eDiscovery Case of the Week with Kelly Twigger

How Delaying Third Party Discovery Can End Up Costing You Dearly

• Kelly Twigger • Season 1 • Episode 129

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What happens when the clock runs out on critical evidence in a high-stakes patent infringement case? Join me, Kelly Twigger, as we unravel the intricate layers of electronic discovery through the compelling Beacon Navigation v. BMW case. Discover how Beacon's late acquisition of essential source code from BMW's third-party supplier, Harman, put their litigation strategy on thin ice. Despite strategic maneuvers to extend fact discovery, the court slammed the door shut, raising the stakes for both sides. You’ll gain insights into the court's analysis through a five-factor test under Rule 37C and how Beacon narrowly avoided the exclusion of pivotal evidence, highlighting the unforgiving nature of discovery timelines.

Peeling back the legal tactics, we focus on the critical role of third-party discovery and timely disclosures under the Federal Rules of Civil Procedure. Through our discussion, learn about the increasing trend of courts barring undisclosed evidence and how early third-party engagement is more crucial than ever. This episode serves as a wake-up call for legal professionals, emphasizing the importance of strategic planning in cases involving electronically stored information. The lessons from Beacon’s ordeal underscore the necessity for meticulous management of discovery obligations, reminding us that the courtroom is no place for procrastination.

Tune in for practical insights and actionable strategies to stay ahead in the complex landscape of eDiscovery.

 Beacon Navigation GmbH v. Bayerische Motoren Werke AG
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Thank you for tuning in to Case of the Week with Kelly Twigger. If you found today’s discussion helpful, don’t forget to subscribe, rate, and leave a review wherever you get your podcasts. For more insights and resources on eDiscovery, visit eDiscovery Assistant and explore our practical tools, case law library, and on-demand education from the eDiscovery Academy. Join us next episode as we break down another important case shaping the future of eDiscovery.

Kelly Twigger:

Welcome to the Case of the Week podcast, where each week, we break down a recent decision in electronic discovery case law and talk about the practical impact for you and your clients and keep you up to date on your obligations with electronically stored information as evidence. If you're a litigator, legal professional or you love the power of ESI as much as I do, this is the place to be. I'm Kelly Twigger, the CEO and founder of eDiscovery Assistant and the principal at ESI Attorneys, with more than 25 years of experience navigating the evolving landscape of litigation and eDiscovery. I'm a practicing attorney, author, speaker, entrepreneur and now podcaster who works as a discovery strategist and expert for clients at ESI Attorneys and to provide that knowledge to all legal professionals through our e-discovery assistant platform. In each episode, we'll tackle a new decision in e-discovery case law and how it shapes both your litigation strategy and planning for risk mitigation. If you're ready for blunt, actionable insights that keep you ahead of the curve, and maybe a few laughs along the way, this is your go-to podcast. Subscribe or follow now to start embracing's episode of our Case of the Week series brought to you by eDiscovery Assistant.

Kelly Twigger:

Let's dive into this week's case. This week's decision comes to us from Beacon Navigation v BMW. It's a decision from December 28th of 2023, written by United States District Judge Mark Goldsmith. Judge Goldsmith has 31 decisions in our eDiscovery Assistant Database and, as always, we tag each of the decisions in our database with our proprietary issue tagging structure. This week's issue tags include initial disclosures, failure to produce, exclusion of evidence, sanctions and source code.

Kelly Twigger:

A little bit of background on this case before we dive in. This is a patent infringement case in which Beacon contends that BMW infringed on a Beacon patent for its vehicle navigation technology. Of interest is that this case sat for 11 years during a succession of proceedings in the United States Patent and Trademark Office and comes back to this court following the close of fact, and expert discovery is asking the court to preclude Beacon from relying on the computer source code as evidence of infringement for failure to produce the source code prior to the close of discovery Few facts. The court entered the scheduling order in October of 2022, and that scheduling order provided for fact discovery to run through July 27, 2023, with expert discovery to close in November of 2023. Beacon served a subpoena on Harmon, who was the third-party provider for BMW that manufactured their vehicle navigation technology, more than 30 days before the close of fact discovery, but ultimately obtained and produced the source code after the close of fact discovery and then relied on the source code to allege infringement for the first time in its opening expert report on infringement. Bmw's motion to strike is to exclude that source code that Beacon relied on in its expert report. Now, this motion came about a year later, in October 23, after the close of fact discovery, and alleged that Beacon admittedly delayed third-party discovery of the source code that described how the infringed navigation systems worked. Now, the source code at issue that was used in the BMW vehicles was not owned by BMW. It was owned and operated, or owned and created by BMW's third-party supplier, a company called Harman, that Beacon subpoenaed, as I mentioned, about 30 days before the close of fact discovery. In its motion papers, beacon noted to the court that the court had ordered the parties to work with the special master towards settlement and that during the eight months of discovery it had settled with all of the other defendants and that it held off in seeking the third party discovery from Hartman until it knew that settlement could not be reached with BMW.

