Klipsch Group, Inc. v. ePRO E-Commerce Ltd.

What happened

Klipsch Group brought a trademark and counterfeiting claim against ePRO E-Commerce, a Chinese e-commerce operator. Following the commencement of litigation, Klipsch sought discovery of ePRO's electronic records. Forensic examination revealed that during the litigation hold period, ePRO's personnel had manually deleted 4,596 files, run data-wiping software, and performed OS reinstalls on 18 separate machines, all of which destroyed potentially relevant evidence. The district court imposed sanctions of $2.7 million plus a $2.3 million security bond. The Second Circuit affirmed, holding that the district court had not abused its discretion and that the egregious nature of the discovery misconduct warranted the financial sanctions even though the underlying claim involved only approximately $20,000 in damages. The case is the canonical example of how the sanctions tail can dwarf the substantive case when electronic evidence is destroyed or concealed.