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Trademark Disputes, Litigation Holds, and the Duty to Preserve

June 26, 2017Litigation

Picture of a server room with text "trademark counsel's duty to preserve"

The legal principles relating to litigation holds are not trademark specific. But it is clear that the rules requiring a party and its counsel to implement a litigation hold apply equally to trademark infringement litigation. These are rules that a trademark owner and its trademark counsel—both trademark prosecution and trademark litigation counsel—should know. They should know these rules because they are easy to run afoul of and, in fact, most trademark owners and their counsel are not fully complying with litigation hold requirements. Litigation holds are not being implementing early enough (or, in some cases, at all), are not being implemented properly, and are not being monitored for compliance.

A Litigation Hold Must Preserve All Relevant Documents

You can't half-@$$ a litigation hold. "Once the duty to preserve attaches, a party must suspend any existing policies related to deleting or destroying files and preserve all relevant documents related to the litigation." Compass Bank v. Morris Cerullo World Evangelism, 104 F. Supp. 3d 1040, 1053 (S.D. Cal. 2015). And "making 'some efforts' to preserve documents does not meet this obligation; implementation of a full litigation hold to ensure preservation of relevant documents is required." Blumenthal Distrib., Inc. v. Herman Miller, Inc., 2016 U.S. Dist. LEXIS 184932, *33 (C.D. Cal. 2016); Apple Inc. v. Samsung Elecs. Co., Ltd., 888 F. Supp. 2d 976, 991-92 (N.D. Cal. 2012).

The Duty to Implement a Litigation Hold Can Arise Before a Trademark Infringement Lawsuit Has Been Filed

The General Rule: When a Potential Claim Is Identified

Most lawyers are late to litigation hold party. Most do not implement a litigation hold until a lawsuit has been filed and their client has been served with the complaint. That may already be too late.

The general rule is that the duty to preserve documents and implement a litigation hold arises as soon as a potential claim is identified:

A party must preserve evidence it knows or should know is relevant to a claim or defense of any party, or that may lead to the discovery of relevant evidence. The duty to preserve arises not only during litigation, but also extends to the period before litigation when a party should reasonably know that evidence may be relevant to anticipated litigation.

Blumenthal, 2016 U.S. Dist. LEXIS 184932, at *32.

In the trademark context, several courts have held that the duty to implement a litigation hold arises upon receipt of a cease and desist letter. Id., at *33 ("The court finds OS's duty to preserve attached on December 13, 2013, when HM sent OS a cease-and-desist letter alleging the Accused Chairs infringed on HM's Aeron and Eames style chairs' registered and unregistered trade dress rights."). However, given that the duty arises when a party should reasonably know about a potentially claim, the duty to implement a litigation hold could be triggered even before a cease and desist letter is received.

Do TTAB Proceedings Trigger Litigation Holds?

There appears to be only a single Trademark Trial and Appeal Board ("TTAB") case that even mentions litigation holds. Although a litigation hold was not the central issue in Frito-Lay v. Princeton Vanguard, the TTAB missed a golden opportunity to chime in and make it clear that litigants in a TTAB proceeding are also under a duty to issue litigation holds to preserve discoverable information.  Frito-Lay North America, Inc. v. Princeton Vanguard, LLC, 100 USPQ 2d 1904, 1907 n. 8 (TTAB 2011). In Frito-Lay, the applicant argued that the opposer's search for responsive electronically stored information ("ESI") was inadequate. The TTAB began its discussion by reciting some general principles, including that discovery is treated differently in TTAB proceedings than in federal court because the scope of discovery is narrower. Interestingly, the TTAB dropped a footnote that the opposer admitted to not instituting litigation holds when TTAB proceedings are commenced (although it apparently did put a hold in place at some later point). For some reason, the TTAB did not take the opportunity to clarify for opposer (and other TTAB litigants) that the duty to institute a litigation hold applies in TTAB proceedings.

Although the TTAB has not chimed in on litigation holds, it is well-established that the Federal Rules of Civil Procedure apply to TTAB oppositions and cancellations. 37 CFR § 2.116. And as discussed above, federal courts have interpreted the Federal Rules of Civil Procedure to require a party to put a litigation hold in place once a potential claim is identified or a party reasonably anticipates litigation.

There also do not appear any federal cases that discuss whether a TTAB opposition or cancellation proceeding triggers a litigation hold. However, there are federal cases that hold that a cease and desist letter is sufficient to trigger a litigation hold. Clearly, filing an opposition or cancellation proceeding is substantially more consequential than sending a demand letter. Moreover, even if the scope of discovery is narrower in TTAB proceedings, TTAB proceedings often lead to litigation in federal court. One or both of the parties may decide to file in federal court and suspend the TTAB proceeding pending the outcome of the federal lawsuit or the TTAB's decision can be appealed de novo in federal district court. 15 U.S.C. § 1071. As such, it seems that, if a TTAB proceeding is commenced, both parties should be under a duty to institute a proper litigation hold. However, until such a duty (and the scope of such a duty) is made explicit, this may be another reason to opt for federal litigation rather than TTAB litigation.

