A US magistrate judge in the Northern District of California sanctioned four investors and their former IP attorneys for failing to preserve evidence in a case involving allegations of intellectual property theft.
The case arose from the defendants’ alleged conspiracy with former employees of Clear-View Technologies to take over the company, or failing that, to divert its “personnel, intellectual property, and investors” to a competing enterprise.
The intellectual property at issue was an “alcohol tracking product” known as the BarMaster.
According to Market Wired, BarMaster was an alcohol beverage management, inventory control and loss prevention system that enables total tracking of every ounce of alcohol from top shelf, to stockroom to point-of-sale for bars, nightclubs, restaurants, hotels, casinos and sports venues.
Clear-View’s then-CEO threatened the defendants with litigation as early as 2011. In 2012, Clear-View’s counsel sent a written document preservation and litigation hold notice “in anticipation of litigation” to the company’s shareholders and others, and included the defendants in the “bcc” field.
This notice advised that:
“A violation of the duty to preserve may itself be a crime, an independent tort, and/or may result in discovery sanctions” including “an order that the jury may or should draw adverse inferences against any party who has destroyed evidence in anticipation of litigation or the entry of an adverse judgment against said party.”
In 2013, Clear-View filed suit.
One of the defendants admitted that since 2011 he had thrown away several iPhones, a laptop computer and an iPad he used to access relevant documents and email accounts, with no prior efforts to back up those sources, and that he discarded hard copy documents relating to [the case].
The court detailed several other instances where electronic records were destroyed by the defendants, including via the “Deployment of ‘Crap Cleaner’ software—with a motion to compel pending.”
The court thus awarded more than $200,000 in sanctions against the defendants.
This case is a reminder that any attempt to conceal or destroy evidence in anticipation of – let alone in the middle of – intellectual property litigation is a very bad idea.
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Photo Attribution: “Liquor Bottles on a Bar Wall” by TriviaKing at English Wikipedia. Licensed under CC BY-SA 3.0 via Wikimedia Commons.