Litigators May Need to Adjust Their Discovery Tactics in Federal Circuit

A recent decision in the U.S. Court of Appeals for the Federal Circuit overturning a multi-million-dollar default-judgment sanction may embolden patent defendants hell-bent on withholding production of borderline-discoverable proprietary information. See Drone Technologies, Inc. v. Parrot S.A., No. 2015-1892 (Fed. Cir. Sept. 29, 2016).

The plaintiff, Drone Technologies, Inc., sued Parrot S.A. for infringing Drone’s patent on systems used to operate recreational remote-controlled drones. Despite two discovery orders compelling their production, Parrot S.A. refused to produce the onboard source code associated with two of its drone models. In response, the court sanctioned Parrot S.A. by way of a default judgment on liability; a $7.8 million jury verdict followed shortly thereafter.

On appeal, the Federal Circuit reversed the sanction and the underlying orders compelling Parrot S.A. to produce its onboard source codes. Applying Third Circuit discovery law, the court determined a default-judgment sanction to be unwarranted. In so holding, the court weighed the Poulis factors, standards informing a court’s sanction selection. The court’s analysis centered on the “effectiveness of sanctions other than default” criterion. In particular, the court took issue with the district court’s “stated need to ‘penalize’ Parrot S.A.” The purpose of discovery sanctions, the court clarified, is not to dispense “mere punishment.”

In addition to inveighing against the quick-draw imposition of purely punitive sanctions, the Federal Circuit identified an issue of first impression within the Third Circuit, namely, whether vacating the discovery orders serving as the basis for the default judgment sanction automatically vacates the sanction itself. Or, whether an appellate court must separately vacate the discovery orders and the related sanction. The Federal Circuit in Drone Technologies, Inc. played it safe, vacating the discovery orders and conducting a separate Poulis analysis to vacate the default judgment, too.

The impact of Drone Technologies, Inc. extends well beyond patent law. Federal litigators of all stripes should heed the Federal Circuit’s disdain for punitive sanctions and adjust their approach to discovery accordingly.

_{Jordan B. Redmon is with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, in New Orleans, Louisiana.}

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