Kelly Twigger:

Beacon served a subpoena on Hartman on June 23, 2023, which was just a month and four days before fact discovery closed. You know from our discussions previously on the case of the week that that's not going to be sufficient time for that third party to respond with appropriate information prior to the close of fact discovery. Now, at the same time, beacon and BMW met and conferred on an extension of fact discovery via the scheduling order and on July 26, 2023, beacon submitted a stipulated amendment to extend fact discovery for source code production, including a provision to delay depositions of the parties until after the source code production. That was one day before the discovery cut off in the original scheduling order. Hartman and Beacon then met and conferred on the scope of the subpoena on August 2nd and agreed to a narrowed scope for response in which Harmon agreed to make the source code available for inspection and provide a declaration that the source code was authentic and representative. Beacon then agreed to withdraw its other document requests and not seek a deposition of Harmon.

Kelly Twigger:

On August 9th, the special master advised Beacon that the court was not going to enter the July 26, 2023 stipulation to extend fact discovery On August 15, so just six days later, beacon submitted a stipulated amendment to extend expert discovery by 11 days to accommodate its technical experts vacation. The court then entered the stipulation on August 17, extending the deadline for opening expert reports from August 28 to September 8, 2023. Now Harmon made the source code available for inspection on September 5th by giving the parties access to a source code computer. The parties then took turns with their experts in reviewing the source code and selecting excerpts from the source code produced by Harman and requesting printouts of their sealed excerpts from Harman. Boy. Today is a little bit of alphabet soup curry. Now, after reviewing the source code on September 5th and 6th, beacon served its opening expert report on infringement on September 8th and later produced the source code from its review on September 14th. Bmw reviewed the source code on September 20th and 21st, served its rebuttal report on infringement on October 9th and later produced the source code from its review on October 12th. Now the source code must have ratcheted up the game for BMW in terms of its liability, as it subsequently filed its motion to strike, arguing that Beacon had violated Federal Rule of Civil Procedure 26A or E and moving for discovery sanctions under Federal Rule of Civil Procedure 37C1. Specifically, bmw asked the court to strike portions of Beacon's infringement report that rely on the source code to preclude Beacon from relying on the source code and to award BMW reasonable costs and attorney's fees related to Beacon's disclosure of the source code. So those are our facts.

Kelly Twigger:

How does the court engage here? Well, the court begins with an analysis of the applicable rule sections and its obligations under them. Federal Rule of Civil Procedure 37C1 states that a district court may exclude evidence that a party seeks to offer but failed to disclose pursuant to the party's discovery obligations under Federal Rule of Civil Procedure 26A and E. 26a1 requires a party to disclose the information and identify the witnesses that the party may use to support its claims or defenses, and 26E1 essentially requires those parties to supplement an incomplete or incorrect initial disclosure in a timely manner. Now, under Rule 37C1, a party who fails to disclose information or identify a witness as required by Rule 26A or E quote is not allowed to use that information or witness to supply evidence on a motion at a hearing or at trial, unless the failure was substantially justified or is harmless. Close quote Now, although exclusion of late or undisclosed evidence is the usual remedy for noncompliance with Rule 26A or E, rule 27C also requires that the district court has an option to order alternative sanctions instead of exclusion of the late or undisclosed evidence on a motion or after giving an opportunity to be heard. So it's not an absolute sanction that must be entered for failure to disclose under 26 A or E.

Kelly Twigger:

Now turning to the facts of the case, the court notes right away that both parties knew that the source code from Harmon was quote necessary infringement evidence and that the court even noted in its scheduling order that discovery would be required from defendants' third-party vendors who provided the accused GPS systems. Beacon did not dispute that review and production of the source code was fact discovery and not expert discovery. In terms of the timing, recall that they extended expert discovery and that the source code was produced during the time for expert discovery but after fact discovery was closed. So that's why that's relevant. Now the situation here is pretty clear. Both parties knew that the source code was relevant and would be discovered. The only real issue is the timing of when it was done and whether it was sanctionable under Rule 37.1 for failure to comply with Rule 26A and 26E.

Kelly Twigger:

Now BMW argued that Beacon's disclosure of the source code was untimely because it did not seek the source code and supplement its infringement contentions and did not obtain the source code during fact discovery. Beacon didn't disagree, but rather asked the court to take into account the entirety of the matter and the fact that the parties agreed to extend fact discovery. As well as that, bmw knew Beacon would be relying on the source code, the court found that Beacon did violate Rule 26E by failing to timely disclose the source code in its infringement contentions and pointed to the discovery responses from Beacon with language that specifically informed BMW that it would rely on source code from suppliers, but never produced any source code or relied on any source code to allege infringement. The court also noted that in response to BMW's interrogatories, beacon stated that it would supplement its infringement conditions quote when additional discovery is obtained from defendants and their suppliers. Close quote.

