MEMORANDUM DECISION AND ORDER
This action arises out of defendants' alleged infringement of a patent of which plaintiff Chris Cacace claims ownership and to which plaintiff Culinary Edge Creations, LLC ("CEC") claims exploitation rights. Presently before this Court is plaintiffs' motion for sanctions, including attorneys' fees and costs, premised upon defendants' alleged spoliation of evidence. For the reasons that follow, plaintiffs' motion is denied.
In December 2002, U.S. Patent No. 6,497,174 ("the patent") issued to plaintiff Chris Cacace for a novel frying pan design that makes the flipping and tossing of foods easier and less messy for novice home cooks ("plaintiffs' flip pan"). In January 2004, at the suggestion of the television shopping network QVC, plaintiff CEC contacted defendant Meyer U.S. to explore a possible business relationship wherein Meyer U.S. would manufacture and distribute plaintiffs' flip pan. CEC sent Meyer U.S. a sample of plaintiffs' flip pan; Meyer U.S. immediately returned the pan and informed CEC that a Meyer U.S. affiliate already had a similar design concept in development. In February 2004, in light of its new awareness of plaintiffs' patent, Meyer U.S. sought the advice of its patent attorney concerning whether its design practiced Mr. Cacace's patent. Meyer's patent counsel issued a written opinion in which he concluded that it did not.
In May 2004, the parties began substantive discussions regarding the business terms of a potential licensing agreement pursuant to which defendant would manufacture plaintiffs' flip pan for QVC. In the course of negotiations, the parties discussed defendants' desire to sell their own pan royalty-free. CEC requested drawings that showed the details of the Meyer design, which Meyer U.S. provided. Upon receipt of the drawing, plaintiffs expressed concern that the Meyer design infringed on the patent. Meyer U.S. responded that its design did not infringe and, accordingly, insisted that it would not pay royalties for pans based on its own design. CEC then requested a sample of the pan for which Meyer U.S. sought a release. On or about September 22, 2004, CEC received a sample of defendants' pan.
On or about October 28, 2004, the parties entered into a licensing agreement pursuant to which defendants would make, advertise and sell products based upon plaintiffs' patent in exchange for a royalty of one dollar per pan sold based on the patent. Under the terms of the licensing agreement, defendants could sell the "Licensee's Pan" royalty-free, provided that "Licensee's Pan" bore a specific legend. The licensing agreement also provided that neither the manufacture, sale or advertisement of the "Licensee's Pan" constituted infringement of the patent.
During the term of the licensing agreement, Meyer Macau manufactured and sold pans based on the patented design to QVC and paid royalties to CEC. Also during the term of the licensing agreement, two of defendants' affiliates produced and sold pans based upon the Meyer design under the Circulon and Farberware brands. Defendants paid no royalties to plaintiffs on the Circulon and Farberware pans. In November 2005, defendants declined to renew the licensing agreement, which expired on December 31, 2005. On or about March 21, 2006, plaintiffs notified defendants that the Circulon and Farberware pans did not fall within the definition and scope of "Licensee's Pan" and, therefore, were not excluded from the royalty and infringement provisions of the licensing agreement. Defendants denied infringement and maintained that the Circulon and Farberware pans fell within the carve-out provision. On or about April 14, 2006, plaintiffs commenced the instant action.
II. LEGAL STANDARD FOR SPOLIATION
"Spoliation is the destruction or significant alteration of evidence, or failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation." Allstate Ins. Co. v. Hamilton Beach/Proctor Silex, Inc., 473 F.3d 450, 457 (2d Cir. 2007) (quotation and citation omitted). A party moving for sanctions for spoliation of evidence carries the burden to prove: 1) that the spoliating party had control over the evidence in question and a duty to preserve it at the time it was destroyed, lost, or significantly altered; 2) that said evidence was destroyed, lost, or significantly altered with a culpable state of mind; and 3) that said evidence was relevant to the moving party's claims or defenses. See Pension Comm. of Univ. of Montreal Pension Plan v. Banc of America Secs., 685 F. Supp.2d 456, 467(S.D.N.Y. 2010).
A. When Did Defendants' Duty Arise? "The obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation." Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 436 (2d Cir.2001). Thus, the preservation requirement arises when a party "reasonably anticipates litigation." See Pension Comm., 685 F. Supp.2d at 466.
After obtaining notice of the litigation, a party "must suspend its routine document retention/destruction policy and put in place a 'litigation hold' to ensure the preservation of relevant documents." See id. (quotation and citation omitted).
Here, plaintiffs allege that defendants' duty to preserve arose in February 2004, when they learned of the patent and sought the opinion of their patent counsel. Plaintiffs point to defendants' own privilege log, which reflects documents produced in anticipation of litigation as early as February 25, 2004. Defendants respond that, although they anticipated litigation at that time, their concerns were abated once the parties entered into their licensing agreement. Thus, defendants argue that their obligation to preserve documents terminated on October 18, 2004 and did not attach again until April 2006 when they were served with the instant lawsuit.
In the Court's view, once defendants learned of the existence of the patent, they contacted their patent attorney in an effort to forestall litigation. Thereafter, in the course of the parties' business negotiations, plaintiffs expressed concern that the Meyer design infringed on the patent. Meyer U.S. responded that its design did not infringe and, accordingly, insisted that it would not pay royalties for pans based on its own design. Negotiations continued nonetheless and, ultimately, the parties reached a licensing agreement which excluded "Licensee's Pan" from its royalty and infringement provisions. It was, therefore, entirely reasonable for defendants to believe that any lingering concern regarding potential infringement was addressed by, and resolved within, the licensing agreement. Indeed, it is hard to imagine that defendants would have moved forward with the business arrangement had they believed litigation was forthcoming. Consequently, defendants were no longer obligated to preserve relevant evidence after October 18, 2004. The defendants' duty to preserve evidence arose again on March 21, 2006, when plaintiffs' counsel warned defendants of infringement.
A closer inspection of the defendants' privilege log indicates that they interpreted the dissolution and reinstatement of their duties to preserve evidence in precisely this manner, as no items are listed as having been prepared in anticipation of litigation between the date the licensing agreement ...