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Rosenthal Collins Group, LLC v. Trading Technologies International

February 23, 2011


The opinion of the court was delivered by: Judge Sharon Johnson Coleman

Magistrate Judge Young B. Kim


This matter comes before the Court on defendant and counterclaimant, Trading Technologies International, Inc.'s motion for default judgment and monetary sanctions based on misconduct by plaintiff and counterclaim defendant, Rosenthal Collins Group, LLC, and its counsel [308]. This Court has reviewed the parties' submissions and heard oral argument on the motion on January 7, 2011. For the reasons that follow, the motion is granted.

I. Background

The instant case is one of a several involving Trading Technologies International, Inc.'s ("TT") U.S. Patent Nos. 6,766,304 ("the '304 patent") and 6,772,132 ("the '132 patent") (collectively "the TT patents"). The patents relate to software developed by TT for use in the futures trading industry that allows traders to enter electronic orders. The primary features at issue in the various lawsuits are (i) a "static display of prices," and (ii) a "single action order entry." Plaintiff, Rosenthal Collins Group, LLC, ("RCG") filed this declaratory judgment action contending that the "double-click " functionality of its software is a "single action" that invalidates the TT patents. TT filed corresponding counterclaims alleging patent infringement.

On April 26, 2006, RCG filed a motion for summary judgment claiming TT's patents were invalid as a matter of law because the Wit Capital Digital Stock Market software ("Wit DSM") anticipated TT's patents. RCG's motion asserted that software written in 1998-99 was prior art that invalidated TT's patent applications because it preceded the March 2, 1999, "critical date" for TT's patents. In support of its motion, RCG relied primarily on the declaration of RCG's retained consultant, Walter D. Buist, a computer programmer that developed the source code for the Wit DSM. RCG also supported its motion with an exhibit of removable computer "zip" disks alleged to contain a back-up copy Wit DSM source code originally written by Buist in 1998/1999. RCG claimed that the source code written by Buist at that time contained the features that TT sought to patent, and that Buist had found the exhibit disks in his barn.

Buist was deposed on June 23, 2006. During the deposition, Buist revealed that, contrary to RCG's summary judgment claims, the software code containing the functionality at issue in this case had not been written onto the exhibit disks in the 1998-99 period. Buist stated that the code he found on the disks had not contained that functionality, and that he added it in December 2005. (Buist Dep. I, June 23, 2006, p. 197-198, Dkt. #306-8.) Additionally, Buist made modifications that were required to permit the code to run on current operating systems. Id. Buist further testified that he sent Mr. Geoffrey Baker, counsel for RCG, a CD with a "differences" list that set forth the modifications to the source code. Buist testified that he modified the source code labeled "9902" in a similar manner to add the "double-click " functionality sometime in January 2006. (Buist Dep. I, June 23, 2006, p. 197-198, Dkt. #306-8.)

A. TT's First Motion for Default and Sanctions

Based on Buist's revelation that he had modified the code to add the "double-click " functionality, and the inconsistencies between his declaration for the summary judgment motion and his deposition testimony, on August 10, 2006, TT filed a motion for default judgment and monetary sanctions. (Dkt. # 90.) Notwithstanding Buist's deposition testimony, on March 14, 2007, Judge James Moran found that TT had not presented "clear and convincing evidence that Buist or RCG's counsel willfully and intentionally fabricated evidence to deceive this court or the judicial system." (Dkt. # 142.) However, Judge Moran found that "RCG's motion for summary judgment was somewhat misleading, could be deemed disingenuous, and at the very least was prematurely filed." Id. Based on the evidence before the court at that time, Judge Moran found that "TT had not presented clear and convincing evidence that Buist or RCG's counsel had willfully and intentionally fabricated evidence to deceive this court or the judicial system." Id. Although Judge Moran declined to enter a default judgment, he granted monetary sanctions, struck Buist's declaration, and struck the summary judgment motion with leave to refile. The Court ordered RCG to pay costs for TT's software programming consultant and costs and attorneys' fees associated with the motion for sanctions.*fn1

