Gross bad faith can result in severe sanctions

Gone but Not Forgotten

Author: Victoria Ferenz
Case Citation: Organik Kimya, San. ve Tic. A.S. v. ITC, 848 F.3d 994 (Fed. Cir. 2017)
Employee/Personnel/Employer Implicated: Employees
eLesson Learned: Once the investigation began, they had a duty to preserve all evidence relevant to the investigation. Acting in bad faith as it relates to preserving evidence may result in the most severe of sanctions.

In Organik Kimya v ITC, Organic Kimya is appealing a decision that imposed sanctions against them for spoliation of evidence and entering a limited exclusion order against them. This case involved trade secrets regarding paint additives that increased the paint’s opacity. Dow, the market leader in supplying opaque polymers to paint manufacturers in the United States, has maintained their position through trade secret and patent protections. They claimed that the Organik Kimya opaque polymer products infringed Dow’s protections. During the investigation, the ITC found multiple counts of trade secret appropriation, spoliation of evidence, and severe bad faith.

The characters in question include former Dow employees Dr. Dilip Nene, Dr. Guillermo Perez, and Leonard Strozzi.

Dr. Dilip Nene

Dr. Nene had engaged in various technical discussions with Organik Kimya, and when the investigation began, Organik Kimya attempted to purge all of their emails back and forth.  Dr. Nene also removed the hard drive from his personal computer, smashed it with a hammer, and threw it in the garbage. He testified that he did this so that the information on the drive could not be recovered. Additionally, he destroyed a bag full of zip drives.

The ALJ found that Organik Kimya had the ability to control Dr. Nene’s acts and that they failed to act responsibly to preserve Dr. Nene’s information. This reckless disregard of their duty to preserve led the judge to believe that it was Organik Kimya’s deliberate plan to destroy the evidence.

Dr. Guillermo Perez

A few days after the investigation began, Organik Kimya began overwriting Dr. Perez’s laptop’s hard drop by copying the Program Files over 108 times. They also backdated the computer’s clock so that the metadata on the copied files would hide the fact that the overwriting had taken place so recently. Additionally, they used a program called WinHex to make sure that no deleted items could be recovered. Although Organik Kimya claimed that this was “simply maintenance,” the ALJ found that these actions made it impossible to know the exact volume and content of any previously recoverable data. Organik Kimya acted in bad faith by undertaking this massive spoliation of evidence on Dr. Perez’s computer. The ALJ found that the evidence was destroyed with the intent to impair Dow’s ability to prove its allegations of trade secret misappropriation.

Leonard Strozzi

Four days prior to a scheduled forensic examination of Strozzi’s computer, someone logged onto the computer and deleted over 2,000 files and folders. There was also evidence of numerous undisclosed and unproduced USB storage devices used on Strozzi’s computer. However, before any further investigations, Strozzi took his computer bag, with his computer and storage devices inside, and “accidentally” left it in the bathroom of a highway rest stop.

The ALJ found that Organik Kimya had control over Strozzi’s laptop and that deletion of files evinces an attempt to cover-up wrongdoing. Additionally, the ALJ determined that this massive spoliation of evidence was done in an effort to prevent Dow from accessing evidence that would support its allegations, and constituted gross bad faith.

Conclusion

The ALJ determined, “Organik Kimya flouted its obligation to preserve evidence, deliberately destroyed evidence, and then actively attempted to deceive the undersigned as to what it had done. Given: (1) the grave damage Organik Kimya’s deliberate conduct potentially could have on the administration of justice; (2) the need to deter such egregious conduct in the future; and (3) the certain prejudice to Dow, only the strongest remedy is sufficient.” ALJ Order, 2014 WL 5768576 at 2. This willful, bad faith misconduct deprived Dow of its ability to pursue trade secret misappropriation claims.

The Commission determined that the evidence demonstrated that it would have taken Organik Kimya 25 years to develop a commercial opaque polymer comparable to Dow’s one without using Dow’s trade secrets, and therefore found that a 25-year period would be an appropriate length for the exclusion order. Organik Kimya sought an opinion that would allow them to import products developed elsewhere without using Dow’s misappropriated trade secrets, and the Commission allowed this limited exclusion as long as they could prove that they developed the polymers without using any of Dow’s secrets.

Such a severe penalty was imposed on Organik Kimya because of the severity of their mistakes. Once the investigation began, they had a duty to preserve all evidence relevant to the investigation. Instead, they wiped computers, deleted thousands of documents, and “lost” physical evidence. It was this gross bad faith that created such severe consequences, both for punishment and as a deterrent effect.

Victoria Ferenz is a third year at Seton Hall University School of Law, focusing her studies in the area of Patent Law. She received her B.S. in BioMedical Science from Quinnipiac University. After graduation, Victoria will be clerking in the Superior Court of New Jersey.

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