[00:00:00] Speaker 01:
Ladies and gentlemen, please be seated.

[00:00:09] Speaker 01:
We have six cases on our calendar this morning, illustrating the diversity of our jurisdiction.

[00:00:17] Speaker 01:
The six cases come from six different tribunals.

[00:00:22] Speaker 01:
The three argued cases are a patent case from the ITC,

[00:00:27] Speaker 01:
a patent case from the district court, a trademark case from the PTO, and three cases submitted on the briefs which will not be argued by a trade case from the Court of International Trade, a tax case from the Court of Federal Claims, and a veterans case from the Court of Appeals for Veterans Claims.

[00:00:51] Speaker 01:
The first argued case will be organic,

[00:00:57] Speaker 01:
Camea versus ITC, and Roman Haas and Dow.

[00:01:01] Speaker 01:
2015, 1774, 1833.

[00:01:06] Speaker 01:
Ms.

[00:01:07] Speaker 01:
Stetson.

[00:01:11] Speaker 04:
Good morning, Your Honors, and may it please the Court.

[00:01:12] Speaker 04:
My name is Kate Stetson.

[00:01:14] Speaker 04:
I represent Organic Camea.

[00:01:16] Speaker 04:
There are two legal questions in this appeal.

[00:01:19] Speaker 04:
The first is whether the ALJ and the Commission abused their discretion.

[00:01:25] Speaker 04:
in ordering the case-ending sanction of termination of the case, of a default judgment.

[00:01:31] Speaker 04:
The second question is whether, even assuming that default judgment was appropriate, the ALJ additionally committed error when he refused to take evidence on remedy, which is, of course, a separate proceeding from default.

[00:01:44] Speaker 04:
So on the first question, it is black-letter law in this circuit, from Micron and from Genentech.

[00:01:50] Speaker 04:
that before a judge, or an ALJ for that matter, can enter a case-ending sanction, the most extreme nuclear sanction available.

[00:02:00] Speaker 04:
The judge essentially needs to show his work.

[00:02:02] Speaker 04:
There aren't very many areas in appellate law where an appellate court needs to instruct a judge that he or she must show their work, but this is one.

[00:02:12] Speaker 03:
Because- That's a little difficult in this case, given the substantial opinion that was issued here by the ALJ.

[00:02:20] Speaker 03:
and the fact that you only proposed two alternative sanctions, both of which would have been extremely lenient.

[00:02:27] Speaker 03:
And ALJ specifically addressed those and considered them.

[00:02:30] Speaker 04:
Judge O'Malley, I take your point that this is a long opinion.

[00:02:34] Speaker 04:
But I think the difference between a long opinion and the judge actually showing his work where counted is important.

[00:02:40] Speaker 04:
If you look at Joint Appendix 192, that's essentially the crux of the judge's conclusion on this point.

[00:02:46] Speaker 04:
And what he says is,

[00:02:48] Speaker 04:
Organic Kimya's conduct has ostensibly deprived Dow of its ability to pursue its claim, ostensibly, which is interesting.

[00:02:55] Speaker 04:
No sanction short of default is available to return the parties to the position in which they would have been.

[00:03:01] Speaker 04:
But there is a difference between staying a conclusion and explaining the conclusion.

[00:03:05] Speaker 03:
Okay, well, you're mixing up a bunch of different issues here, and we can get to the question of whether prejudice had to be shown, whether it was a bad faith finding.

[00:03:13] Speaker 03:
with respect to what the ALJ said with respect to alternative sanctions.

[00:03:21] Speaker 03:
You proposed two separate sanctions, one of which was this consent order that you wanted the judge to do, and the other is that simply Dr. Press wouldn't testify.

[00:03:30] Speaker 03:
Those are the only two that you proposed.

[00:03:33] Speaker 04:
No, I'm not certain that's right, Judge O'Malley.

[00:03:35] Speaker 04:
I think what we argued certainly is that some lesser sanction other than

[00:03:42] Speaker 04:
a flat default judgment would suffice and there was a whole menu of lesser sanctions.

[00:03:47] Speaker 03:
So you're saying it's the ALJ's obligation to consider every single possible sanction even if you don't propose what they are?

[00:03:53] Speaker 03:
That this is a menu the ALJ is supposed to just conjure up?

[00:03:57] Speaker 04:
No, first of all, it's not a menu that he conjures up.

[00:03:59] Speaker 04:
It's in the governing rule, 19 CFR 210.33.

[00:04:03] Speaker 03:
And did you ask for anything other than the two sanctions I just outlined?

[00:04:07] Speaker 04:
we asked specifically for a lesser sanction other than the default judgment.

[00:04:12] Speaker 04:
And I think that the problem with putting the onus on the party to propose specific sanctions is that that too, I would think, would cabin the ALJ's discretion.

[00:04:24] Speaker 04:
This is, admittedly, an area in which he has discretion.

[00:04:28] Speaker 04:
But what he can't do, and the reason that many courts, including this one repeatedly, have reversed judges and ALJs for just this thing,

[00:04:36] Speaker 04:
is go all the way to the end of the ratchet without explaining why.

[00:04:39] Speaker 04:
That doesn't mean, Judge O'Malley, that he needed to essentially test each level of sanction or, as some judges have misunderstood it, impose each level of sanction before he could get to the last one.

