The National Association of Home Builders (NAHB) today appealed a court order by a federal judge in northern California that imposes more than $250,000 in monetary sanctions on the NAHB, the National Association of Realtors (NAR), and Move Inc., for withholding and destroying documents and other materials relevant to a long-standing patent infringement case. The NAR and Move joined the NAHB in its appeal.
Move Inc., formerly known as Homestore.com, operates a network of real estate information Web sites that get 7.4 million visitors per month. The network includes the NAHB’s official new-home listing site and the NAR’s official site, www.Realtor.com NAHB spokesperson Donna Reichle confirmed the filing of the appeal and said that if it isn’t granted, the NAHB and the NAR would request that the court impose sanctions only on Move. “NAR wasn’t involved in the issue being cited. If there was any misconduct, it was solely on the part of Move,” stated Walt Molony, the NAR’s spokesman, in an e-mail.
The three entities are defendants in a case, Keith Keithley v. The Home Store.com, Inc., stemming from a suit filed on October 1, 2003 by Keithley, a managing director with Tren Technologies Holdings in the San Francisco Bay area. Keithley alleges that the defendants infringed on a patent for tracking customer demographic information. He claims to have exclusive licensing rights to the patent and has been seeking damages and a permanent injunction against Move for using the technology. Keithley and Tren assert that the patent is infringed by Realtor.com, Move.com, Rentnet.com, and Moving.com, as well as other sites formerly operated by Move Inc.
In a stingingly worded order (PDF), issued on August 12, U.S. Magistrate Elizabeth LaPorte for U.S. District Court for Northern California in San Francisco directed the defendants to pay more than $250,000 in sanctions for a pattern of discovery misconduct that she called “egregious” and “reckless.” The penalty is on top of the more than $148,000 the court already granted Keithley to cover fees and costs. The plaintiff could end up receiving at least $1 million more from the defendants if the court is convinced that additional fees and costs are warranted to cover re-examination of evidence and redeposing of witnesses and experts.
LaPorte also recommended that a trial judge provide the jury with what is called an “adverse inference instruction,” which would state that if Keithley proves the defendants infringed any claim on his patent after Move’s various Web sites are analyzed, then the jury should conclude that those Web sites had infringed on the patent from the day they were launched. A trial date has been set for January 12, 2009.
Scott Richard Mosko, an attorney representing Keithley, tells BUILDER that a settlement of this case before trial “is always a possibility.” He also notes the defendants wouldn’t be subject to paying extra fees and costs “if they had followed the rules in the first place.” LaPorte’s order paints an extremely negative picture of defendants mishandling documents and source code information, and dragging their feet to comply with court orders to turn over these materials to the plaintiff.
This case traces back to late 1996, the year the patent was issued and the year that Homestore.com, a home-listings service, launched. Keithley notified the defendants they were infringing on the patent and sent several other notifications to defendants over the following five years. “Therefore, defendants had a duty to preserve documents well before this lawsuit was filed,” LaPorte wrote.
When the court issued an order, in December 2006, compelling production of documents relating to the production of source code for the defendants' Web sites, the defendants presented rationales for not turning over those materials that “evolved over time,” according to the court. At first, they said reports hadn’t been captured, which turned out to be false when, 15 months later, the defendants produced an estimated 480,000 hard copy reports on a hard drive. The defendants had also claimed that a computer failure in 2004 destroyed source code information, only to produce a CD with 220 megabytes of source code in April 2008 after Homestore’s chief information officer, Philip Dawley, “had a resurgence of memory,” said the court. Another “massive quantity of source code” was located two weeks later in the drawer of a Move Inc. engineer's office.
“The court is frankly shocked that when searching for source code to be produced pursuant to an unambiguous court order issued in December 2006, defendants apparently waited until April 2008 to consult with the person at Move who was responsible for pouring over the files to determine whether she had responsibly electronically stored information,”? the order stated.
The Court concluded that “defendants’ conduct was not inadvertent or beyond their control or merely negligent; to the contrary, defendants did not even come close to making reasonable efforts to carry out their preservation and other discovery obligations and to determine that their representatives to the court and to opposing counsel were accurate.”??
Apparently, the only thing that kept this judge from terminating these Web sites was her determination that the defendants had not engaged in “deliberate spoliation” of documents or other materials. The judge, however, declined a defendants' request to limit sanctions to Homestore.com.
Move Inc., which is based in Westlake Village, Calif., is no stranger to controversy. In 2006, its former CEO Stuart Wolfe received a 15-year jail sentence and a $5 million fine for his involvement in a scheme to defraud investors. The Los Angeles Times reported that Wolfe was one of 11 former Homestore executives who were convicted or plead guilty in connection with a scheme to inflate the company’s revenue and profit to prop up its stock price during the Internet boom years.