How do you feel about ACTL's Principle that sanctions should only be imposed for failure to preserve documents only upon a showing of intent to destroy evidence or recklessness?

Bauer: I think it's a big help. It recognizes that not every piece of data in your company has the same value and that you shouldn't be sanctioned when the destruction was unintentional and was not reckless.

Editor: What is your answer to the argument that the number of cases involving patents or other complex commercial litigation is small compared to numbers of other cases and therefore it is not worthwhile to invest the time of the Federal Rules Advisory Committee in reform?

Bauer: If the focus is on the use of judicial resources, complex commercial cases, including patent cases, use more of those resources than any other type of litigation. Judges tell us that the patent cases take an enormous amount of their time because there is so much at stake, including injunctions.

It's important for judges to realize that e-discovery is a key part of the cases they are managing. A judicial officer needs to be managing these cases because there is so much on the line and there is so much opportunity to abuse the system. Absent a judge who oversees the process, the system will be abused.

Editor: How important is it for companies to supply LCJ with data for its white paper relating to the cost of e-discovery to bring home to the members of the Federal Rules Advisory Committee that this is an important subject?

Bauer: I can't tell you how many times I've had judges, when they've heard how much e-discovery took place and what it cost, say, "My god, I had no idea of the cost or volume - let alone its lack of focus." Many judges don't see the numbers of documents being reviewed and the small number that are relevant.

The most important element in persuading the Federal Rules Advisory Committee to go forward with changes in the current rules is anecdotal evidence and data reflecting the burden placed on corporations by those rules. Therefore it is critical that corporations and their law firms submit this information to Lawyers for Civil Justice for incorporation in the white paper that it is preparing for submission at the Duke Conference.

Please email the interviewee at sbauer@proskauer.com with questions about this interview.