RCG filed a motion to vacate the sanctions, continuing to defend Buist and the authenticity of its evidence. In opposition to RCG's motion to vacate, TT voiced a suspicion it had had since Buist's first deposition, on June 23, 2006, that the "last modified" dates*fn2 on the zip disks had been altered. In reply, RCG argued that:

"TT provides no evidentiary support for its Oliver-Stone-esque theory that Walter Buist, a disinterested non-party, literally turned back the clock on his computer (a computer that TT examined thoroughly on no fewer than three occasions). There is simply NO evidence to support its libelous charge against Mr. Buist. TT knows that any such attempts will fail because TT knows that the reason the source code files have a last modified date in the 1998 and 1999 time period is because the last time the zip prefix files were modified was in 1998 and 1999." (Dkt. # 204.)

Judge Moran denied RCG's motion to vacate the sanctions on July 17, 2007. In denying the motion, Judge Moran reiterated his prior ruling and emphasized that, while he did not dismiss the case as requested by TT, "throughout the opinion [the Court] labeled RCG's conduct as, alternatively, 'somewhat misleading,' 'disconcerting,' 'troubling,' 'less than forthcoming,' and a 'poor strategic decision.'" (Dkt. # 225.) Judge Moran when on to state, "Contrary to RCG's argument, we did not, nor do we now, believe that RCG's actions were merely mistakes or slight errors in judgment. At best, they were grossly negligent... Any attempt by the court to soften the tone of its disapproval should not be mistaken for leniency. RCG's actions were improper and we sanctioned it accordingly." Id.

After ruling on TT's first motion for sanctions, Judge Moran granted TT's request for further discovery. On March 27, 2007, TT filed its first motion to compel documents and equipment that it had requested following the deposition of Buist in June 2006, and also a second deposition of Buist. (Dkt. # 146.) In its May 16, 2007, order granting TT's first motion to compel, the Court noted that TT had waited nearly nine months for a response to its letter to RCG requesting production of material following Buist's deposition in June 2006. (Dkt. #168.) The Court compelled RCG to produce ten categories of documents and materials, including thumb drives (USB keys), and three computers ("the personal Dell laptop," "the IBM ThinkPad," and "the test machine") that Buist had testified that he had used to "recompile" the source code from the zip disks he found in his barn. Id. The Court also ordered a second deposition of Buist. RCG failed to comply with that order. On September 3, 2007, TT moved to show cause. RCG opposed the motion, claiming that it believed all discovery was stayed pending an appeal in the related eSpeed case. On July 17, 2008, the Court once again gave RCG the benefit of the doubt and denied TT's motion to show cause. (Dkt. #227.) Instead of issuing further sanctions, the Court directed RCG to produce the materials outlined in the Court's May 16, 2007, order within 14 days and to set a mutually agreeable date for Walter Buist's deposition. Id.

RCG produced the personal Dell laptop ("declaration machine")*fn3 and all the zip disks for inspection within the 14-day period. On August 8, 2008, RCG produced the USB thumb drives, the personal Dell, and IBM ThinkPad for imaging by TT's designated forensic company, Impact Forensics ("Impact"). RCG still had not produced the "test machine." By agreement, Impact held the images in escrow and provided file listings from which TT could request particular files from RCG. Due to the numerous objections made by RCG to TT's requests for files, TT again sought the Court's assistance to obtain full images of the devices. On November 6, 2008, Judge Milton Shadur, substituting for Judge Moran, ordered RCG to produce the images to TT in their entirety on an "Attorneys-Eyes-Only" basis under a protective order. RCG still had not provided the test machine or an agreeable date for Buist's second deposition. On March 3, 2009, Judge Amy St. Eve, substituting for Judge Moran, ordered that Buist be produced for a second deposition by April 17, 2009. Buist was finally produced for a second deposition on June 11, 2009.