Trademark Attorneys Cannot Abdicate Responsibility for Litigation Holds

Trademark attorneys—like all other attorneys—have a duty to put in place a litigation hold that is tailored to the client and the particular lawsuit (or anticipated lawsuit). HM Elecs., Inc. v. R.F. Techs., Inc., 2015 U.S. Dist. LEXIS 104100, *56 (S.D. Cal. 2015). This means that the attorney has to make sure the client understands what to do and has to make sure that the client actually takes the steps to preserve evidence.

This is not an insignificant burden. The attorney needs to make sure the litigation hold is directed to the appropriate employees/individuals, tells them what the case is about, identifies the categories of documents to be preserved, and is conveyed in a manner that ensures recipients read and follow it.

This, in turn, means that an attorney has to become familiar with the client's information systems and digital data, including social media. In California, the State Bar of California issued Formal Opinion No. 2015-193, which states that the "[p]rompt issuance of a litigation hold may prevent spoliation of evidence, and the duty to do so falls on both the party and outside counsel working on the matter." The Opinion states that an attorney should be able to competently (1) initially assess e-discovery needs and issues, (2) implement appropriate ESI preservation procedures, (3) analyze and understand a client's ESI systems and storage, (4) advise the client on available options for collection and preservation of ESI, (5) identify custodians of potentially relevant ESI, (6) engage in a meaningful meet and confer with opposing counsel regarding an e-discovery plan, (7) perform data searches, (8) collect responsive ESI in a manner that preserves its integrity, and (9) produce responsive, non-privileged ESI in a recognized and appropriate manner. Now, of course, some of these categories of responsibilities relate to production rather than preservation. But 1-5 and 7-8 appear to be required in order to implement a proper litigation hold. That's a lot to get your hands around. The Opinion does say that, if an attorney lacks the experience or ability to competently handle these obligations, he can use experienced e-discovery counsel or an expert consultant to assist with the process.

And this is not something that can just be implemented, put on autopilot, and forgotten about. "After a litigation hold has been implemented, counsel has a continuing duty to monitor a client's compliance with a litigation hold." HM Elecs., 2015 U.S. Dist. LEXIS 104100, at *57.

No Litigation Hold = Spoliation = Sanctions

Failing to institute a timely litigation hold is sanctionable conduct. Obviously, whether sanctions are imposed and the severity of sanctions will depend on the particular facts and circumstances of a given case. But sanctions are in play.

Spoliation is the destruction or significant alteration of evidence or the failure to preserve property for another's use as evidence in a pending or reasonably foreseeable litigation. Blumenthal, 2016 U.S. Dist. LEXIS 184932, at *50-51. The standard of proof for spoliation is preponderance of the evidence. Id. Notably, the spoliation can be considered willful if the party had some notice that the destroyed evidence was potentially relevant to litigation. Id., at *57. Once spoliation is shown, a federal court may impose sanctions pursuant either to FRCP 37(e) or its inherent power. Id., at *54.

These sanctions can range from the rare and drastic terminating sanction of entering judgment against the party who failed to implement a litigation hold to a less drastic sanction consisting of an adverse inference jury instruction regarding the spoliated evidence. Id., at *50-75.

The Last Word

Implementing a litigation hold when the duty first arises presents challenges in the trademark context. Many trademark disputes begin with a trademark owner sending a cease and desist letter to the alleged infringer or its counsel. If the recipient is the infringing party itself, then the recipient is most likely not an attorney and is probably unaware that the cease and desist letter may have triggered the duty to implement a full litigation hold. And if the recipient is the infringing party's counsel, the attorney is often not a litigator (e.g., a trademark prosecution attorney) and may also be unaware that a litigation hold may need to be put in place. Therefore, the first challenge is that many parties and their counsel simply don't know that a litigation hold may be triggered as early as the first cease and desist letter (theoretically, it could be triggered earlier than that too if a potential claim is identified before then).

However, even if a party or its counsel manage the first hurdle and realize the need to implement a litigation hold, carrying out an effective litigation hold is a costly and monumental task. Given the significant responsibility that the law places upon counsel, significant legal fees are going to be incurred if counsel to properly implement a litigation hold - becoming familiar with a client's information systems, identifying custodians, crafting the parameters and logistics of the hold, preparing and issuing the written notices, and monitoring compliance are not tasks that can be accomplished in just a few billable hours. Most clients are probably unwilling to spend the attorneys' fees necessary to properly implement a litigation hold before a lawsuit is even filed. This, in turn, puts counsel, who is also under a duty to preserve evidence, in an awkward and unclear position. What exactly are counsel's responsibilities and options in such circumstances?

Separate and apart from that, litigation holds present other interesting issues and opportunities. Assuming a party is itself in compliance with the laws of litigation holds, it may be able to leverage the other side's failure to comply with such rules during litigation by seeking spoliation sanctions. Such a motion may be made stronger if, at the time a cease and desist letter is sent, the letter specifically references and puts the recipient on notice that it is under a duty to implement a litigation hold (by providing such notice, the recipient's subsequent failure to institute a litigation hold could be deemed willful). Likewise, a recipient may want to address the parameters of an appropriate litigation hold with the sender to avoid allegations of spoliation (i.e., conducting a pre-litigation meet and confer on the preservation of evidence). These types of considerations and tactics can change the dynamics of disputes in both pre-litigation and litigation.

In other words, trademark counsel should work on stepping up their litigation hold game.

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