[00:04:53] Speaker 04:
But what it does mean is that he has to ask himself, essentially try every key in the lock.

[00:04:57] Speaker 04:
He does.

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Before he gets to that last sanction.

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And the reason is that there are, as this court has said again in Micron,

[00:05:05] Speaker 04:
In Genentech, there are important considerations underlying this whole exercise.

[00:05:11] Speaker 04:
And one of them is that governing principle that before you throw a party out of court, you make sure that there's not some other sanction that would suffice to accomplish all of the things that you wanted to accomplish.

[00:05:22] Speaker 03:
Well, he did specifically consider your alternative sanction that you wanted to propose a consent order and went into detail about why that was completely unworkable, correct?

[00:05:32] Speaker 04:
I think with respect to the consent order, I remember a detailed statement.

[00:05:37] Speaker 04:
I think it was in a footnote of his decision as to the difference between the consent order that we sought and the sanction that he wished to impose.

[00:05:45] Speaker 04:
Yes.

[00:05:46] Speaker 03:
Well, no, it's not in a footnote.

[00:05:47] Speaker 03:
He addresses it in some detail, as does the commission.

[00:05:50] Speaker 03:
But the important point is, as they both said, if you accepted the proposition that you could just destroy documents at will and then at the end say, oh, and we'll just take this consent order.

[00:06:02] Speaker 03:
then what you've done is basically give everyone an incentive whenever there's a trade secret case to destroy all of their documents.

[00:06:10] Speaker 04:
Judge Amali, your statement is also applicable in any other case.

[00:06:17] Speaker 04:
In Micron, the defendants there held what this court called a shredding party and disposed of hundreds of boxes of documents, thousands of pounds of documents.

[00:06:29] Speaker 04:
and this court reversed the lower court for imposing the dismissal sanction so it it's not I don't think it is the end of the inquiry to say how do we efficiently deter future spoliation because you could make that argument in every single other spoliation case there has to be another consideration and the consideration this court looks first to particularly in ITC cases where you've got that rule 210.33 is

[00:06:58] Speaker 04:
What is the sanction that is necessary to remedy the harm to the faultless party?

[00:07:04] Speaker 03:
How do you possibly determine what the scope of the harm is when we have no idea what was in all these destroyed documents?

[00:07:13] Speaker 04:
I think the way that you determine it is by asking the question that the court explained in Micron, which is, can the party nevertheless prove some element of the case?

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That's the degree of prejudice discussion that you see in Micron.

[00:07:28] Speaker 04:
So the question here in the misappropriation of trade secrets case, I would think we could all agree that there could be a significant adverse inference against organic chemia for the misappropriation element of a misappropriation of trade secrets claim.

[00:07:44] Speaker 04:
Then the next question is, did Dow have evidence available to it

[00:07:49] Speaker 04:
that could help it prove the predicate to that, which is, were these 50-odd secrets actually secrets?

[00:07:57] Speaker 01:
Did they?

[00:07:58] Speaker 01:
Perhaps you want to address the exclusion order as well.

[00:08:01] Speaker 04:
I do, yes.

[00:08:02] Speaker 04:
On the exclusion order, if you'll forgive me, can I make one more point on that last, which is the question of prejudice is, can Dow still make its case?

[00:08:12] Speaker 04:
And where you have a record of hundreds of thousands of pages and expert reports and statements from Dow

[00:08:19] Speaker 04:
going to the existence or nonexistence of a trade secret and the extent to which Dow kept its secret, those are two elements of the misappropriation claim that clearly would be unaffected no matter what was in those destroyed records.

[00:08:33] Speaker 04:
That's the difference.

[00:08:34] Speaker 04:
On the remedy issue, it is black letter law that when default is entered against a party, all that establishes is liability.

[00:08:44] Speaker 04:
And then you next have to look to remedy.

[00:08:46] Speaker 04:
There are a couple different instances

[00:08:49] Speaker 04:
and where that default actually solves the entire remedy equation for you.

[00:08:54] Speaker 04:
Those instances are if you have a liquidated damages provision in a contract and you're found defaulted for breach.

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If you have a liquidated damages provision in a statute where there's a specific number.

[00:09:05] Speaker 04:
Or if the complaint asks, and this is a reference that the commission I think makes in its brief, if the complaint asks for a permanent injunction and you offer no evidence against.

[00:09:15] Speaker 04:
But here, the difference is, in all those other cases that we cited, you need to establish something to find the remedy.

[00:09:23] Speaker 04:
And so once you've established liability, and we've taken that sanction on liability, assuming that it was appropriate, you then move to the question of what remedy.

[00:09:31] Speaker 04:
And we were entitled to submit evidence on that point.

[00:09:35] Speaker 03:
But the way the commission crafted the remedy, you still can't.

[00:09:38] Speaker 03:
I mean, the commission set a 25-year bar order, but it specifically wrote into its remedy

[00:09:44] Speaker 03:
the opportunity for you to come back and show that in the absence of use of this trade secret information, you would have been able to basically come up to speed with respect to the industry.

[00:09:55] Speaker 03:
And so essentially, they just sort of reversed the order of doing this.

[00:10:00] Speaker 04:
You're right, Judge O'Malley, that it built that into the decision.