At his second deposition, on June 11, 2009, Buist admitted that he had, in fact, turned back the clock on his computer when he was overwriting the source code on the zip disks with modified code, to make it appear that the files on the zip disks had last modified dates in 1998 and 1999 when, in fact, the actual last modified date should have been 2006. (Buist Dep. II, June 11, 2009, 36:5-38:2, Dkt. #306-14.) For one zip disk, Buist changed the clock to November 1998, for another he changed the date to February 1999, and for another he changed the date to April 1999. Id. at 37:12-19, 39:10-17, 40:11-41:10. Notably, Buist testified that he knew that if he changed the date back no one would be able to tell that the files had been modified in 2006. Id. at 42:21-43:6.

TT's computer forensic analyst, David Klausner, stated that there was no valid technical reason for Buist to change the last modified dates. (Klausner Decl., Dkt. # 306-15, at ¶ 14.) According to Klausner, a forensic analyst likely would first look at the original source of the files, i.e., the original zip disks as shown in Exhibit F of Buist's Declaration. Id. at ¶ 8. An analyst would find that the original four zip disks all had dates consistent with Buist's testimony because they were all dated 1998 and 1999. Id. at ¶ 10. Once the analyst located the original source code, he would compare that code to the code used to generate the videos of the Wit DSM (the files in the "wit directories" on the declaration laptop also cited in RCG's summary judgment motion) to ensure that there were no relevant differences. Id. at ¶ 13. Klausner indicated that a comparison of these two sets of files would lead him to conclude that "no changes would be found in the order entry methods between the two versions of these source code files." Id.

While the Wit DSM directories include a handful of last modified dates of 2006, Klausner stated that one would likely assume that those files with 2006 dates reflect the few changes that were necessary to recompile the code and be able to run it on current systems. Id. None of the files dated 2006 contained different order entry functionality from the "double-click " that RCG claimed was in the original code. Id. From Klausner's perspective, if TT's analyst conducted a normal comparison of the files that appeared to be relevant, TT may not have discovered the code modifications because the code on the zip disks had every indication of being the original source code. Buist's Declaration and RCG's motion for summary judgment gave no indication that the code had been modified. (Dkt. # 62.)

In addition to revealing that the last modified dates on the source code files had been changed, the discovery conducted since the 2007 sanctions order also revealed that the various disks, USB drives and computers that RCG finally produced had been "wiped."*fn4 It is undisputed that the additional discovery has shown that all seven of the zip disks cited by RCG in its summary judgment motion were wiped. TT's forensic expert discovered the wiping because the wiping tools leave behind a "fingerprint" that may be detected by certain forensic tools. (Klausner Decl., Dkt. # 306-15, at ¶ 21.) At his second deposition, Buist admitted that he used a wiping program and that the purpose of his wiping was "[t]o make sure that any files on there were not recoverable other than the ones that I put on there." (Dkt. # 306-14, Buist Dep. II at 95.) At oral argument on the present motion for default and sanctions, counsel for RCG asserted that Buist is a very private person and that he wiped the disks because they also contained personal files that he did not want disclosed, such as his wife's tax return. By overwriting the code that had been there when he allegedly found the disks in his barn and then wiping them with BC Wipe or Cyberscrub, Buist insured that no one would be able to know what was actually on those zip disks that he found. The zip disks were thus put forth by RCG as containing "a copy of the DSM source code modules that were on [Buist's] computer on or about November 3, 1998." Indeed, the zip disks were then consistent with RCG's position that the code on the disks contained the double-click functionality, last modified in 1998/1999, with the only inconsistent files being those that were necessary to compile the code on contemporary computers.

B. TT's Second Motion for Default and Sanctions Based on the revelations that occurred during the additional discovery, on September 4, 2009, TT filed the current motion for default and sanctions. [Dkt. # 308.] In the present motion, TT moves for entry of default judgment and monetary sanctions against RCG and its counsel, pursuant to this Court's inherent powers, Federal Rule of Civil Procedure 37, and 28 U.S.C. § 1927. TT argues that in light of the newly discovered misconduct, monetary sanctions alone are insufficient. TT alleges the following misconduct:

(1) Buist altered the last modified dates for the source code files that he copied onto the zip disks he found in his barn, effectively back-dating the code to before ...

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