Kelly Twigger:

The court found that without references to the actual source code, beacon's infringement contentions were incomplete and that Rule 26E1 required Beacon to supplement them. The court also noted the language of the scheduling order that required Beacon to quote timely conduct discovery so that these contentions can be updated as soon as possible. Close quote. So we've got specific language that the court is pointing to here. That really shows that violation of its discovery obligations under Rule 26A and E from Beacon. The court also found that Beacon was required to obtain the source code during fact discovery and instead that it was produced seven weeks after the close of fact discovery. The court noted as well that the stipulation to extend fact discovery was withdrawn when Beacon submitted a stipulation to extend expert discovery. Now that's sort of weird because in the facts of the case that I mentioned to you early it states that the special master went to Beacon and said that that stipulation would not be entered, but the timing of when the stipulation to extend expert discovery was submitted. It doesn't say that Beacon withdrew the other one. Rather it says the special master said that it would not be granted. So there's a little bit of confusion here among the case, but this is what the court rules.

Kelly Twigger:

Now, having found that Beacon violated its Rule 26E obligations to update its contentions regarding the infringement, the court addressed sanctions under Rule 37C and identified the five-factor test applied by the Sixth Circuit for determining whether a party's nondisclosure of evidence is substantially justified or harmless. One, the surprise to the party against whom the evidence would be offered. Two, the ability of that party to cure the surprise. Three, the extent to which allowing the evidence would disrupt the trial. Four, the importance of the evidence. And five, the non-disclosing party's explanation for its failure to disclose the evidence.

Kelly Twigger:

On the first factor, the court agreed with Beacon and weighed against exclusion. Both sides knew the source code from Harmon was the key evidence of infringement. The court weighed the second and third factors together as related and found that BMW could quote cure any remaining surprise, close quote without disrupting a trial, as a trial date had not been set and it granted BMW leave to depose Harmon relating to the source code. The court also gave BMW the ability to supplement its defenses before trial. As such, the court found that the second and third factors weighed against exclusion of the source code as evidence. On the fourth factor the importance of the evidence the court agreed with Beacon that exclusion was not warranted where discovery was complete and the case was ready to move forward on the merits. Now that's a pretty big ruling in favor of Beacon because clearly this source code, as it was the actual code for the navigation of the vehicles which are allegedly infringing on Beacon's patent, the weight of that evidence was tremendous. I mean it was the entire case for Beacon. So exclusion here would have been essentially dispositive of the case.

Kelly Twigger:

The fifth factor here weighed in favor of exclusion. The court found that Beacon's explanation for its failure to disclose the source code was unreasonable and noted quote delaying third-party discovery of source code was Beacon's own litigation strategy. Close quote Beacon knew about Harmon and plans to rely on the source code, yet it did not seek that discovery until almost just a month before the close of fact discovery. The court also rejected Beacon's argument that it was working towards settlement and stated that quote compliance with the scheduling order necessarily entails parallel, not successive, settlement discussions and fact discovery. Close quote. Summing up the court found that four of the five factors weighed against exclusion, leading the court to conclude that the untimely disclosure was harmless and to deny BMW's motion to strike and for sanctions.

Kelly Twigger:

So what are our takeaways here? Well, we've talked about it several times on Case of the Week, but it's worth reiterating Identifying third parties from whom discovery is needed and starting that process very early in discovery is critical. Your cases are not as likely to have the facts here that allowed Beacon to escape. Exclusion of the key evidence to its case. Here Beacon disclosed the need for the source code and both parties knew which third party had it. Even with those facts, it's fair to say that Beacon escaped here by the skin of its teeth.

Kelly Twigger:

The timing here, in which Harmon produced the source code a mere three months after the subpoena from Beacon, is fast for a third-party production. In my experience, they take a lot longer and you need to start earlier. That means that waiting for third-party discovery, waiting to start third-party discovery, is very, very risky and you risk not being able to rely on any evidence from a third party. If you wait and don't receive it during fact discovery, you also lose the ability to follow up on that third-party evidence. Do you want to take a deposition of the person most knowledgeable about the information that was provided? Do you need to supplement the request from that third party because all the evidence that you got is not what you needed? Do you need to engage in a sampling process with the third party? Because the volume of information that you want from that third party is tremendous and the third party is reluctant to engage in the cost associated with providing that information. On a third party subpoena, you may need to negotiate into a sampling procedure which takes time. You've got to have them provide that information, review it, go back to them constant negotiation. So you've got to keep that in mind in terms of fact discovery and advise the court of what is happening on that procedure so that something can be done outside of the scheduling order if necessary.

Kelly Twigger:

Now we have seen a remarkable uptick in decisions barring evidence that are not disclosed on the initial disclosures or where a party failed to supplement. We've seen exclusion of witnesses, exclusion of evidence, exclusion of expert reports. Today's decision adds third-party discovery to that mix. Okay, that's our case of the week. For this week, thanks so much for joining me. We'll be back again next week with another decision from our eDiscovery Assistant Database. As always, if you have suggestions for a case to be covered on our case of the Week, please drop me a line. If you'd like to receive the Case of the Week delivered to your inbox via our weekly newsletter, you can sign up at ediscoveryassistantcom backslash blog and if you're interested in doing a free trial of our case law and resource database, please jump to ediscoveryassistantcom and sign up to get started. Thanks so much. Have a great week. Have a great week, discover the show and be kept in the know on all things. Electronic discovery. I'm Kelly Twigger. See you next time.

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