[00:10:03] Speaker 04:
It's the last page of the commission's brief.

[00:10:05] Speaker 04:
It mentions it.

[00:10:06] Speaker 04:
I think the reason that it doesn't get more press in the commission's brief is

[00:10:10] Speaker 04:
It's rather an empty solution for organic chemia for two reasons.

[00:10:14] Speaker 04:
First, it shifts the burden of proof over from what it might have been.

[00:10:17] Speaker 04:
But more importantly, my understanding of that regulation that the commission cites is that it requires new facts or law.

[00:10:25] Speaker 04:
And if we are, according to the commission, left to contend in this separate proceeding, that which we wanted to contend in this proceeding

[00:10:34] Speaker 04:
I would imagine the Commission might have something to say about that.

[00:10:37] Speaker 04:
That's why this existence of this magic solution to the remedy problem actually isn't a magic solution.

[00:10:43] Speaker 03:
But the problem is, again, there were so many destroyed documents that the problem is they've said it would be impossible to prove the negative when you were the ones in control of the information and you were the ones who destroyed the information.

[00:10:59] Speaker 04:
I'm not sure that that is a full assessment of what the commission's argument on this point is.

[00:11:04] Speaker 04:
The commission's argument on the remedy point is, first, we're entitled to do this under 1337 G. That's clearly not right, because that applies to a defendant who doesn't show up.

[00:11:15] Speaker 04:
And a defendant who doesn't show up doesn't get to argue about remedy either, because they've been silenced.

[00:11:20] Speaker 04:
The commission also says, in its brief, interestingly, at page 57, this had to do also with the willful misconduct of organic chemia.

[00:11:30] Speaker 04:
We have already, under this part of the argument, accepted the idea of the default judgment.

[00:11:35] Speaker 04:
At the point where we are talking about remedy, that sanction doesn't get to continue to bleed over into remedy.

[00:11:41] Speaker 04:
If it does, we have an independent problem on top of the abuse of discretion problem I already identified, which is that the judge didn't explain why a default judgment plus a 25-year exclusion order was the only thing that could suffice to cure prejudice.

[00:11:56] Speaker 03:
But what about the fact that your predecessor counseled

[00:11:59] Speaker 03:
agreed below that it would be impossible for Organic Kimia to prove the absence of prejudice because you didn't have the documents from which to prove the absence of prejudice.

[00:12:11] Speaker 04:
I think if your honor was referring to the colloquy between prior counsel and the ALJ about relevance, I think there was a colloquy that the prior counsel said, we agree that these documents are putatively relevant.

[00:12:28] Speaker 04:
But in here, we're switching back to the prejudice question.

[00:12:30] Speaker 03:
But he also agreed that he could not, that organic chemia could not prove the absence of prejudice in the absence of the documents.

[00:12:39] Speaker 04:
So two points.

[00:12:40] Speaker 04:
But first, I want to make clear that we're toggling back now to the default question.

[00:12:44] Speaker 03:
Well, I don't think they're unrelated.

[00:12:46] Speaker 03:
But you could try to make that clear if you want.

[00:12:47] Speaker 03:
But I don't think the two are unrelated.

[00:12:49] Speaker 04:
OK.

[00:12:49] Speaker 04:
Well, on the default sanction, it is also black letter law in this court under Micron.

[00:12:57] Speaker 04:
that when you talk about prejudice, even assuming that there is bad faith, by the way, which was found as to one element of this foliation claim, when you talk about prejudice, the next question you have to ask is the degree of prejudice.

[00:13:10] Speaker 04:
And that's why I was making the distinction between what I think we can conceive might be an appropriate adverse inference, which is misappropriation, and the existence of a trade secret and whether it was carefully kept.

[00:13:22] Speaker 04:
So that, on the liability point, is where prejudice comes in.

[00:13:26] Speaker 04:
On the scope of the exclusion, prejudice simply has no role for this reason.

[00:13:31] Speaker 04:
When you get to an exclusion order, the question that the ITC considers is, how long would it have taken organic kimya to develop this purported trade secret in the absence of its misappropriation?

[00:13:45] Speaker 04:
And that is the question that we submitted 19 pages of brief specifically devoted to that question.

[00:13:52] Speaker 03:
But this is where I say that

[00:13:55] Speaker 03:
the two issues are not unrelated.

[00:13:57] Speaker 03:
Because even if you're talking about a different thing than prejudice, you are talking about a situation in which organic Kimia destroyed the ability of their opponent to make certain proofs or to establish certain proofs because they took all of the information and destroyed it.

[00:14:15] Speaker 03:
I don't understand how you can say that a finding that says that even you can't

[00:14:24] Speaker 03:
prove the absence of prejudice, because you don't know what was in the documents, and say that that is so different from saying that Dow can't prove certain things, because they don't know what was in those destroyed documents.

[00:14:36] Speaker 04:
I don't need to prove the absence of prejudice, Judge O'Malley.

[00:14:39] Speaker 04:
But what I can establish is the presence of less prejudice as to certain elements of the claim.

[00:14:44] Speaker 04:
And as to the exclusion order, here is the thing.

[00:14:47] Speaker 04:
Dow submitted an expert report going exactly to this issue.

