*1 Before the Court is Plaintiff Deborah Manchester's Motion for Sanctions (“Motion”) regarding the loss by Defendant Sivantos GmbH (“Sivantos”) of its early TeleCare prototypes and prototype ESI that were created in the period 2015-2017.[1] (Dkt. 296, 408, 413.) Plaintiff believes the missing TeleCare ESI would establish that Sivantos did not develop the elements of TeleCare before meeting with Dr. Manchester in April and July of 2016. Plaintiff contends that Sivantos misappropriated her trade secrets which allegedly are contained in versions 1.0, 2.0 and 3.0 of TeleCare.

Plaintiff asserts that Sivantos had a duty to preserve the discarded TeleCare ESI and violated this Court's October 1, 2019 Court order by failing to produce it. (Dkt. 231 at 2.) Plaintiff asserts violations of Fed. R. Civ. P. Rule 37(b) and 37(e). Plaintiff seeks orders precluding Sivantos from presenting any evidence, testimony or argument about the existence and functionality of its TeleCare prototypes that no longer exist to establish the timeline for the development of TeleCare, including when Sivantos began to develop a Bluetooth Low Energy (“BLE”) feature. Plaintiff also seeks an adverse jury instruction that Sivantos lost critical evidence and it was likely unfavorable to Sivantos.

The parties filed a Joint Stipulation on May 8, 2019. (Dkt. 413.) After the parties filed supplemental briefs (Dkt. 432, 437), the Court held an extensive hearing on June 5, 2019. (Dkt. 462.) The parties filed final supplemental briefs on June 12, 2019. (Dkt. 487-1, 488.)

The Court DENIES the sanctions relief sought by Plaintiff.

Legal Standards

Evidence preclusion orders and adverse inference jury instructions under Rule 37(b)(2)(A)-(C) are appropriate only in extreme circumstances and where the violation is due to willfulness, bad faith or fault of the party. In Re Heritage Bond Litigation, 223 F.R.D. 527, 530 (C.D. Cal. 2004), citing Fair Housing Of Marin v. Combs, 285 F.3d 899, 905 (9th Cir. 2002), cert. den. 537 U.S. 2018 (2002). A party seeking an adverse instruction based on spoliation of evidence must establish that (1) the party having control of the evidence had an obligation to preserve it at the time it was destroyed, (2) the records were destroyed with a culpable state of mind and (3) the evidence was relevant to the party's claim or defense. Reinsdorf v. Skechers U.S.A. Inc., 296 F.R.D. 604, 626 (C.D. Cal. 2013).

Sivantos contends that the sanctions sought by Plaintiff are in effect terminating sanctions. In determining whether terminating sanctions are appropriate, a court must consider: (1) the public's interest in expeditious resolution of litigation, (2) the court's need to manage its own docket, (3) the risk of prejudice to the party seeking sanctions (4) the public policy favoring disposition of cases on their merits and (5) the availability of less drastic sanctions. Hester v. Vision Airlines, Inc., 687 F.3d 1162, 1169 (9th Cir. 2012).

*2 Rule 37(e) directly addresses the failure to preserve electronically stored information:

Analysis

Plaintiff's argument for Rule 37(b) sanctions relief rests on her assertion that Sivantos had a duty to preserve TeleCare prototypes and prototype ESI that Sivantos created in the period 2015 to 2017 but discarded as not useful. (Dahlberg Decl., Ex. A, Dkt. 414-1 at 3:21-4:9.) Plaintiff believes that these discarded TeleCare prototypes and source code did not contain Plaintiff's trade secrets and would help demonstrate Sivantos did not independently develop the features of TeleCare that she claims as her own. She alleges that TeleCare version 1.0 launched in October 2016 did contain her trade secret that Sivantos allegedly misappropriated after Sivantos met with her in April and July 2016. She also alleges that version 2.0 launched in May or June 2017 contained her trade secret as did version 3.0 launched in October 2017. (Dkt. 416-1 at 6, ¶¶ 17-18.) Sivantos disputes that versions 1.0 and 2.0 contain Plaintiff's trade secret and notes that Plaintiff never asserted that BLE is a trade secret until just recently. (Tr. at 40-41, 60, Dkt. 462.)

