Qualcomm Corp. has started a fight with its own lawyers and IT consultants over one of the thorniest questions about legal discovery in the electronic age: Who’s responsible when a company fails to turn over electronically stored information?
The dispute is unfolding in federal court in San Diego, Calif., where Qualcomm has been embroiled in patent litigation against its rival Broadcom Corp. Then came the revelation that Qualcomm failed to turn over what were deemed to be critical e-mail messages in that dispute. A federal judge fined Qualcomm—and, to the surprise of many, recommended disciplinary action against several of its outside attorneys.
“This is the first time anyone has seen a judge sanction an outside lawyer,” says Edwin Larkin, litigation partner at the law firm Winston & Strawn. “You don’t usually have a judge go that far.”
The federal rules of civil procedure were overhauled at the end of 2006 to address the new questions of how to conduct discovery in the electronic world. The rules are clear in concept, but applying them to settle specific procedural disputes is still rare.
“This is a reminder loud and clear that these discovery obligations need to be complied with seriously,” says Michael Lazerwitz of the law firm Cleary Gottlieb Steen & Hamilton. “Otherwise you face severe consequences, either as a litigant or a lawyer.”
The issue that triggered the flurry of actions was whether Qualcomm participated in a group that was creating a video-coding standard. Broadcom argued that Qualcomm’s participation in the group constituted a waiver to enforce its patents. Qualcomm claimed it did not get involved with that group until after the standard was created, so it did not waive the right to enforce the patents.
Throughout that litigation, Broadcom relied on the existence of an e-mail list for the standards-setting body showing that Qualcomm had participated in the development of the relevant standard since 2002, before the patents were issued. Broadcom also noted that despite the list’s existence, Qualcomm’s attorneys did not search for the e-mails. If they had, they would have found more than 46,000 documents relevant to Broadcom’s discovery requests—documents not turned over until after trial.
Ultimately, the jury ruled in favor of Broadcom.
In addition, the court concluded that Qualcomm intentionally suppressed key evidence by not producing certain documents. The court also ruled that even though Qualcomm’s lawyers claimed they were not aware of critical e-mails, they were on notice that the initial searches and production were inadequate.
As a result, in January a magistrate imposed $8.5 million in fines and attorney fees against Qualcomm and sanctioned six outside lawyers. The magistrate also referred Qualcomm’s lawyer to the state bar for possible disciplinary action, stressing that “Attorneys must take responsibility for ensuring that their clients conduct a comprehensive and appropriate document search.” Finally, the court ordered in-house and outside counsel to participate in a comprehensive “Case Review and Enforcement of Discovery Obligations” program.
“This is a reminder loud and clear that these discovery obligations need to be complied with seriously.”
— Michael Lazerwitz,
Cleary Gottlieb Steen & Hamilton
A legal bulletin on the case from the firm Vinson & Elkins was blunt: “The court’s opinion excoriating Qualcomm and its attorneys is an important reminder to all attorneys of the importance of properly managing the e-discovery process, including investigating all potential sources of relevant e-discovery.”
The six lawyers appealed the decision, asserting that attorney-client privilege precluded them from turning over Qualcomm documents. In March, the U.S. District Court for the Southern District of California vacated the magistrate’s order denying the self-defense exception to the attorney-client privilege.
“The attorneys have a due process right to defend themselves under the totality of circumstances presented in this sanctions hearing where their alleged conduct regarding discovery is in conflict with that alleged by Qualcomm concerning performance of discovery responsibilities,” the court wrote.
Legal experts say the case is most noteworthy because key documents were involved and a number of lawyers at a respected firm were disciplined by the court. “It is not every day that lawyers are sanctioned for a discovery violation with this magnitude and penalty,” Lazerwitz says.
The lesson of Qualcomm is that if the outside lawyer requests documents and the client send back a batch of them but they are woefully incomplete, neither the law firm nor the client is protected. “The courts will be looking closely to make sure outside counsel and inside lawyers are working together,” says Jennifer Brannen of the law firm Akin Gump Strauss Hauer & Feld.
At the same time, the case underscores the complexity of e-discovery and dealing with myriad electronic communications. Documents may be sitting in computer hard drives, servers, and back-up tapes all over the world. There is a widespread lack of understanding—especially among legal departments—of how all of the systems work and where documents may lay at a particular time. Yet lawyers are charged with the responsibility of fettering out where this information is.
“It’s a lot of work, time, and money,” Lazerwitz says. “And not everyone is technologically facile with systems.” Indeed, Larkin estimates companies are spending hundreds of thousands of dollars and even millions of dollars on e-discovery.
E-discovery gets even more complicated when a company outsources its IT operations to another firm, which is not at all uncommon. Also, a growing number of companies are outsourcing some of the litigation process by sending some documents to an independent company or even to India for less expensive lawyers to review. The more layers and parties that are involved, the more corporate legal departments struggle to control them—even though courts will hold the companies responsible for any problems.
“It can get to a point where lawyers are at odds with the client,” Larkin notes.
Qualcomm is not the first case in which the courts came down hard on companies that either did not produce e-mails or tried to suppress them. In a celebrated case, Zubulake v. UBS Warburg, the federal district court in the Southern District of New York sanctioned UBS Warburg, for failing to preserve e-mails and their back-ups after litigation began involving employment discrimination claims. The sanctions included an instruction to the jury that it could infer that the lost e-mails would have been harmful to UBS Warburg.
And several years ago, Morgan Stanley was hit with a series of sanctions in a fraud suit brought against it by billionaire Ronald Perelman, because the investment bank failed to disclose adequate details regarding e-mail backup tapes and produced e-mails late. Perelman received $1.4 billion in compensatory and punitive damages on his claim that he was defrauded by Morgan Stanley.