[00:14:51] Speaker 03:
Well, actually, you do need to prove the absence of prejudice,

[00:14:54] Speaker 03:
is not simply the circumstances in my crowd.

[00:14:57] Speaker 03:
We're talking about a violation of a specific order.

[00:15:01] Speaker 03:
I admit it's not a court order, but it is an ITC commissioned order requiring discovery.

[00:15:08] Speaker 03:
And it's after, in the face of those orders, that the documents are being destroyed.

[00:15:14] Speaker 03:
So when you have that and a bad faith finding, it's a different type of analysis.

[00:15:18] Speaker 04:
I don't believe it is, Judge O'Malley.

[00:15:20] Speaker 04:
And I don't see why it would be a different analysis, given the fundamental underpinning of all of these cases, which is that no matter whether you're looking at a violation of a court order or inherent authority, or for our purposes, 210.33, which contains that

[00:15:38] Speaker 04:
phrase that says you must order a sanction sufficient to compensate the other side for its harm.

[00:15:44] Speaker 01:
Ms.

[00:15:44] Speaker 01:
Tetson, your time is just about expired.

[00:15:47] Speaker 01:
Yes.

[00:15:47] Speaker 01:
We'll give you your three minutes of rebuttal time back.

[00:15:49] Speaker 01:
Thank you, Judge.

[00:15:50] Speaker 01:
And we'll hear Mr. Rums' response.

[00:15:52] Speaker 02:
Mr. Rums is fine.

[00:15:53] Speaker 02:
Thank you, Your Honor.

[00:15:54] Speaker 01:
For the commission?

[00:15:55] Speaker 02:
Yes.

[00:15:56] Speaker 02:
Thank you.

[00:15:59] Speaker 02:
This case involves the most egregious foliation that anyone at the commission has ever seen in a commission investigation, including the presiding ALJ.

[00:16:07] Speaker 02:
The facts of that spoliation are undisputed and are set forth extensively in the ALJ's opinion, in the Commission's opinion, and in the Commission's brief.

[00:16:17] Speaker 02:
I'd like to jump just to a couple of the record citations that Judge O'Malley was just referring to.

[00:16:22] Speaker 02:
At A11496, Organic Chemia Council acknowledged that it could not demonstrate the lack of relevance of the documents destroyed here.

[00:16:29] Speaker 02:
At Joint Appendix 9192, Organic Chemia acknowledged to the Commission

[00:16:35] Speaker 02:
that it was impossible to know what was deleted from Dr. Perez's computer.

[00:16:39] Speaker 02:
At Joint Appendix A, 11509 to 10, the ALJ asked the hypothetical to Organic Chemia Council.

[00:16:46] Speaker 02:
What if there were a document on that computer where Dr. Perez acknowledged to the other head of R&D that without Dr. Nene's assistance, Organic Chemia would have never been able to compete in this market?

[00:16:58] Speaker 02:
And the response from Organic Cameo Council was sort of like, well, let's just move on.

[00:17:04] Speaker 03:
There's no response to that.

[00:17:05] Speaker 03:
All of that is good and important, especially with respect to the sanction.

[00:17:11] Speaker 03:
But let's jump to the remedy, because there are some concerns here.

[00:17:16] Speaker 03:
Shouldn't there have been a separate hearing and evidentiary findings with respect to the remedy?

[00:17:23] Speaker 02:
I don't think so, Your Honor.

[00:17:24] Speaker 02:
Pursuant to Commission Rule 210.16, in a default case, the allegations in the investigation are taken to be true.

[00:17:34] Speaker 02:
And the commission complied with that rule.

[00:17:36] Speaker 02:
And I don't think that there's any real argument here that the commission complied with that.

[00:17:39] Speaker 02:
In Dow's complaint, it asked for a permanent relief in the 160-page declaration that accompanied its motion for default

[00:17:51] Speaker 02:
It ratcheted that down to 25 years.

[00:17:55] Speaker 02:
What counsel on the other side has been arguing are cases from the district courts which deal with damages.

[00:18:03] Speaker 02:
And we know from a federal rule of civil procedure 55 expressly that in the district courts, a default doesn't include damages.

[00:18:12] Speaker 02:
Now, I've only ever seen one case from a court of appeals that reviews an injunction issued as part of a default judgment.

[00:18:20] Speaker 02:
And it's a case that organokymia has relied upon heavily in its opening brief and its reply brief.

[00:18:26] Speaker 02:
That's the E360 Insight case from the Seventh Circuit.

[00:18:29] Speaker 02:
And that's a very different case.

[00:18:30] Speaker 02:
You have the court there saying that the job of the Court of Appeals and of a district court is to push against a request for injunctive relief, because it's an extraordinary remedy.

[00:18:40] Speaker 02:
And in that case, there were real problems with the remedy.

[00:18:42] Speaker 02:
It prohibited conduct that hadn't even yet been alleged.

[00:18:46] Speaker 02:
And also it created First Amendment problems, prior restraints on speech.

[00:18:52] Speaker 02:
And the Court of Appeals.

[00:18:54] Speaker 02:
sent it back down for further reconsideration.

[00:18:59] Speaker 02:
None of that is an issue here.

[00:19:02] Speaker 02:
The commission doesn't have injunctive relief.

