Data Retention Policies – Not Just a Method for Keeping Documents

November 4, 2009

    Authored By: Matthew Utermark

    Citation: Philip M. Adams & Assoc., LLC v. Dell, Inc., 2009 WL 910801 (D. Utah Mar. 30, 2009)

    Employee/Employer Implicated: Upper Management

    e-Lesson Learned: Data retention policies and procedures not only serve as backups to a system, but also can be effectively used to dictate the measures to be taken by employees to help preserve evidence and prevent spoliation claims.

Imagine you are an executive of a computer company that keeps experiencing defects in what is known as a floppy disk controller (FDC), a part in most personal computers.  You decide that a technology needs to be developed to detect and resolve these defects.  But someone else has already developed similar technology.  However, even more alarming is that the computer company has a limited information management and data retention policy.

Dr. Philip Adams found himself in this precarious situation when he brought a patent infringement action against ASUSTEK Computer, Inc. and ASUS Computer International (collectively hereinafter “ASUS”) alleging spoliation of relevant evidence.  Adams claimed that ASUS should be sanctioned due to the spoliation claims.

It all began in the late 1980s, when Dr. Adams developed a patent to resolve defects discovered in FDCs.  Previous alleged misuse resulted in several lawsuits, including litigation against Gateway that settled.  The current case arose when Dr. Adams alleged patent infringement and that ASUS had destroyed critical evidence.  Dr Adams allegations of spoliation were based on his assumption that ASUS had obtained Adams’s test programs and used them to address its own defects and develop its own technology.  During the trial, ASUS produced limited evidence and Dr. Adams claimed that ASUS’ failure to produce evidence was indirect evidence of spoliation.

ASUS’ main response was that its information management and data retention policies explained the absence of evidence.  ASUS claimed that its servers were not designed for archival purposes and that any e-mails of long term value were preserved locally.  However, a determination of long term value was left to the individual employees.  Another hurdle in producing evidence was that computers were routinely replaced and any information not saved was erased.  Lastly, ASUS had no centralized storage for other electronic documents, choosing instead to allow employees to maintain the documents on their individual work stations.

The Court’s threshold issues for spoliation were establishing (a) that evidence has been lost, destroyed or made unavailable and (b) that the party against whom sanctions are sought had a duty to preserve the evidence.

The Court reasoned that ASUS should have had far more evidence, especially based on its assertion that its information management practices did not restrict destruction before 2005 (the date at which ASUS claims it thought that litigation might ensue).  The Court rejected ASUS’ assertion, however, that its duty to preserve began in 2005.  Instead, the Court determined that the duty to preserve arose between 1999 and 2000, when several lawsuits were ongoing regarding floppy disk errors.

The Court rejected the safe harbor argument by ASUS because the document management practices were not reasonable or in good faith due to its reliance on individual employees.

In considering the appropriate sanctions, the Court considered the culpability of ASUS in the loss of evidence.  It relied on the Sedona Guidelines, which state that “[a]n organization should have reasonable policies and procedures for managing its information and records.”  As a result, the Court found that ASUS should bear responsibility for the absence of evidence that it was deemed expected to possess and that the lack of viable data retention policies and practices contributed to the loss of significant data.

Overall, the Court reasoned that ASUS violated its duty to preserve because the loss of evidence did not result from the “routine, good faith operation of electronic information systems.”  Therefore, it just goes to show you that a company should implement effective data retention policies and procedures in order to preserve evidence to prevent spoliation claims.

Matthew is a magna cum laude graduate of Seton Hall University, where he received a B.S. degree with a concentration in Accounting, and is currently a third year student at Seton Hall Law.

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    January 7, 2010 at 2:37 PM

    A remarkable aspect of the Adams case is that the court issued sanctions, even though it could not confirm that any particular relevant evidence had been destroyed. http://legal-beagle.typepad.com/wrights_legal_beagle/2009/07/court-trashes-corporations-record-retention-and-destruction-policy.html

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    Mike G says:
    February 10, 2010 at 8:35 PM

    Would a similar policy ever be reasonable? The court found that the ASUS policy of giving individual employees the power to decide whether or not to retain documents was not effective, but what about for smaller businesses? To me, such a document retention policy seems reasonable for a business consisting of only a few employees.

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