United States District Court, N.D. Illinois
January 29, 2004.
AERO PRODUCTS INTERNATIONAL, INC., a Florida corporation; and ROBERT B. CHAFFEE, an individual, Plaintiffs
INTEX RECREATION CORPORATION, a California corporation;QUALITY TRADING, INC., a California corporation; and WAL-MART STORES, INC., a Delaware corporation, Defendants
The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
The Plaintiffs, Aero Products International, Inc. ("Aero") and Robert
B. Chaffee, filed suit against the Defendants, Intex Recreation
Corporation ("Intex"); Quality Trading, Inc. ("Quality Trading"); and
Wal-Mart Stores, Inc. ("Wal-Mart"). Presently before the Court is
Plaintiffs' Motion for Sanctions. For the following reasons, the
Plaintiffs' motion is denied.
The Federal Rules of Civil Procedure provides authority to sanction
litigants that fail to comply with their discovery obligations.
Rule 37(c)(1) provides:
A party that without substantial justification fails
to disclose information as required by Rule 26(a) or
26(e)(1) shall not, unless such failure is harmless,
be permitted to use as evidence at trial, at a
hearing, or on a motion, any witness or information
not so disclosed. In addition or in lieu of this
sanction, the court, on motion after affording
opportunity to be heard, may impose other appropriate
sanctions. In addition to requiring payment of
reasonable expenses, including
attorney's fees, caused by the failure, these
sanctions may include any actions authorized under
subparagraphs (A), (B), and (C) of subdivision (b)(2)
of this rule and may include informing the jury of the
failure to make the disclosure.
Rule 37(b)(2)(A) states that if a party fails to comply with a court
order regarding discovery, "an order that the matters regarding which the
order was made or any other designated facts shall be taken to be
established for the purposes of the action in accordance with the claim
of the party obtaining the order" may be entered.
District courts have "wide latitude in fashioning appropriate"
discovery sanctions. Johnson v. Kakyand, 192 F.3d 656, 661 (7th Cir.
1999). However, a sanction must be proportionate to the circumstances
resulting in a litigant's failure to comply with its discovery
obligations. "The sanction must be one that a reasonable jurist, apprized
of all of the circumstances, would have chosen as proportionate to the
infraction." Salgado v. Gen, Motors Corp., 150 F.3d 735, 740 (7th Cir.
If a litigant knows have should of known that it failed to comply with
a discovery order, it may be found at fault for failure to comply with
the order. See Melendez v. Illinois Bell Tel, Co., 79 F.3d 661, 671 (7th
Cir. 1996). A knowing and willing violation of a discovery order merits a
finding of bad faith against the violating litigant. While bad faith is
not necessary to impose sanctions, discovery sanctions are proper if the
litigant acts in bad faith, willfully violates a discovery order, or is
found at fault for failure to comply with a discovery order. In re
Golant, 239 F.3d 931, 936, n.1 (7th Cir. 2001).
Intex is part of a multi-corporation structure. Defendant Intex sells
the products that Plaintiffs accuse infringe their United States patent
rights. A separate management corporation provides management services to
Intex. Tien Zee is the president of both Intex and the separate
management corporation, and Tien Zee's holding company owns both
entities. These companies are collectively referred to as the "American
Intex purchases the accused products from a foreign corporation, "Intex
Trading Ltd." A separate, second foreign management corporation provides
Intex Trading Ltd. with management services. Tien Zee runs Intex Trading
Ltd. and is the president of the foreign management corporation. Tien Zee
also runs the factories that design and manufacture the accused products.
These companies are collectively referred to as the "Foreign Entities."
Plaintiffs sought production of documents relating to the development
of the original accused products. According to Plaintiffs, Intex
developed the accused products by copying Plaintiffs' patented air
mattress. In January 2003, Plaintiffs asked Intex for the documents in
the possession of the Foreign Entities. Intex did not produce a single
document related to the development of these products; Intex stated, in
May 2003, that these materials are not discoverable because they are in
the possession of the Foreign Entities. However, despite the links that
Plaintiffs claim exist between the American Intex Companies and the
Foreign Companies, Plaintiffs never filed a motion to compel production
of these documents.
In February 2003, Aero learned that Intex had been deleting all of its
e-mails every thirty days since the case was filed in April 2002. On
April 1, 2003, a protective order was entered that required Intex to make
a full and complete effort to recover any and all destructed electronic
documents, including e-mail. The order also stated that Plaintiffs may
petition for the appointment of a computer forensics expert to assist in
recovering electronic data and that Plaintiffs may request that Intex
bear the costs of this computer forensics expert.
In May 2003, Intex produced forty-five pages of documents. Intex also
produced a declaration from Mark Hunter of Pinkerton that described
Intex's efforts to retrieve the destroyed e-mails. Intex searched a
certain type of file on selective computers. Aero found these submissions
unacceptable; and, thereafter, Aero and Intex engaged in negotiations to
hire a computer forensics expert. These negotiations ultimately proved
fruitless. However, at no time did Plaintiffs file a petition seeking the
appointment of a computer forensics expert.