[00:19:04] Speaker 02:
Yes, an exclusion order in many ways looks like an injunction.

[00:19:07] Speaker 02:
But it's the commission's ordinary remedy.

[00:19:10] Speaker 03:
But the commission, and I understand that this is an arbitrary and capricious standard that we're talking about with respect to the remedy.

[00:19:19] Speaker 03:
But putting aside what happens in district court,

[00:19:23] Speaker 03:
Isn't it true that the commission always separately considers the liability from the remedy?

[00:19:29] Speaker 02:
Ordinarily, what happens is the liability is getting into the weeds of the statute.

[00:19:36] Speaker 02:
The liability portion, whether there's a violation of Section 337, has the formal adjudication requirements of the APA.

[00:19:48] Speaker 02:
So the ALJ has to consider that always in the first instance.

[00:19:51] Speaker 02:
In some cases, ordinarily the ones that go to the length on the merits, the ALJ will make recommended determinations on remedy.

[00:20:02] Speaker 02:
The commission will itself independently make its determination on remedy.

[00:20:06] Speaker 02:
And the commission will make the first decision as to the public interest.

[00:20:11] Speaker 02:
Now, in this case, let's be really clear about what Organikymia is trying to argue with respect to remedy.

[00:20:16] Speaker 02:
It's pushing against all the trade secrets here.

[00:20:18] Speaker 02:
It's saying that these aren't trade secrets.

[00:20:19] Speaker 02:
It's saying that if these are trade secrets...

[00:20:21] Speaker 02:
these would be really easy to prove or to work around.

[00:20:26] Speaker 02:
And these are precisely the kinds of arguments that would have come out if this case had gone the full length on the merits.

[00:20:36] Speaker 02:
What they're trying to do is to recapture almost everything that they've now lost in this case by trying to press against the trade secrets.

[00:20:45] Speaker 02:
We have a default judgment that these trade secrets exist.

[00:20:49] Speaker 02:
that these trade secrets were misappropriated, that we also have allegations that are unrebutted and accepted, that Dow has successfully maintained control over these trade secrets for decades.

[00:21:01] Speaker 02:
We also have allegations taken to be true, and this is confidential, but it's in the declaration, I think it may be in the complaint too, but it's also in the declaration that accompanied Dow's motion for sanctions.

[00:21:14] Speaker 02:
about competitors who, frankly, are more savvy than organokymia, who haven't been able to figure this stuff out themselves.

[00:21:22] Speaker 02:
And that formed a large portion of the factual basis for the 25-year remedial period.

[00:21:30] Speaker 02:
As Your Honor pointed out, the Commission was well within its rights in choosing a remedy here of 25 years.

[00:21:37] Speaker 02:
and not choosing to spend another year re-litigating the trade secrets.

[00:21:41] Speaker 02:
When every time Dow tried getting near the trade secrets, you have Dr. Nene taking a sledgehammer to his hard drive, not disclosing that in response to the subpoena, the press volition, and all of that.

[00:21:55] Speaker 02:
We don't feel as though we have to go through any of that ground anymore.

[00:21:58] Speaker 02:
If organic Kimya wants to hire new people and put them in a room, and this happens in the copyright context because copyright requires copying.

[00:22:06] Speaker 02:
If they want to hire people who are untainted by all of this, and they can demonstrate that they've developed stuff independently, we're willing to listen.

[00:22:14] Speaker 02:
And that's exactly what VSCOFAN endorses.

[00:22:17] Speaker 02:
And that's perfectly reasonable and perfectly acceptable.

[00:22:20] Speaker 03:
What's your response to the argument that somehow that's a shifting of the burden?

[00:22:26] Speaker 02:
I don't know how it's a shifting of the burden.

[00:22:28] Speaker 02:
We have a judged exfoliator here and a judged misappropriator.

[00:22:32] Speaker 02:
It seems perfectly reasonable to put that burden on the party to convince the commission that its conduct is lawful.

[00:22:39] Speaker 02:
Its conduct here was horrendous.

[00:22:41] Speaker 02:
As the ALJ found, it diminished everyone who was touched by the experience.

[00:22:47] Speaker 02:
And that's true in the proceedings before the ALJ, and it's true before the commission.

[00:22:51] Speaker 02:
This is an ordinary remedy from VSCOFAN.

[00:22:54] Speaker 02:
This is an ordinary provision in the commission's remedial orders.

[00:22:57] Speaker 02:
Organic Kimya, frankly, if there's any party who's ever going to challenge this type of provision, Organic Kimya is in the worst possible place to do so, compared with every other respondent who doesn't go about destroying its documents whenever you get close to trade secret misappropriation.

[00:23:13] Speaker 02:
I have a tiny amount more time.

[00:23:15] Speaker 02:
If I could just switch for a moment to lesser sanctions.

[00:23:18] Speaker 02:
There's no case in which the amount of discussion provided by the ALJ and the commission here was ever found to be inadequate.

[00:23:27] Speaker 02:
We had a two-day hearing.

[00:23:29] Speaker 02:
At the hearing, the ALJ repeatedly asked about lesser sanctions that have any meaning.

[00:23:33] Speaker 02:
at 11500 to 01, again, more about lesser sanctions at 11508.

[00:23:39] Speaker 02:
He discussed all of this.

