IP disclosure: an object lesson in costly errors
In a dispute between UK start-up Cabo Concepts and toy business MGA Entertainment, significant errors in the conduct of the disclosure process by MGA have resulted in a two-year delay to trial and a substantial award of wasted costs.
The underlying dispute concerns a claim brought by Cabo against MGA in respect of alleged breaches of statutory duties, including abuse of a dominant position and making unjustified threats of patent infringement. Cabo alleges that MGA engaged in an anti-competitive campaign to hinder Cabo’s launch of a range of collectable toys, which it said was likely to compete with MGA’s LOL Surprise! range.
The civil litigation rules of England and Wales require that the parties identify and disclose to each other documents in their possession or control that they wish to rely on, and those that adversely affect their own case, adversely affect another party’s case, or support another party’s case (unless they are subject to privilege).
It was evident from the outset of this dispute that the disclosure process was going to be of critical importance. Cabo only became aware of MGA’s alleged unlawful conduct when certain emails between the senior vice president of MGA and a toy retailer in the UK were passed to Cabo by employees of the retailer. The senior vice president and the chief executive of MGA are alleged to have been the main protagonists in the unlawful conduct.
However, three weeks before the trial of the dispute was due to commence, MGA informed the court that it had missed something in the region of 84,000 documents during the data-collection process underlying its disclosure. As a result, the trial was adjourned from 27 June 2022 to 1 October 2024.
Serious errors
In a judgment that was chiefly concerned with an application by Cabo for an award of its wasted costs on an indemnity basis and a payment on account of those costs, Mrs Justice Joanna Smith accepted that there had been no deliberate attempt by MGA to conceal documents, but found that a number of serious errors had been made.
Things started to go wrong from an early stage. MGA successfully resisted Cabo’s request that MGA’s disclosure process should be supervised by an independent e-disclosure specialist, on the basis that it would be supervised by MGA’s legal representatives, Fieldfisher, and Fieldfisher’s in-house document review provider, Condor ALS.
It was subsequently acknowledged, however, that Fieldfisher’s legal team did not have the technical expertise needed to supervise MGA’s harvesting of electronic documents for disclosure. Suggestions made by Condor in relation to the methodology to be used (in particular, not filtering the documents by date before transferring them to the e-disclosure platform being used) appear to have been ignored, and Condor was not ultimately instructed to supervise MGA.
Missed ‘red flags’
In 2017, MGA switched from using independent e-disclosure specialists for large-scale disclosure exercises to using its own in-house team. The team had not, however, conducted a disclosure exercise in relation to UK litigation before, and it was the largest exercise that they had undertaken in-house. The judge criticised Fieldfisher for not questioning more carefully whether MGA’s in-house IT team really had the expertise and experience required to undertake the process itself.
Several technical failures were flagged by the judge, including: “(i) the use of Microsoft Outlook, software which is not designed for a disclosure exercise of this sort and has various well-known limitations; (ii) the inappropriate use of Microsoft 365, … which … also appears to have limitations when it comes to searching data; (iii) the failure to follow guidance from Microsoft as to how to conduct date range searches in mailboxes held in Microsoft 365, a failure which led to the “Creation Date” field being used instead of the Sent or Received dates, leading to incorrect results … ; (iv) the decision to filter the data prior to upload [to the e-disclosure platform] in circumstances where MGA wrongly believed that full dataset exports would result in significant extra expense in data hosting charges; and (v) the failure to exercise appropriate levels of quality assurance and control.”
Fieldfisher also missed certain ‘red flags’ that should have alerted it to the fact that the exercise undertaken by MGA was flawed, and caused it to question it more thoroughly. In one instance, a number of important emails were identified by other means, which had been missed by the disclosure exercise.
In another instance, MGA was asked to send a number of documents to Fieldfisher for review, and split them into batches to do so. However, an error resulted in a number of the requested documents not being included in the batches that were sent by MGA, and no cross-check was undertaken to ensure that the documents received included all those that were expected.
A flawed process
Once the issues concerning the original disclosure exercise came to light, Fieldfisher asked MGA to conduct a re-harvest of documents. Again, MGA did not employ an independent e-disclosure specialist to undertake or supervise the process. The re-harvest identified a substantial number of documents that had been missed.
Nonetheless, Cabo pointed to flaws in the process, including: that a field called ‘Creation Date’ was used in an attempt to filter existing employees’ emails but did not work; that a proper audit trail was still lacking; that three emails from the senior vice president of MGA were still missed; and that a consistent method of deduplication may not have been applied.
It was accepted by the judge, and by MGA, that the re-harvesting was also deficient and it had already been determined that MGA should undertake the whole exercise again—this time under the supervision of an independent e-disclosure specialist.
The judge found that, on balance, MGA’s conduct was outside the “ordinary and reasonable conduct of proceedings” and awarded Cabo its wasted costs on an indemnity basis. There was some disagreement as to the value of these costs, but the judge ordered a payment on account of £578,444.17, pending detailed assessment, on the basis that they were likely to considerably exceed this sum.
Lessons learned
For legal representatives, the judgment highlights the need to carefully scrutinise the expertise and experience of the IT team undertaking the harvesting of documents for disclosure, and the methodology being employed, particularly if the client is using an in-house team and not an independent e-disclosure specialist.
They also need to keep a careful watch for errors that suggest that the process may not have been conducted properly, and investigate why any such errors arose.
For a party to litigate in the UK, or other jurisdictions where disclosure plays an important part in proceedings, it serves as a warning to be wary of relying on an in-house IT team to conduct the initial identification and collection of documents in a large-scale disclosure process.
Although engaging an independent e-disclosure specialist to undertake or at least supervise the process will increase a party’s costs in the short term, it could ultimately help it avoid making errors that prove significantly more expensive in the long term.
David Fyfield is a senior associate solicitor at Mewburn Ellis LLP. He can be contacted at: david.fyfield@mewburn.com
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