Duty to Preserve Documents Arises before Lawsuit is Filed Re: Patent Infringement
In 2010, LendingTree sued our client NexTag for patent infringement. A litigation hold was first implemented when the suit was filed in 2010. However, back in 2004, LendingTree’s in-house counsel analyzed the NexTag system and concluded it likely infringed. During discovery, documents related to this internal review were withheld on the basis of Attorney-Client Privilege and Attorney Work Product Privilege. In an issue of first impression in the Fourth Circuit, Judge Frank Whitney (W.D.N.C.) held that Lending Tree’s “duty to preserve evidence arose no later than its assertion of the attorney work product privilege.” As a result, NexTag suffered evidentiary prejudice and LendingTree’s claim was barred by laches. LendingTree LLC v. NexTag. 3:10-CV-00439 (March 31, 2014 Order).
The ruling highlights the importance of preserving documents as soon as a claim arises. Counsel must also use caution when designating documents Attorney Work Product. If litigation was “reasonably foreseeable” (the test for work product) then a litigation hold should have been implemented. LendingTree's failure to implement a timely litigation hold was costly. The Court ordered a search of 1008 LendingTree backup tapes for the term "NexTag", at a cost of over $750,000. The Court also found that NexTag suffered evidentiary prejudice, an element of the laches defense.