The Plaintiffs in Zest IP Holdings, LLC v. Implant Direct Mfg., LLC may have been all smiles following a fall 2013 judgment in their favor. The dental implant patent infringement case showed the profound failure by the Defendants to preserve electronic documents and again helped drill in the importance of having a sound legal holds system.
Tired of distributing Zest’s dental implant products in 2008, Implant Direct informed Zest that it would be duplicating one of Zest’s patented products and distributing it. Imitation was not the sincerest form of flattery for Zest, and it responded in an August 2008 letter that it considered this move to be patent infringement. Zest then followed up with an October letter, stating it intended to file a lawsuit against Dental Implant, which it did in March 2010.
While the Dental Implants’ tagline is “simply smarter,” this was not the case with its preservation system and efforts. Despite the October 2008 letter from Zest, deemed by the court as the trigger event, Dental Implants did not act accordingly and begin the necessary legal holds process. Instead, it was business as usual, which meant not monitoring whether employees were following the company policy that “no documents are to deleted,” not being aware of or backing up the sometimes multiple email accounts per employee and not reinforcing an email server from which files could be deleted and destroyed. This resulted in the deletion and irretrievable loss of electronic documents from key custodians. In addition to the emails, the Plaintiffs alleged that customer complaint documents and an infringing sales tool and packaging were also not properly secured and produced in full to the other side.
In November 2013, U.S. Magistrate Judge William V. Gallo of the Southern District of California ruled on the case. While he found that the Defendants’ conduct did “not rise to level of bad faith sufficient to warrant default judgment under the circumstances,” he did find cause to issue an adverse inference instruction using the Zubulake test:
“(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a ‘culpable state of mind’ and (3) that the evidence was ‘relevant’ to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.”
Judge Gallo also awarded monetary sanctions for spoliation in attorney fees and costs.
Whether a grocery chain, a pharmaceutical company or a dental implant manufacturer, this case highlights the on-going necessity for all companies to examine their preservation policy and institute a sound legal holds system, thus preventing possible high-priced sanctions and legal teeth gnashing.