Stop the Music: $25 Million Verdict Intact Despite Party’s Intentional Spoliation of Evidence
BMG Rights Mgmt. LLC v. Cox Commc’ns, Inc., No. 1:14-cv-1611, 2016 WL 4224964 (E.D. Va. Aug. 8, 2016)
The court entered final judgment, upholding the jury’s findings and denying the defendant’s motion for a new trial, finding that harsher sanctions for the plaintiff’s intentional spoliation of material evidence were not required to redress the wrong.
In this copyright infringement case, the plaintiff, BMG Rights Management LLC (“BMG”), a music publishing company, sued Cox Communications, Inc. (“Cox”), an internet service provider (ISP). BMG alleged that Cox should be “held liable for the infringing activity of its subscribers based on the uploading and downloading of copyrighted musical works using…a peer-to-peer file sharing network.” While safe harbors are available to protect ISPs from liability, the court noted that “unfortunately for Cox, the record was replete with evidence that foreclosed any assertion…that it had reasonably implemented a repeat-infringer policy” to deter its users and grant it immunity.
To combat this infringement, BMG “enlisted the help of Rightscorp, Inc.,” which monitors internet activity “for peers offering its clients’ copyrighted works.” When infringement is detected, “Rightscorp records the peers’ Internet Protocol (“IP”) addresses and then generates notices to the ISPs providing internet access to” those addresses. However, Rightscorp changed its source code used to identify infringement after 2013, during the period when “BMG had a duty to preserve that evidence.” Specifically, Rightscorp admitted to “altering the source code, deleting portions of the source code, and  overwriting portions of the source code without maintaining a record” of any of those changes.
Before the jury trial, Cox moved for evidentiary sanctions for that spoliation. The magistrate judge who heard the motion “correctly found that the [source code] was material evidence” and that it “was intentionally destroyed and  not lost through inadvertence or mistake.” The magistrate judge suggested “a jury instruction as the appropriate sanction,” acknowledging that “The District Judge will make the ultimate decision” about what sanctions should be imposed. Neither party challenged the magistrate’s order.
At trial, the district court granted Cox “leave to identify the spoliation issue in its opening statement.” The court also “gave a spoliation instruction that was a step below [the magistrate’s recommended instruction] in severity,” namely, allowing but not requiring that the jury consider BMG’s destruction of evidence in its deliberations. The jury, after a two-week trial, “found Cox liable for willful contributory infringement,” but not vicarious infringement, and “awarded BMG $25 million in damages.”
Cox moved for a new trial, arguing that the court’s spoliation instruction was “anemic” and that the court should have imposed additional sanctions, “such as dismissal or the preclusion of evidence.” Cox cited the amended Federal Rule of Civil Procedure 37(e)(2), authorizing “specified and very severe measures” where, as here, there is “an additional finding that ‘the party that lost the information acted with the intent to deprive another party of the information’s use in the litigation.”
The court began its analysis by noting that Rule 37(e)(1) directs the court to impose “measures no greater than necessary to cure the prejudice” caused by spoliation. While Rule 37(e)(2) permits harsh sanctions, it “does not require a court to adopt” those measures. Ultimately, the “remedy should fit the wrong.” Here, the court “believe[d] the lesser measures [it took] were sufficient after having considered all of the evidence.” That evidence included the magistrate judge’s “separate finding of Cox’s own failure to preserve relevant evidence in this lawsuit.”
Nor did the court find that case law required dismissal or preclusion of evidence, noting that “dismissal is reserved for only the most egregious circumstances.” In this case, “the preclusion of evidence would have likely been the equivalent of dismissal.”
The court therefore denied Cox’s motion and upheld the jury verdict, stating that it was “satisfied the instruction given alerted the jury to the fact of spoliation, identified the missing evidence, and permitted them to consider that fact in their deliberations,” thereby serving “‘the prophylactic, punitive, and remedial rationales underlying the spoliation doctrine.’”
BMG Rights Mgmt. LLC v. Cox Commc’ns, Inc., No. 1:14-cv-1611, 2016 WL 4224964 (E.D. Va. Aug. 8, 2016).
The amended rules became effective on the first day of trial. Though the spoliation was intentional, the court opted for “lesser measures” rather than the harsher measures of Rule 37(e)(2). The court could have reached a different result were it not for Cox’s own spoliation and the abundance of evidence indicating its failures to act reasonably in deterring infringement. When asking for harsh sanctions, parties should bear in mind the doctrine of clean hands.