[00:23:40] Speaker 02:
Then even the commission.

[00:23:42] Speaker 02:
The commission found the deterrent value flowing from the factual findings of pervasive discovery abuse underlying the default sanction make the sanction and consent order inherently unequal.

[00:23:53] Speaker 02:
We don't believe that there's much merit.

[00:23:55] Speaker 02:
in this argument.

[00:23:57] Speaker 02:
We've heard stuff about prejudice.

[00:23:59] Speaker 02:
I don't really understand the role of that here.

[00:24:01] Speaker 02:
Under DC Circuit law, I don't know whether this court applies its own regional circuit law or DC Circuit law.

[00:24:07] Speaker 02:
It's one or the other.

[00:24:08] Speaker 02:
Under DC Circuit law, you can have default based only on deterrence, as long as it's supported by flagrant or egregious misconduct.

[00:24:17] Speaker 02:
And that's certainly the case here.

[00:24:20] Speaker 02:
And my one last point would just be that the commission is perfectly willing to explain the operation of its rules, including rule 210.33.

[00:24:27] Speaker 02:
There are arguments first raised in the reply brief by organic chemia that allege that the commission rule isn't as broad as rule 37.

[00:24:38] Speaker 02:
This court in Genentech, footnote nine, noted that the two are the same.

[00:24:42] Speaker 02:
And if this court wants me to discuss the operation of the commission rule, I'd be happy to do so.

[00:24:45] Speaker 01:
Thank you, counsel.

[00:24:47] Speaker 01:
We'll hear from Mr. Nimrod-Fattah.

[00:24:55] Speaker 00:
Good morning, your honors.

[00:24:56] Speaker 00:
Please, the court.

[00:25:00] Speaker 00:
I'd like to start by addressing the issue of lesser sanctions.

[00:25:03] Speaker 00:
The commission did not just address the consent order in a footnote.

[00:25:08] Speaker 00:
They spent two pages from JA 32 to 34 fully addressing whether a consent order would be sufficient.

[00:25:15] Speaker 00:
The commission and the LJA also addressed the issue whether a lesser sanction such as Perez not being allowed to testify would be sufficient.

[00:25:21] Speaker 00:
It clearly is not, given the fact they destroyed 600,000

[00:25:25] Speaker 00:
documents from his computer, given the fact that he was the head of R&D and the points we put forth as confidential on pages 9 and 10 of our brief.

[00:25:34] Speaker 00:
There was a statement made by counsel that other elements of the trade secret claim of Dow would have been unaffected, that all that would have been found on the laptop was documents supporting misappropriation.

[00:25:44] Speaker 00:
That argument was rejected by both the ALJ and the Commission.

[00:25:48] Speaker 00:
They both found that the laptop could have and likely would have had

[00:25:52] Speaker 00:
information going to all of the elements of Dow's claims.

[00:25:55] Speaker 00:
For example, at page JA 11509 to 510, which is transcript pages 400 to 401, the ALJ addressed this issue at the hearing and said, well, a document could have had, and went through a list with a hypothetical document.

[00:26:10] Speaker 00:
And the other side's counsel agreed.

[00:26:12] Speaker 00:
They didn't dispute that.

[00:26:13] Speaker 00:
They couldn't rebut that at all.

[00:26:14] Speaker 00:
The commission addressed the same issue at page JA 35 to 36.

[00:26:18] Speaker 00:
They said an argument was made during the commission briefing.

[00:26:21] Speaker 00:
that perhaps the evidence would have only gone to one element.

[00:26:24] Speaker 00:
And they rejected that explicitly.

[00:26:25] Speaker 00:
They said that there on JA 36, they said that the information there could have gone to whether Dow's trade secrets were kept secret.

[00:26:32] Speaker 00:
In fact, were they trade secrets?

[00:26:34] Speaker 00:
Did they have value?

[00:26:35] Speaker 00:
Because the issue here was the other side had been alleging that somehow you could piece together Dow's trade secrets from 15 patents of Dow and take hundreds of examples and assemble a 50-step trade secret recipe.

[00:26:46] Speaker 00:
And the Perez laptop would have gone directly to the point that no,

[00:26:50] Speaker 00:
What's in the public domain would not allow you to get to Dow's trade secrets.

[00:26:53] Speaker 00:
It was crucial evidence.

[00:26:55] Speaker 00:
Dr. Prez was the key player, and this was an intentional destruction of the evidence of the key player in the case.

[00:27:03] Speaker 03:
Do you agree with me that even if the ALJ had decided that instead of entering default judgment, you should just enter all kinds of

[00:27:15] Speaker 03:
inferences against organic chemia that the result would have effectively been the same?

[00:27:22] Speaker 00:
Yes, and the ALJ made that finding in page 18193, where he said that even if I just look at adverse inferences, the result's the same.

[00:27:30] Speaker 00:
And for the reason I just discussed, if the computer would have likely had something on it to go into all four elements of our claim, then you'd have an adverse inference on one, two, three, four, and the result is default judgment, which is exactly what the ALJ was saying

[00:27:43] Speaker 00:
And the commission was saying, when they said, well, your argument is just going to one element, you're wrong.

[00:27:47] Speaker 00:
And they went through and addressed the two elements that Organic said during commission briefing would not have been found there.