Plaintiff contends that Sivantos had a duty to preserve evidence as soon as potential litigation is reasonably foreseeable. Apple v. Samsung, 888 F. Supp. 2d 976, 991 (N.D. Cal. 2012). Plaintiff further contends that she sent an email on July 11, 2016 threatening to go after anyone trying to use BLE to connect to or access hearing aids. (Dahlberg Decl., Ex. E, Dkt. 416-3.) Following TeleCare's launch of TeleCare version 1.0 in October 2016, Plaintiff sent a letter on November 9, 2016 demanding that Sivantos stop using Plaintiff's HARP technology and threatening suit. (Dahlberg Decl., Ex. H, Dkt. 414-8.) Thus, Plaintiff contends that a duty to preserve evidence arose on July 11, 2016 or at the least by November 9, 2016 before this suit was filed on May 24, 2017.

The Court disagrees with Plaintiff that any duty to preserve attached before this suit was filed on May 24, 2017. First, Sivantos' Ingo Eichinger stated that prototypes and prototype source code that are not deemed useful are not retained as a business practice: “I am aware that prototypes such as TeleCare were created at the initial stages of development but not in or after May 2017 when this lawsuit was filed. Prototypes such as TeleCare prototypes created before this lawsuit was filed were likely not retained before this lawsuit was filed because they are not retained as a business practice at our company. In fact, I have searched for and have not found any TeleCare prototype.” (Dkt. 336-6, ¶ 13.) Sivantos is a German company. Litigation as we know it in this country does not exist in Germany and there is no German law establishing a duty to preserve or to place a litigation hold on the destruction of material potentially relevant to a threatened lawsuit. Neither the July 11, 2016 email nor the November 9, 2016 threat letter demanded that Sivantos preserve relevant documents. The Court does not believe any duty to preserve attached before May 24, 2017 when this lawsuit was filed. By that point, all TeleCare prototype not found useful would have been discarded. Necessarily, then, Sivantos did not violate this Court's October 1, 2019 order to produce TeleCare ESI because there was no TeleCare prototype and prototype ESI for Sivantos to produce by the time this suit was filed. Thus, Rule 37(b) is inapplicable.

*3 Second, as the Court has stated previously, there is no evidence of bad faith or intentional destruction of evidence. Nor is there any evidence of “intent to deprive” Plaintiff of any information as required by Rule 37(e). Plaintiff asks the Court to infer bad faith or intentional destruction but the record before the Court does not support such an inference.

Third, the record is unclear on whether Plaintiff has suffered any prejudice at all. No one disputes that the discarded TeleCare prototype information does not contain Plaintiff's trade secret. Anything useful that was created in the development process, including functionalities claimed by Plaintiff as her trade secret, would have been incorporated into the retained TeleCare source code. See 487-14 at 3 (“Prototype mainly serves for us to get insights whether a potential solution would work ... if the solution is beneficial for us, then it's turned into a product. Then it's not prototype anymore”). Sivantos repeatedly has argued that exactly what Plaintiff says she needs to show the timeline for when various features were added to TeleCare is contained in the retained TeleCare source code that has been produced to Plaintiff. In particular, Plaintiff has said she needs TeleCare prototype information to determine the specific date Sivantos began to develop a BLE feature for TeleCare. Again, however, Sivantos states that the information Plaintiff says she needs is contained in the retained TeleCare source code. Information that can be restored or replaced through alternative discovery renders Rule 37(e) inapplicable. Plaintiff disputes whether the retained source code can establish a correct timeline for the development of TeleCare. This issue is factually disputed and Plaintiff should be permitted to present the issue of whether the retained code can reliably document the timeline for when functionalities were added to TeleCare to the District Court and/or to the jury. Until the factual dispute is resolved, this Court cannot grant the sanctions requested by Plaintiff.

The Court notes that Sivantos has represented that it does not intend to present evidence about any overwritten prototypes. It also has stipulated that: (1) Sivantos will not allege or testify that the TeleCare prototypes show that Sivantos did not independently develop the use of BLE to connect hearing aids with mobile devices and (2) Sivantos will not allege or testify that Sivantos' prototypes showed that TeleCare hearing aids with BLE was implemented before June 2016. (Dkt. 487-1 at 18:4-12.) The Court expects Sivantos to abide by its representations.

Sivantos, Inc. is a separate entity from Sivantos GmbH. Plaintiff does not present any evidence against Sivantos, Inc. Plaintiff has not responded to Sivantos, Inc.'s argument that the Motion has no applicability to it. The Court therefore DENIES Plaintiff's Motion as to Sivantos, Inc. for lack of any evidence.