Tuesday, August 21, 2012

Judge orders adverse inference instruction against Apple and Samsung, but they prefer none at all

Earlier today I already noted that the final jury instructions do not contain any adverse inference jury instruction at all, and that this suits Samsung's needs, which didn't want to gain an advantage over Apple but just wanted to avoid a disadvantage for itself.

A little later, at around 2 AM California time, Judge Koh entered her order on Samsung's related motions, which provides definitive clarity. The court ordered in Samsung's favor on the harshness of the instruction to be given against Samsung as well as on its motion for the same kind of sanction against Apple. This is consistent with what I said yesterday based on a set of near-final jury instructions: Samsung achieved a major breakthrough by effectively neutralizing Apple's win of an adverse inference instruction. But the parties agreed prior to Judge Koh's order that if this was going to be the outcome, they'd rather have none at all.

I have been writing a lot lately about the adverse inference instruction issue. I considered this an immensely important pre-trial decision, and Judge Koh's order cites case law that stresses the importance of this, such as this passage from an opinion in Zubulake v. UBS Warburg:

"In practice, an adverse inference instruction often ends litigation -- it is too difficult a hurdle for the spoliator to overcome. . . . Accordingly, the adverse inference instruction is an extreme sanction and should not be given lightly."

Without a doubt, this issue will come up again on appeal.

Contrary to what some other legal blog claimed for the sake of disagreeing with me (a behavorial pattern found in some of those who view my analysis of the ongoing smartphone patent disputes as unwanted competition), Apple can appeal (after this trial, with a view to a potential retrial) Judge Koh's decisions on the two motions. Both decisions were made without Apple's consent, and Apple undoubtedly preserved (among other things, through a high-priority objection) the record for an appeal. Apple can appeal the judge's decision to attenuate the sanctions against Samsung and the order determing sanctions against Apple because those decisions were not based on any stipulation. The only thing that Apple cannot attack on appeal -- because it agreed to it voluntarily -- is the court's replacement of the two instructions (that would have canceled each other out) with the complete absence of any such instruction. It can't blame the court for not executing its own orders on these questions. But the "no adverse inference instruction at all" deal was premised on a potential (and presumed and, by now, the actual) outcome of the decision-making process, and the deal falls with that premise.

The basis of the deal is stated at the end of Judge Koh's order:

"However, the parties indicated at the August 20, 2012 hearing that if the Court decided to issue identical adverse inference instructions against both parties, they prefer that neither adverse inference instruction be given. Accordingly, the Court will not give either jury instruction."

The key part is "if the Court decided". They did not stipulate to withdraw their motions or ask the court to dismiss them as moot.

Let's assume Apple does not like the outcome of the jury deliberations that will start later today, or otherwise tomorrow, and bases its appeal (in part, but let's focus on only that part here to keep things simple) on the adverse inference decisions. In that case, Apple would demand a retrial at which a strong adverse inference jury instruction be given against Samsung but none against Apple. Apple has not waived its right to such a trial -- it's not as stupid as some other bloggers think. Apple doesn't waive anything unless it's under pressure, and here there was no pressure because the worst-case scenario would have been an adverse instruction against both companies (Samsung never asked for more than that), which wouldn't have hurt Apple more than Samsung. In case of an appeal by Apple, the appeals court would have to look into both adverse inference issues, with the following combinations being possible results:

  1. If the appeals court agreed that an instruction (strong or not) against Samsung was warranted, but that none was warranted against Apple, it would overrule Judge Koh in two ways and Apple would get a trial on its preferred basis.

  2. If the appeals court found that an instruction was warranted against both parties, but that the one against Samsung would have to be stronger than the one against Apple, the "no instruction" deal would also fall since it was based on the premise of an equally weak instruction against both parties. An agreement between the parties to have no instruction against either one is always possible, but if the instruction Apple wins against Samsung is clearly stronger than the one Samsung wins against Apple, then Apple would have no incentive for such a deal.

  3. If the appeals court held that instructions of the same strength were warranted against both parties, Apple's appeal would fail. In a formal sense it would definitely fail if the appeals court also agreed with the softness of Judge Koh's order, but in practical terms, if the court ordered two equally strong instructions that are stronger than the one determined by Judge Koh, the "no injunction" deal would either be deemed to apply or otherwise it's a given that the parties would once again be able to agree that they prefer none at all.

  4. If the appeals court found that there should not have been an adverse instruction against either party, Judge Koh's related orders would be reversed but a retrial would not be ordered on this basis since the trial would have taken place on that same basis anyway, as a result of the conditional agreement.

  5. Theoretically, the appeals court could also find that an adverse instruction should have been given only against Apple. That would be surprising since Samsung itself never claimed that Apple's behavior was more outrageous than its own. Samsung made a tactical decision -- which appears a brilliant move in retrospect, especially when considering that lawyers most of the time make maximum demands on behalf of their clients even from no position of strength -- to content itself with a demand for equal treatment. But the appeals court could still, for whatever reason (such as by assuming that a plaintiff is in a better position to anticipate litigation), find that Apple's conduct was worse. In that case, Apple's appeal would fail, and if Samsung had brought a related appeal, Samsung would then be granted a retrial under improved circumstances.

I was surprised by Judge Koh's decision to grant Samsung the equal treatment it demanded. As I explained on previous occasions, I think Samsung's problem with a U.S. court seven years ago because of its automatic periodic deletion of emails makes its failure to ensure compliance of its employees with the retention notice much more problematic than anything Apple was accused of failing to do. Judge Koh's order does not explain why Samsung's earlier issues with U.S. litigation should not make its behavior fundamentally more problematic than Apple's. But Judge Koh may have been just too uncomfortable with the possibility of the appeals court finding that she disadvantaged Samsung in a high-stakes dispute between a local hero and the largest corporation of an allied country. In other words, if you're a judge in such a situation, you'll generally fare better if you err (in case you err at all) on the side of caution, and in this case, in Samsung's favor.

It's also generally more comfortable to err (in case your decision does get reversed at all) on the side of the weaker party. Even without the advantage that an adverse instruction only against Samsung would have represented, Apple is in a very strong position (this is not only my position but also the conclusion of the sources interviewed by the San Jose Mercury News in this article), while Samsung has been on the defensive these past few weeks (and, in fact, ever since Apple filed this lawsuit in April 2011). Both parties will likely appeal very little decision that doesn't work out in their favor, but if Samsung comes out on the losing end, it will be the primary driving force at the appeals stage. If Samsung had lost the trial big-time after an adverse inference instruction, it would have attributed this to the court's alleged double standards. If Apple doesn't win on the current playing field (which is at least a level playing field for Apple, and actually better than that), few people will blame it on the adverse instruction situation.

While Samsung's legal team is, at this pre-appeal stage, the glorious winner of the fight over adverse inference instructions, Apple could actually benefit from this to an even greater extent, as odd as it may seem, but only if Apple socres a big win at this trial anyway. In that event, the absence of an adverse inference instruction means that Samsung is very unlikely to be granted (as a result of an appeal) a retrial just because of the prejudice it suffered from an adverse inference jury instruction. Simply put, with an adverse instruction only against Samsung, Apple would from today's perspective be more likely to prevail than it is at any rate, but if it wins this trial even without an advantage in this regard, it will be in better shape than if it won on a basis that could create a fair amount of uncertainty on appeal.

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