[00:27:52] Speaker 00:
And they made a finding squarely rejecting that.

[00:27:55] Speaker 00:
So the commission actually and the LGD did go through, even though there were only two sanctions that were offered up by Organic.

[00:28:02] Speaker 00:
They went through and they did scroll through it.

[00:28:04] Speaker 00:
They said, OK, we're going to look to see if something else would suffice, like an adverse inference, even though that was not proposed by Organic.

[00:28:10] Speaker 00:
And they said that would not suffice because we'd have to go through and have an adverse inference on all four of the elements, which is the same as a default judgment.

[00:28:20] Speaker 00:
And there was a council read a portion from JA192 about the fact this is only two pages and was reading from a sentence that actually starts with the words, as exhaustively discussed supra.

[00:28:33] Speaker 00:
The ALJA said, I'm doing this because what I've just said for the prior 99 pages, he spent

[00:28:39] Speaker 00:
And those pages, 15 pages alone on organics bad faith, that's JA 163 to 179.

[00:28:43] Speaker 00:
13 pages on the relevancy of the destroyed documents and the prejudice to doubt, JA 179 to 192.

[00:28:50] Speaker 00:
The commission at JA 34 to 36 went through the same analysis.

[00:28:54] Speaker 00:
And they both concluded that we made plausible concrete suggestions going to all of our trade secret elements of our claim.

[00:29:02] Speaker 00:
So the result should be the same here, whether or not you say we are limited to remedy the prejudice.

[00:29:07] Speaker 00:
Because the prejudiced sedan went to all four of the elements, so therefore it would be default judgment.

[00:29:11] Speaker 00:
But of course, that shouldn't be the result.

[00:29:13] Speaker 00:
You could only look at prejudice.

[00:29:15] Speaker 00:
You can't have a party come in and destroy documents.

[00:29:19] Speaker 00:
This is worse than Micron.

[00:29:21] Speaker 00:
An administrative law judge said, I want you to produce this document.

[00:29:26] Speaker 00:
There's been some monkey business here.

[00:29:27] Speaker 00:
You're not producing all your documents.

[00:29:29] Speaker 00:
So they went and they looked at the document with a forensic tool.

[00:29:33] Speaker 00:
didn't like what they saw, so they did something to delete it, whooped again with another forensic tool, still didn't like it, and ran another C cleaner program, it's called, to wipe it out.

[00:29:43] Speaker 00:
And then what happens the next time, the ALJ says, OK, now you've got to produce the Strozzi laptop.

[00:29:49] Speaker 00:
And in the reply brief, the other side says, well, that's not relevant, because Dow got some of the documents back.

[00:29:54] Speaker 00:
But it shows exactly why you can't allow this.

[00:29:56] Speaker 00:
The judge said, don't tamper with this.

[00:29:58] Speaker 00:
And they destroyed it anyway.

[00:30:00] Speaker 00:
And our forensic experts recovered some, but not all.

[00:30:02] Speaker 00:
But even if we recovered all of it, you can't allow parties to simply violate court orders by looking and saying, do I like this or don't I?

[00:30:10] Speaker 00:
I'll just hit the Delete button.

[00:30:12] Speaker 00:
And if I do, the worst that's going to happen is I'll get an adverse inference on one element.

[00:30:16] Speaker 00:
Now, I would like to address the issue of the remedy, Your Honors.

[00:30:20] Speaker 00:
We put an ample proof supporting a 25-year exclusion order.

[00:30:24] Speaker 00:
We have an expert who went in, and the commission's instructions to both parties was very clear.

[00:30:29] Speaker 00:
They said, don't come and argue about whether there's trade secrets.

[00:30:32] Speaker 00:
let us know what the exclusion order should be, assuming that the trade secrets were found.

[00:30:37] Speaker 00:
And that's part of the question they presented.

[00:30:39] Speaker 00:
And our expert came in and said, well, based on the fact these trade secrets are here, it would take 15 to 25 years.

[00:30:45] Speaker 00:
And they don't dispute that the evidence supports a 25-year exclusion order.

[00:30:48] Speaker 00:
What they're saying is that they should have been allowed to come in and argue there were no trade secrets.

[00:30:52] Speaker 00:
And it really makes no sense, because if there's a default judgment, it's supposed to be the same as if we'd won on the merits.

[00:30:59] Speaker 00:
And if we'd won on the merits, they would be able to come at the remedy phase and say, well, let's just assume there's no trade secrets.

[00:31:05] Speaker 00:
Let's re-argue that again.

[00:31:06] Speaker 00:
The default judgment had no teeth whatsoever.

[00:31:08] Speaker 00:
You have to start with the presumption then that if there's a default judgment that is going to the merits, then the trade secrets were found.

[00:31:15] Speaker 00:
They're valid.

[00:31:16] Speaker 00:
You can't get to them.

[00:31:17] Speaker 00:
You can't have your expert come in then and go through paragraph after paragraph, which is what he did, saying, well, this isn't a trade secret.

[00:31:22] Speaker 00:
That's not a trade secret.

[00:31:23] Speaker 00:
And that's not a trade secret.

[00:31:24] Speaker 00:
And therefore, the exclusion order should be zero to two years.

[00:31:29] Speaker 00:
Commission allowed them to put in briefing on it, and they didn't follow what they said.

