Elite Semiconductor, Inc. v. Anchor Semiconductor, Inc.

Background

Elite Semiconductor, Inc. filed a second motion for discovery sanctions against Anchor Semiconductor, Inc. and Chenmin Hu in this trade-secrets case. Elite requested either terminating sanctions—sanctions that would end the case—or instructions allowing an adverse inference, meaning a factfinder could draw negative conclusions from the alleged discovery misconduct. Elite also requested attorney’s fees and other costs.

The motion concerned three discovery issues. First, Elite argued that Defendants failed to produce the genuine hard drive from former Anchor employee Gary Zhang’s laptop. Defendants produced an encrypted drive, but Elite’s expert concluded that it was manufactured later than Zhang’s laptop and was incompatible with it. Second, Elite claimed that Defendants deleted or withheld emails involving United Microelectronics Corp. The emails appeared within produced email threads but were not produced as separate documents. Third, Elite argued that Defendants failed to make Lv Rong available for a further deposition and did not timely disclose that Rong had left Anchor.

Gary Zhang’s Hard Drive

The court found, by a preponderance of the evidence, that the encrypted drive was not Zhang’s hard drive. But it concluded that Defendants did not violate the Special Master’s order. The order required good-faith efforts to deliver Zhang’s laptop or identify and produce his hard drive, and the court found that Defendants’ efforts complied with that requirement. Rule 37(b) sanctions therefore were not available for this issue.

The court also rejected sanctions under Rule 37(e), which governs the loss of electronically stored information. Elite did not show that the files from Zhang’s hard drive could not be restored or replaced through additional discovery. The court found that Zhang’s non-email files had been backed up and produced, and that Defendants had produced 14,626 of Zhang’s emails, making it insufficiently shown that the emails were irretrievably lost.

The court could not use its inherent authority to sanction Defendants for the alleged loss of electronic files because Rule 37(e) displaced that authority for electronically stored information. It could, however, sanction Defendants for failing to preserve the physical hard drive. The court found Defendants culpable and described their preservation efforts as reckless at best. It found that the loss delayed and disrupted the litigation, requiring Elite to retain an expert and spend time before the Special Master and the court.

The court therefore sanctioned Defendants under its inherent authority. It ordered them to pay attorney’s fees for work concerning the hard-drive dispute, including meetings and conferences, discovery motions before the Special Master, and the sanctions motion. It also ordered payment of related expert costs, the Special Master’s time, and costs of preparing and filing the sanctions motion.

Communications with United Microelectronics Corp.

The court declined to impose sanctions for the UMC communications. It found that Elite possessed the emails within produced email threads and that producing only the top email in a thread was a common method of removing duplicate documents. Elite did not identify relevant information that was lost because of this practice.

The court also found that only one unproduced email possibly contained attachments that Elite had not received. Because that email was from 2014—six years before Elite filed suit—and Elite offered no evidence that it was deleted after Defendants’ preservation obligation arose, the court found no culpable misconduct. The court ruled that sanctions were not appropriate under Rule 37(b), Rule 37(e), or its inherent authority for the UMC communications.

Lv Rong’s Deposition

The court found sanctionable conduct under Rule 37(b) and its inherent authority concerning Rong. A Special Master’s order required Defendants either to make Rong available for deposition or to seek a protective order if they could not do so. Defendants did neither after Rong resigned. The court also found that Defendants did not promptly tell Elite that Rong had left, causing Elite to spend time on conferences and motions attempting to secure a deposition that Defendants knew was not possible.

The court rejected terminating sanctions and adverse-inference instructions for this issue. The record did not show that Defendants forced or pressured Rong to resign to avoid further testimony, and the court found no basis to conclude that his resignation was within Defendants’ control. But the court ordered Defendants to compensate Elite for fees and costs incurred before November 15, 2023, concerning the attempted re-deposition, related proceedings before the Special Master, and the sanctions motion.

Disposition

The court GRANTED IN PART and DENIED IN PART Elite’s motion for sanctions. It ordered Defendants to pay the fees and costs described in the order, but it did not set the amount immediately. Elite must identify the requested amount and file supporting fee statements and invoices within 14 days. Defendants may challenge the reasonableness of those fees and costs within seven days after that filing, and the court will then determine the amount to be awarded.