A federal court ordered telecom giant Qualcomm Inc. to pay $8.6 million in sanctions and asked the California state bar to investigate six of its attorneys for ethical violations after finding that it deliberately withheld nearly 50,000 documents from discovery in a patent dispute with rival Broadcom Corp.
In her Jan.7, 2008, order, U.S. Magistrate-Judge Barbara L. Major also ordered Qualcomm and its attorneys to undertake a comprehensive review of discovery failures in the case and develop a case-management protocol that will avoid similar scenarios in future cases.
"The Court’s review … leads this Court to the inevitable conclusion that Qualcomm intentionally withheld tens of thousands of decisive documents from its opponent in an effort to win this case and gain a strategic business advantage over Broadcom," Magistrate-Judge Major wrote in her 48-page ruling.
The discovery violations first came to light during the trial in San Diego of Qualcomm's case against Broadcom alleging infringement of two patents related to products that used the H.264 video-compression standard.
A key Broadcom defense was that Qualcomm had waived enforceability of the two patents through its participation in the Joint Video Team – the standards-setting body that created the H.264 standard. Prior to trial, Broadcom submitted a series of discovery requests asking about Qualcomm's participation in the JVT or any other standards-setting body.
Qualcomm insisted it had not participated in the JVT prior to adoption of the H.264 standard. As the case progressed, Qualcomm "became increasingly aggressive" in denying its JVT participation, Magistrate-Judge Major found.
"This argument was vital to Qualcomm's success in this litigation," she noted, "because if Qualcomm had participated in the creation of the H.264 standard, it would have been required to identify its patents that reasonably may be essential to the practice of the H.264 standard … and to license them royalty-free or under non-discriminatory, reasonable terms."
Magistrate-Judge Major's ruling found that Qualcomm's lawyers failed to search key employees' computers for e-mails or documents relevant to Broadcom's discovery requests. But as the case neared trial, a Qualcomm lawyer discovered 21 e-mails on the laptop of one employee, Viji Raveendran, showing her participation in a JVT-related e-mail list that discussed the development of the H.264 standard. Qualcomm's lawyers decided not to produce these e-mails to Broadcom.
At trial, during Broadcom's cross-examination of Raveendran, its lawyer "asked the right question," as the magistrate-judge put it, and forced the witness to admit that she had received these e-mails. Later that day, Qualcomm produced the 21 e-mails.
The trial continued and the jury returned unanimous verdicts in favor of Broadcom on the non-infringement issue and in favor of Qualcomm regarding the validity of the patents. But after the trial was over, the trial judge, Rudi M. Brewster, issued a finding that Qualcomm had sought "to profit heavily" by concealing its patents while participating in the JVT and then "actively hiding this concealment" during the litigation.
Through this misconduct, Judge Brewster ruled, Qualcomm had waived its right to enforce its patents. He ordered it to pay Broadcom's attorneys' fees and costs of $9.3 million and post-judgment interest on the fee award of $8.6 million. Judge Brewster then referred the matter to the magistrate-judge to consider sanctions.
Even after trial, the magistrate-judge noted, Qualcomm continued to insist that the Raveendran e-mails were irrelevant and to resist Broadcom's efforts to determine the scope of its discovery violations. But then, in a sudden turnaround, Qualcomm notified Judge Brewster that it found thousands of relevant documents that it had failed to produce and that the documents "revealed facts that appear to be inconsistent with certain arguments" that it made at trial.
Within a short time, it had located more than 46,000 documents consisting of more than 300,000 pages that it had failed to produce, and it continued to find additional documents for several months more.
"Qualcomm withheld tens of thousands of emails showing that it actively participated in the JVT in 2002 and 2003 and then utilized Broadcom's lack of access to the suppressed evidence to repeatedly and falsely aver that there was 'no evidence' that it had participated in the JVT prior to September 2003," Magistrate-Judge Major wrote.
"Qualcomm's misconduct in hiding the emails and electronic documents prevented Broadcom from correcting the false statements and countering the misleading arguments," she said.
Ironically, in considering what sanctions to impose, the magistrate-judge noted that Qualcomm's deception worked to its benefit. Because Broadcom accepted Qualcomm's representations that its discovery responses were complete, it never filed a motion to compel. Without such a motion, the federal rules allow the court to sanction only the party, not its attorneys.
"Thus, Qualcomm's suppression of documents placed its retained attorneys in a better legal position than they would have been in if Qualcomm had refused to produce the documents and Broadcom had filed a motion to compel," she wrote.
That said, the magistrate-judge ruled that the appropriate monetary sanction against Qualcomm would be for it to pay Broadcom all its attorneys' fees and costs. But because Judge Brewster had already awarded these fees and costs, the magistrate-judge directed that Qualcomm receive credit towards the penalty for any money it paid to satisfy Judge Brewster's award.
As for the six attorneys, the magistrate-judge concluded that they "violated their discovery obligations and also may have violated their ethical duties." To address the possible ethical violations, she referred the attorneys to the state bar "for an appropriate investigation and possible imposition of sanctions."
Finally, the magistrate-judge ordered Qualcomm and the six attorneys to participate in a comprehensive Case Review and Enforcement of Discovery Obligations (CREDO) program.
"This is a collaborative process to identify the failures in the case management and discovery protocol utilized by Qualcomm and its in-house and retained attorneys in this case, to craft alternatives that will prevent such failures in the future, to evaluate and test the alternatives, and ultimately, to create a case management protocol which will serve as a model for the future," she explained.
In a statement following the ruling, Qualcomm said it is considering an appeal of the sanctions order.
Qualcomm Incorporated v. Broadcom Corporation, Case No. 05cv1958-B (S.D. Cal. 1/7/08).