From the January 27, 2006 print edition Knowing when to discard old records Recent court ruling in Rambus Inc. case sheds some light on thorny issue Andrew F. Hamm
What to do with old e-mails and other electronic correspondence is an increasing headache for Silicon Valley companies.
But a recent federal court ruling on pretrial motions says lost records shouldn't hurt a company involved in litigation as long as a pre-determined document retention plan was in place.
South Korea-based Hynix Semiconductor Inc. was rebuffed in its attempt to get a court to dismiss a patent infringement case filed against it by Los Altos-based Rambus Inc. Hynix attorneys claimed Rambus should have known it would be involved in lawsuits and retained some key e-mails.
San Jose-based U.S. District Judge Ronald White ruled Jan. 5 that companies have a right to discard documents even if it could be reasonably assumed that a lawsuit will occur sometime in the future, as long as the process is done without a deliberate attempt to destroy potentially incriminating evidence.
The Rambus case is expected to attract a lot of attention in Silicon Valley because attorneys are increasingly using the "unclean hands" defense employed by Hynix -- essentially a claim that the other side has deliberately or by neglect destroyed documents -- to get a patent case dismissed. Now they may have to switch their strategy.
Rambus sued Hynix in 2000, claiming the company infringed on its RD RAM technology. Rambus general consul John Danforth said that Rambus has copies of all documents related to the Hynix case. Hynix, which has a West Coast factory in Eugene, Ore., did not return Business Journal telephone calls.
The fact that Rambus had an document retention program in place before legal action was taken was enough to have Hynix's claims dismissed, according to a legal expert.
"The bottom line is that it is OK to have a documents retention program," says Eugene Ashley, an attorney with San Jose-based Hopkins & Carley who specializes in business disputes and intellectual property claims. "The ruling should be a signal that it is not too late to develop a policy even if you expect to get involved in a lawsuit as long as it is handled in an even-handed manner."
Rambus has filed lawsuits against 11 companies in the United States and several more in Europe, including Alberta Communications, Micron and Samsung, and recently settled a case with Infineon. Rambus has been very aggressive in the courts since 2000 when, Rambus claims, a group of semiconductor companies conspired to force its memory chips off the market by boycotting it and then fabricating its technology. Altogether, Rambus claims' exceed $1 billion. Rambus primarily develops DRAM-based technology that it licenses to various semiconductor businesses.
Rambus reported a profit of $9.4 million for the fourth quarter on revenue of $41.6 million.
The fact that Rambus has been extremely aggressive in defense of its patents apparently had no bearing on the case, Mr. Ashley says.
The Federal Judiciary is in the process of amending its Rules of Civil Procedure for handling record retention policy and "unclean hands' defense because of the caseload increase, Mr. Ashley says. Known as "Rule 26," new guidelines are expected to be published before the end of the year.
"Right now, the advice is, when in doubt keep it," Mr. Ashley says.
But there is a growing recognition that the amount of electronic correspondence and paperwork a corporation accumulates is too much to adequately store and manage.
"Federal courts are understanding that there need to be some standards and practices in place," Mr. Ashley says. "The question is: What is reasonable?"
Currently, most banks and brokerage firms are required under Securities and Exchange Commission regulations to keep most correspondence -- including e-mails and instant messages -- for a minimum of three years. No timeline exists for public or private businesses.
Currently, just one of every three companies has an adequate record detention policy in place, according to a survey by the Association for Information and Imaging Management.
The issue became a hot topic in the business and legal community earlier this year when a $1.45 billion judgment was won by billionaire investor Ronald Perelman against Morgan Stanley when the brokerage firm couldn't locate various old e-mails sought in the discovery process.
Mr. Perelman alleged that Morgan Stanley withheld information when it facilitated the sale of his Coleman Co. to Sunbeam Corp. in 1998. Sunbeam entered into bankruptcy protection in 2001, making Sunbeam stock Mr. Perelman received in the Coleman deal worthless.
In the Rambus vs. Hynix case, Hynix requested more than 1 million pages of documents.
While the ruling is a clear victory for Rambus in its patent-infringement case, Hynix is not without options, says Lance Jon Kimmel, founder of the Los Angeles-based SEC Law Firm.
Since Rambus' record retention policy involves destroying most materials after three months, Hynix can still argue at trial that the policy is unnecessarily aggressive, Mr. Kimmel says.
"Hynix is not neutered," Mr. Kimmel says. "But Rambus is in the driver's seat."
Market Data 
Markets 
AI
