Re: 20-year-old Court Filing Comes Back To Haunt Qualcomm In Antitrust Dispute With U.S FTC
Elliott Davis
Record Retention Policies present a host of issues beyond the retention and destruction[1] procedures that well-managed businesses would adopt if commercial concerns such as corporate governance and risk management were the only considerations. Furthermore, these Policies are better described as Record Destruction Policies because their principal goal is to set a date when records can safely be discarded without fear of financial or other adverse consequences.
Record Retention Policies are regulated by multiple rules and laws. First, there are certain U.S. legal requirements to maintain certain records for designated periods, and to provide them to government agencies under certain conditions. Second, there are basic corporate records and important agreements and other documents that should be retained and safeguarded. Finally, there are evidentiary and discovery requirements if the Company becomes involved in litigation or regulatory proceedings.
20-year-old court filing comes back to haunt Qualcomm in antitrust dispute with U.S FTC
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A thorough Record Retention Policy provides retention guidelines and procedures for storage, organization, retrieval and, ultimately, destruction of documents. The Policy designates the individuals responsible for compliance, and the Policy provides for the suspension of the Policy in the event of litigation or an investigation or other designated events.
Since retention of hard copies and electronic documents is expensive and often time-consuming, the most common preference is toward discarding any documents that are not required to be maintained. Unfortunately, even a general destruction policy can sometimes raise adverse inferences in litigation.
In general commercial litigation, immediate holds are put on document destruction, but with an automatic destruction program in place, that might be too late to save an important writing, and most substantial corporations are constantly involved in various litigations, so that determining the proper depth of a direction to hold all documents might be difficult or impossible to assess until after the fact.
Even given the substantial costs of document archiving, there are advantages to retention and explanation, as opposed to destruction with possible adverse inferences or worse. If a document is created which clearly presents an issue, then attach a contemporaneous explanation of it and why it is incorrect or misleading. Then at least the record is there if the need ever arises. But, applying this general concept to the real world is extremely difficult in practice.
On the other hand, the relative costs of electronic data retention, versus the often more expensive alternative of effecting a disciplined destruction program, result in many modern businesses keeping everything virtually forever. This often occurs in legacy systems which fall increasingly out of date, except as purely old record storage systems, but they are still subject to future discovery requests and often present only a possible litigation liability with little or no current business value.
In mergers, our first caveat to the parties is to assume that anything and everything written about the deal is subject to a Section 4(c) filing with the Hart-Scott-Rodino pre-merger notice, and these writings could be a roadmap to an antitrust issue that simply might not otherwise occur to the antitrust regulators.
Deliberately withholding records obviously can attract sanctions and worse. In January 2008, a federal court ordered telecom giant Qualcomm Inc. to pay $8.6 million in sanctions and asked the California state bar to investigate six of its attorneys for ethical violations after finding that it deliberately withheld nearly 50,000 documents from discovery in a patent dispute with rival Broadcom Corp. The court also ordered Qualcomm and its attorneys to undertake a comprehensive review of discovery failures in the case and develop a case-management protocol that would avoid similar scenarios in future cases.
While hard copies of documents are easy to destroy, electronic copies sometimes rise like the Phoenix from the ashes, often at the most inopportune times. There are procedures to render electronic files unrecoverable, but forensic recovery methods are constantly becoming more sophisticated. And if records exist and are destroyed or not produced after a proper demand is made, penalties can include judicial sanctions and even dismissal of the case.[3]
Logically, destruction of electronic records should raise no more of an adverse inference than destruction of hard copy records, provided that there then exists no reasonably foreseeable reason for further retention. However, the instant that litigation or regulatory proceedings become reasonably foreseeable, an immediate hold must be imposed on all possibly relevant documents and sources. In the case of a corporate client with diverse operations, it may be virtually impossible to conclude with confidence that a record in one location can be destroyed, since the possibility might exist that it is relevant to or subject to discovery in a case or proceeding in another jurisdiction far away.[4]
[2] The 10-year retention period is a rule of thumb to be used subject to the attached Schedule at the end of this Advisory. In certain cases, our recommendations take a conservative view to avoid destruction or disposal of documents prematurely.