Plaintiffs move for discovery sanctions against Defendants, pursuant to
Federal Rules of Civil Procedure 37(c)(1) and 37(b)(2)(A). Specifically,
Plaintiffs seeks sanctions finding that: (1) Intex copied Aero's
commercial embodiment of the `726 patent; (2) any infringement of the `726
patent by Intex was willful; and (3) Defendants' equitable defenses of
laches and estoppel are dismissed with prejudice because its litigation
misconduct and copying activities preclude equitable relief. Plaintiffs
also seek fees and costs for bringing this motion, deposing Tien Zee, and
investigating Intex's destruction of electronic evidence.
Plaintiffs offer two arguments for why sanctions should be entered
against Defendants. First, Plaintiffs contend that Intex hid documents
and lied about its relationship with the Foreign Entities. Secondly,
Plaintiffs assert Intex failed to comply with the April 1, 2003 order
regarding electronic discovery.
Plaintiffs first argue that because the American Intex Companies and
the Foreign Entities are related, Intex had the practical ability to
obtain documents from the Foreign Entities. Plaintiffs, though, never
brought a motion to compel these documents. Plaintiffs claim that they
did not know the extent of any relationship until late September, when
Tien Zee was deposed. However, in January 2003, Plaintiffs asked for the
documents in the possession of the Foreign Entities. Moreover, Plaintiffs
knew by May 2003 that Intex would not turn over the requested documents.
Entering findings of copying and willful infringement are serious
sanctions. These findings, if Defendants are found liable for
infringement, would enable Plaintiffs to possibly recover treble
damages. See, e.g., Transclean Corp. v. Bridgewood Servs., Inc.,
290 F.3d 1364, 1377-78 (Fed. Cir. 2002). Under the circumstances, such
drastic sanctions are not warranted. Plaintiffs had at least five months
to bring a motion to compel the requested documents and failed to do so.
Plaintiffs also claim that Intex lied about its involvement in the
design and manufacture of the accused products. According to Plaintiffs,
Intex stated, in an interrogatory response, that it was not involved in
the manufacture, design, or development of the accused products.
Plaintiffs further contend that Tien Zee saw the Aero mattress and had
the Foreign Entities make a copy.
However, entering a finding that Intex copied and willfully infringed
Aero's patent would be a disproportionate sanction for Intex's alleged
failure to comply with its discovery obligations. As Plaintiffs concede
in their reply, Intex is correct in asserting that reviewing competitors'
products does not prove copying. "[O]ne wonders how to distinguish between
the intentional copyist making minor changes to lower the risk of legal
action, and the incremental innovator designing around the claims, yet
seeking to capture as much as is permissible of the patented device."
Warner-Jenkinson Co. v. Hilton Davis Chemical Co., 520 U.S. 17, 36
Lastly, Plaintiffs assert that Intex's conduct during Tien Zee's
deposition was improper because Tien Zee would not answer questions about
the ownership of the Foreign Entities because of privacy concerns.
However, entering conclusive findings of copying and willful infringement
would be a disproportionate and inappropriate remedy for this alleged
refusal to answer deposition questions, particularly when Plaintiffs
failed to take any steps to compel answers. Also, Plaintiffs have not
shown any connection between ownership of the Foreign Entities and the
alleged copying and infringement of the patented products.
Furthermore, awarding fees and costs for deposing Tien Zee would not be
appropriate; it appears the parties reached a good-faith dispute over the
ownership of the Foreign Entities during the deposition. Plaintiffs made
no attempt to resolve this dispute by filing a discovery motion.
Accordingly, Plaintiffs' motion seeking sanctions for the failure to
comply with documentary discovery requests is denied.
Plaintiffs' request for sanctions concerning electronic discovery is
also denied. The order requiring Intex to make a full and complete
undertaking to recover any and all destructed
electronic documents was issued on April 1, 2003. Intex first attempted
to comply with that order in May 2003. Aero found Intex's submissions
unacceptable. Aero then attempted to negotiate with Intex over the
appointment of a computer forensics expert.
However, at no time did Aero file a petition, as was its right under
the April 1, 2003 order, seeking the appointment of a computer forensics
expert to assist in recovering electronic data. Plaintiffs were also
entitled to request that Intex bear the costs of the computer forensics
expert. Instead, Plaintiffs did nothing further before they filed the
present motion for sanctions, on October 15, 2003. Plaintiffs waited over
seven months to bring this mater before the Court, It would also be
unjust to award these sanctions now. Accordingly, Plaintiffs' motion
seeking sanctions for Intex's alleged failure to comply with the April 1,
2003 order regarding electronic discovery is denied.
For the foregoing reasons, Plaintiffs' Motion for Sanctions is denied.
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