A California federal district court judge recently issued a contempt citation and sanction award of $73,000 against a defendant in a trade secret misappropriation dispute for violating a court order to preserve evidence pending a hearing on a temporary restraining order. The case is Amron International Diving Supply, Inc. v. Hydrolinx Diving Communication, Inc., No. 11-CV-1890-H (S.D. Cal. Feb. 22, 2012) (Dkt. No. 76). The court’s decision illustrates both the need for employers to conduct early forensic investigations of employees’ computer hardware when suspected of stealing trade secrets, and the hefty sanctions that can be imposed on defendants for the failure to preserve data stored on computer hardware.
Amron brought its trade secrets suit against defendants Saad Sadik and Hydrolinx, a newly-formed, competing company established by Sadik shortly after he was terminated by Amron in 2010. Based upon information Amron obtained indicating Sadik allegedly stole trade secrets, destroyed electronic data and then attempted to “cover [his] tracks,” Amron sought an ex parte temporary restraining order on August 23, 2011. The court scheduled a hearing and ordered the parties to preserve all evidence in its possession. At the hearing on August 31, 2011, the court granted the TRO, ordering defendants to produce all computers and media in their possession for forensic inspection and further ordering defendants to provide a written declaration attesting that, among other things, Sadik had not deleted any data since being served the order to preserve evidence.
Forensic analysis of the three produced computers established that days after being served the preservation order, defendant installed a Digital Document Shredder (“DDS”) software program on two computers, permanently destroying all data on both. Defendant had also purchased a brand new hard drive two days after the preservation order and installed the hard drive in a third computer sometime thereafter. Amron’s forensic inspection indicated Sadik manipulated the computer’s system clock to make the newly-installed hard drive appear to have been installed a month before the order.
Amron sought sanctions against defendants for the use of the DDS software to wipe the computer, the destruction or hiding of another hard drive, and the manipulation of the computer system clock. Amron also filed a motion for contempt because of defendants’ refusal to produce additional computer hardware, including a portable hard drive, an additional computer, and several USB devices, which the court had ordered the defendant to produce. Though defendant offered “some excuses” to justify his actions, the court concluded monetary sanctions and contempt were appropriate for the defendants’ willful violations of the order to preserve evidence. The calculation of the $73,000 award was based upon the attorney’s fees associated with investigating the defendant’s violations, the attorney’s fees for bringing the motion for contempt, and the costs incurred to retain a computer forensic consulting firm.
The Amron decision serves as an important reminder of the extent to which parties to trade secret litigation may be liable for failing to preserve and protect electronic data. The case also illustrates the need for early forensic analysis to determine the extent of data preservation or lack thereof.