[8] The general consensus from accounting websites is that budget records should be retained for either seven or 10 years, and accounting policies suggest the seven-year rule for financial records. The New York State Division of Budget retains budgets and related information for six years. Records Management Procedures, Appendix A: Records Series Titles & Retention & Disposition Guidelines, Division of the Budget (Mar. 1, 2019).
[9] Cancelled checks for important payments, special contracts, the purchase of assets, taxes, and fixed assets, and checks that are filed with papers pertaining to an underlying transaction, should be retained permanently.
[13] Some legal sources and websites indicate that fixed asset purchase documentation (including invoices, cancelled checks, and depreciation schedules) should be retained permanently, but others indicate that retention for seven years post disposal is sufficient. General purchase orders and invoices should be retained for three years post disposal.
[28] Some legal sources and websites indicate that loan documents and promissory notes should be retained for seven years post termination, but others indicate that they should be retained permanently.
For most Europeans, the first eight months of World War II were a snooze fest. Unlike the first world war, little but bureaucratic chatter seemed to happen for almost a year after Germany and the U.S.S.R. invaded Poland in September of 1939. This changed in May of 1940, when Germany attacked France and the low countries, winning much of continental Europe in just six weeks. But until then, those eight months were anti-climactic for the many peoples who were expecting, as they had experienced a little over twenty years earlier, mass slaughter.
There are other shifts in the marketplace. Amazon, for instance, is considering rolling back its basics program due to fear of regulation and antitrust action, and I have heard from some third party sellers that Amazon over the last few years has tried to tamp down on overtly predatory behavior in its Marketplace. As the retail giant does so, it could help tens of thousands of third party sellers and merchants.
Another example is using the law to in labor cases. The Antitrust Division has been criminally prosecuting wage-fixers. It also forced structural change in the poultry industry to help farmers. In addition, the DOJ will likely prevail in its suit against a big book merger, which will benefit writers and free expression, and shift antitrust law in important directions. And the FTC has stopped predatory payments firm FleetCor, which has been ripping off businesspeople who use gas cards.
This action is likely to save money for consumers, and benefit people who need help with their hearing, while protecting independent audiologists. Senator Elizabeth Warren and Chuck Grassley kicked this move off in 2017 by passing a law signed by Trump mandating this new hearing aid category, then the Biden administration forced the FDA to act. (There are some problems with the regulations that I will go into at some point, but hearing aid cartel firm stocks are hurting for a reason.)
Another example is the fall of the Varsity Brands cheer empire, whose power is being dismantled as an antitrust suit fostered an outpouring of anger at sexual abuse in the sport. More broadly, in everything from app development to anger at software firms like Autodesk, people are speaking out.
Similarly, the Division failed in a case in the sugar industry combining two giants in the southeast. Sugar is a consolidated industry, so is agriculture more broadly. You would think, given the caselaw and the concentration crisis, this challenge would be a lay-up. Alas, no. Similarly, the FTC lost a challenge in its administrative court between Altria and Juul in the comically concentrated tobacco sector. The Commission also lost in that same court a challenge to Illumina-Grail, which is a vertical merger case involving cancer screening. And then there are of course the three losses by the Division in criminal trials for wage-fixing or price-fixing.
Still, the way to get over this brick wall is straight through it. With hundreds of Federalist Society judges friendly to corporate power put on the bench, and many more left-leaning judges who are also friendly to corporate aims, enforcers will have to get better at litigating, asserting good case law, and winning in front of juries. And they will. The Antitrust Division is filing a record number of cases, so there will be a lot of opportunities to practice. Resurrecting dormant law, as the Division is doing with the part of the Clayton Act on interlocking directorates, and the FTC is doing with anti-bribery statutes, will also help. Moreover, not all judges are corrupt or bad, most of them are just operating on autopilot, so enforcers are going to win some cases.
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