Dental implant maker faces sanctions for destroying evidence in patent infringement case

Implant Direct Manufacturing will face sanctions for destroying evidence in a patent infringement lawsuit filed by Zest IP Holdings, a federal magistrate judge ruled this week.

Zest sued Implant Direct in March 2010, alleging infringement of 2 patents covering "Dental attachment assembly," trademark infringement, false advertising and unfair competition on the part of Implant Direct, its former distributor, according to court documents.

The lawsuit was prompted by Implant Direct’s plan to clone Zest’s Locator device, which the erstwhile distributor revealed to Zest in the autumn of 2008, according to the documents. Zest told Implant Direct on Oct. 22, 2008, that it considered the products to be infringing knockoffs and planned to filed a patent infringement lawsuit.

That should have triggered a "litigation hold" on all documents and emails from Implant Direct, Zest argued, but the defendant never put such a hold in place, according to the documents. That meant that relevant emails from Implant Direct’s director of design engineering, Ines Aravena, and president & CEO Dr. Gerald Niznick were lost or destroyed, according to the documents.

"Aravena was an independent contractor working for defendants before she became defendants’ employee. She testified at her deposition that she intentionally deleted her emails because she received so many emails and that no one told her not to delete them," according to court records. "Plaintiffs located in 3rd parties’ files Niznick’s email communications to 3rd-party dentists which may be considered evidence of Niznick’s inducing the 3rd-party dentists to infringe on plaintiffs’ patents. Niznick’s emails to the 3rd-party dentists encourage the dentists to combine defendants’ product with plaintiffs’ ‘Locator’ products. It cannot be disputed that Exhibits 11 and 12 once existed in defendants’ electronic files. However, they appear to no longer exist in defendants’ files and defendants have not produced the emails to plaintiffs in this litigation."

Zest asked U.S. Magistrate Judge William Gallo of the U.S. District Court for Southern California to impose a default judgment and an adverse jury instruction against Implant Direct, along with legal costs.

Gallo declined to impose a default judgment, but granted Zest’s motions for an adverse jury instruction and ordered Implant Direct to pony up for legal costs, according to the records.

"Defendants’ conduct with respect to not preserving and destroying discovery materials amounts to gross negligence, but that conduct does not rise to the level of bad faith sufficient to warrant default judgment under the circumstances," Gallo wrote. "Defendants did not take adequate steps to avoid spoliation of evidence after it should have reasonably anticipated this lawsuit and did not issue a litigation hold nor implement nor monitor an adequate document preservation policy.

"As a sanction for defendant’s spoliation of relevant evidence, the court recommends that an adverse inference instruction should be read to the jury," he added. "This recommendation is warranted in light of the degree of defendants’ fault and the degree of prejudice plaintiffs have suffered. Based on defendants’ conscious and/or willful disregard of its obligations, and in the absence of bad faith, the court recommends that the jury be instructed as follows:

‘Defendants failed to prevent the destruction of relevant evidence for plaintiffs’ use in this litigation. The evidence pertains to the design, development, and testing, of defendants’ products and plaintiffs’ claims that defendants induced infringement of plaintiffs’ patents. This failure resulted from defendants’ failure to perform their discovery obligations.

‘You may, if you find appropriate, presume from that destruction, that the evidence destroyed was relevant to plaintiffs’ case and that the destroyed evidence was favorable to plaintiffs.

‘Whether this finding is important to you in reaching a verdict is for you to decide.‘"

Gallo also ordered Implant Direct to pay "reasonable attorney fees in light of the degree of defendants’ culpability."

"Defendants shall reimburse plaintiff the reasonable attorneys’ fees and costs associated with (1) the time spent by plaintiffs in bringing defendants’ misconduct to the court’s attention, (2) bringing the instant motion, and (3) obtaining destroyed documents from 3rd parties," the magistrate judge wrote.