How much does an electronic-discovery disaster cost?

In a recent federal-court case, the answer was a shocking $8.57 million in sanctions against communication-device maker Qualcomm.

The court also ordered Qualcomm and its outside lawyers to sit in the courtroom (not unlike high school detention) until they developed a comprehensive discovery-management plan designed to avoid such e-discovery mistakes in the future. The court also referred six of Qualcomm's outside lawyers to the California State Bar for investigation into possible ethical violations. To aid the investigation, the court identified ethical rules and supporting facts showing possible ethical violations committed by the lawyers.

The case highlights the growing importance of electronic evidence and the dire consequences of not being prepared for e-discovery.

Many companies and law firms, unfortunately, have been slow to accept the additional diligence required very early in litigation to investigate, identify and preserve relevant electronic evidence such as e-mails.

It has been reported that approximately 90 percent of computer-generated records are never printed to paper. In the very near future, practically every civil lawsuit will involve the exchange of electronic evidence. The electronic revolution in litigation is taking place despite the efforts of some companies and lawyers to ignore e-discovery (lawyers are notoriously slow to adapt to change).

As in Qualcomm, the failure to be prepared to meet the specific challenges of electronic discovery can prove disastrous.

Qualcomm's quagmire

In Qualcomm Inc. v. Broadcom Corp. (2008 U.S. Dist. LEXIS 911; S.D. Cal., Jan. 7, 2008), Qualcomm was sanctioned for its failure to produce 46,000 e-mails during discovery. The case deserves a close read because the facts are surprisingly common.

At the heart of the case was the failure of outside and inside counsel to cooperate to identify common locations to search for relevant electronic evidence. When the failure to find relevant e-mails was discovered, outside counsel and the client seemed to work to suppress the bad news. When the lack of production of relevant e-mails was revealed during trial, outside counsel and the client engaged in finger-pointing over who should take the blame.

The case brings to light an important aspect of e-discovery that is often overlooked - the investigation and production of electronic evidence. Most every publicized e-discovery sanction opinion has focused on the failure of companies and outside counsel to work together to avoid the intentional or inadvertent destruction of e-mails and computer-system back-up tapes. In Qualcomm, hundreds of thousands of e-mails were preserved. The problem was that Qualcomm and its outside counsel failed to find 46,000 relevant e-mails on the company's computer system.

Qualcomm is a patent-enforcement case. E-mails were found after trial using very basic search terms such as "JVT" (the short form for an industry group called the Joint Video Team), "H.264" (the short form for the patent involved) and "avc" (the short form for the e-mail list used by the team members to exchange information). Participation in the JVT in 2002 would have prevented Qualcomm from enforcing certain of its patents. A central issue in the case, therefore, became the alleged lack of evidence of Qualcomm's participation in the JVT in 2002.

During discovery, Broadcom repeatedly asked for electronic evidence and testimony showing participation in the JVT. During preparation for a deposition of a Qualcomm witness, an outside lawyer found 21 relevant e-mails relating to the JVT from 2002. Despite Broadcom's pointed discovery demands, these e-mails were not produced. During trial, the existence of the 21 e-mails was revealed during cross-examination. Additional e-mails were produced during trial, and the court ultimately held that the patents at issue were unenforceable due to the evidence of Qualcomm's participation in the JVT in 2002. The award consisted of Broadcom's costs and attorneys fees.

Post-trial, Qualcomm was ordered to search its computer system and the computers of key custodians, resulting in the discovery of an additional 46,000 e-mails directly relevant to participation in the JVT.

The court referred the matter to federal magistrate Hon. Barbara Major to consider Broadcom's oral motion for sanctions. This resulted in a monumental finger-pointing war. Qualcomm filed affidavits from four employees that, in so many words, called its outside counsel incompetent for not asking Qualcomm to search for relevant e-mails and other electronically stored information. Qualcomm then asserted the attorney-client privilege, preventing the outside lawyers from defending themselves. Despite this restriction, no fewer than 19 attorneys filed declarations and briefs in their defense. They asserted that Qualcomm restricted access to its computer system and personnel, prohibiting the outside lawyers from finding the 46,000 e-mails.

The sanctions

Discussing the facts of the discovery disaster, the court pointed to "numerous warning flags" that should have alerted outside counsel to problems. The court believed that "one or more of the retained lawyers chose not to look in the correct locations for the correct documents, to accept the unsubstantiated assurances of an important client that its search was sufficient, to ignore the warning signs that the document search and production were inadequate, not to press (employees) for the truth, and/or to encourage employees to provide the information (or lack of information) that Qualcomm needed to assert its non-participation argument and to succeed...."

The court ordered Qualcomm to pay Broadcom $8.57 million for its "monumental and intentional discovery violation." The court referred six outside attorneys to the California State Bar for investigation. The court also ordered Qualcomm and its outside attorneys to participate in a group exercise called a "comprehensive case review and enforcement of discovery obligations" program. The goal of the CREDO is to force Qualcomm and its lawyers to sit in the courtroom until they develop a discovery-management plan to prevent such flagrant discovery violations in the future.

John Jablonski is a partner at Goldberg Segalla LLP and will participate in a panel discussion on the insurance industry's response to rising e-discovery costs at the DRI Electroncic Discovery Seminar in New York City on April 17-18. He can be reached at jjablonski@goldbergsegalla.com.