On February 15, 2017, the Federal Circuit issued its opinion in Organik Kimya v. ITC, No. 15-1774, upholding the ITC’s decision finding Respondent Organik Kimya in default for destroying evidence.

The Case

Dow Chemical Company filed a complaint in the ITC asserting trade secret misappropriation alleging that three former Dow employees helped Dow’s competitor, Organik Kimya, develop certain polymers.

ALJ Pender found that after he had authorized Dow to inspect Organik Kimya’s computers, Organik Kimya deleted or overwrote many of the computer files, wiped out recoverable data that was previously deleted, and backdated the clock on a laptop to make it appear the data was overwritten before the investigation began.  As a result, Dow moved for default judgment as a sanction for spoliation of evidence.  Organik Kimya responded by moving to terminate the investigation by consent order, agreeing to “completely and indefinitely withdraw the accused products from the U.S. market.”  In the alternative, Organik Kimya argued that any sanction should be limited to an adverse inference precluding one of the former employees from testifying.  In an extensive opinion, the ALJ issued a default judgment.  According to the ALJ, a consent judgment would be insufficient both because it would not carry the opprobrium of a default judgment and because it would allow Organik Kimya to relitigate these issues in district court without evidence of the spoliation.  Such a strict sanction was a necessary deterrent.  The Commission affirmed, also relying on the need for deterrence.  The Commission further found that a 25-year exclusion order was appropriate.

Organik Kimya appealed, but the Federal Circuit affirmed.  The Federal Circuit held that the Commission had the authority to enter a default judgment based solely on Organik Kimya’s bad faith in destroying evidence and violating the discovery orders—without considering the prejudice to Dow or the effectiveness of other sanctions.  Reiterating the opinions below, the Court focused on the need for deterrent.  The Federal Circuit also rejected Organik Kimya’s challenge to the length of the exclusion order.  The challenge required determining the merits of the trade-secret violation, but this issue was defaulted, and Organik Kimya was stopped from making such arguments.

Takeaway

Organik Kimya is important both in demonstrating that the Federal Circuit will thoroughly review sanctions, but also in confirming that, where it believes it appropriate, the Federal Circuit will uphold even the strictest of ITC sanctions.

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