[00:31:35] Speaker 00:
The commission said at J37 and 38 that organic chemistry is challenged to the scope of the exclusion orders based on whether any and all trade secrets were unknown to the public and would be difficult to design around.

[00:31:46] Speaker 00:
These all go to the merits which organic chemistry has waived by default.

[00:31:50] Speaker 00:
So there might be an issue in some other case about whether if someone defaults, they should get to put in some evidence or not.

[00:31:55] Speaker 00:
But here, you don't even need to resolve it because they didn't put in the right evidence.

[00:31:59] Speaker 00:
Nothing on the actual evidence, the issue, which would have been, assume the trade secrets are there.

[00:32:05] Speaker 00:
How long would it take to design around?

[00:32:07] Speaker 00:
They put nothing in on that.

[00:32:09] Speaker 00:
Thank you, Your Honors.

[00:32:09] Speaker 01:
Thank you, Counsel.

[00:32:11] Speaker 01:
Ms.

[00:32:11] Speaker 01:
Stetson will give you three minutes of rebuttal time if you need it.

[00:32:15] Speaker 04:
Thank you, Judge O'Leary.

[00:32:16] Speaker 04:
Three quick points on remedy.

[00:32:17] Speaker 04:
The first is Mr. Rosenzweig drew a distinction between an injunction and damages.

[00:32:22] Speaker 04:
That's not the right distinction.

[00:32:24] Speaker 04:
The distinction for these purposes is, is the remedy fixed or is it variable?

[00:32:30] Speaker 04:
And here, you had evidence, and I can get to that last point, ranging from 2 to 25 years about the appropriateness of the scope of the exclusion order.

[00:32:40] Speaker 04:
And the ALJ, again, went to the very end of the line.

[00:32:44] Speaker 04:
Now, interestingly, what Mr. Rosenzweig said also was, we haven't a judge spolier here.

[00:32:52] Speaker 04:
as part of his justification for the remedy.

[00:32:54] Speaker 04:
But again, that introduces the comment that I made earlier, which is that to the extent that sanction is infecting the remedy, that is completely inappropriate.

[00:33:04] Speaker 04:
What the court should, what the ALJ should have permitted is for organic chemia to submit evidence on the remedy.

[00:33:10] Speaker 04:
And on that last point.

[00:33:11] Speaker 03:
But it's not, I mean, you just heard Mr. Nimrod address that very issue, which is it's not

[00:33:19] Speaker 03:
a question of whether, as a spoliator, you get punished with a longer remedy.

[00:33:24] Speaker 03:
It is a question of having established that there were trade secrets that had been stolen, because that's what the default judgment says, that that's where you start with respect to considering the remedy, correct?

[00:33:37] Speaker 04:
That's correct.

[00:33:37] Speaker 04:
But both Mr. Nimrod and Mr. Rosenzweig unfortunately have misapprehended

[00:33:43] Speaker 04:
our remedies argument.

[00:33:45] Speaker 04:
Our remedies argument, and you can see this at Joint Appendix 13436 through 56.

[00:33:50] Speaker 04:
So 19 pages of argument titled, the length of the exclusion order should not exceed the time it would take to independently develop the misappropriated trade secrets.

[00:34:00] Speaker 03:
And what evidence did you present on how you could independently develop the misappropriated trade secrets without the misappropriated trade secrets?

[00:34:06] Speaker 04:
The evidence at those 19 pages of argument and the expert report that went along with it.

[00:34:11] Speaker 04:
The problem was saying, and actually Mr. Rosenzweig

[00:34:13] Speaker 04:
said something very curious.

[00:34:15] Speaker 04:
Right after he said, organic chemia is just saying these aren't trade secrets, he then went on to do something very helpful to you, which is that he articulated all the things that don't matter for the scope of the remedy.

[00:34:26] Speaker 04:
He said, do the trade secrets exist?

[00:34:27] Speaker 04:
Yes or no.

[00:34:29] Speaker 04:
Did Dow keep control of them?

[00:34:31] Speaker 04:
Yes or no.

[00:34:31] Speaker 04:
Were they misappropriated?

[00:34:33] Speaker 04:
Yes or no.

[00:34:34] Speaker 04:
All of those things, we admit, are off the table when it comes to the scope of the remedy.

[00:34:39] Speaker 04:
What's on the table is how long it would have taken us to develop those things

[00:34:43] Speaker 04:
in the absence of the misappropriation.

[00:34:45] Speaker 04:
And that's exactly the evidence that this ALJ did not permit us to bring in.

[00:34:50] Speaker 04:
That is the deficiency.

[00:34:52] Speaker 04:
Not that we were trying to retry the whole case.

[00:34:54] Speaker 04:
We were not.

[00:34:55] Speaker 04:
We were asking, particularly at those 20 pages, let us put on evidence about the scope of the order.

[00:35:01] Speaker 04:
And the ALJ and the commission, citing again our misconduct, turned us down.

[00:35:06] Speaker 04:
That's the problem with the remedy.

[00:35:08] Speaker 04:
If there are no further questions.

[00:35:10] Speaker 01:
Thank you.

[00:35:10] Speaker 01:
Ms.

[00:35:10] Speaker 01:
Stetson will take the case under advisement.