      In the United States Court of Federal Claims
                               No. 15-945C
                          (Filed: April 23, 2019)
                        (Re-Filed: May 10, 2019) 1

**************************
                                                       Contracts; partial motion to
4DD HOLDINGS, LLC, and                                 dismiss for lack of subject
T4 DATA GROUP, LLC,                                    matter jurisdiction; motion
                                                       for    sanctions;    RCFC
                           Plaintiffs,                 12(b)(1); RCFC 37(e); 28
                                                       U.S.C. § 1498(b) (2012);
v.                                                     authorization or consent;
                                                       spoliation; electronically
THE UNITED STATES,                                     stored information
                           Defendant,

      and

IMMIX TECHNOLOGY, INC.,

                           Third-Party.

**************************

      Edward H. Meyers, Washington, DC, for plaintiffs, with whom were
Robert B. Gilmore and Philip J. O’Beirne.

       John J. Todor, Senior Trial Counsel, United States Department of
Justice, Civil Division, Commercial Litigation Branch, Washington, DC,
with whom were Joseph H. Hunt, Assistant Attorney General, Robert E.
Kirschman, Jr., Director, Elizabeth M. Hosford, Assistant Director, for
defendant.
1
  This opinion was originally issued under seal to permit the parties an
opportunity to propose redactions on or before May 7, 2019. The
government filed a response on May 7, 2019, representing that “it has
conferred with counsel for plaintiffs and does not propose any redactions to
the April 23, 2019 opinion.” ECF No. 183. We thus reissue this opinion
unredacted.
       Sara M. Lord, Washington, DC, for third-party defendant.

                                   OPINION

BRUGGINK, Judge.

        Plaintiffs, 4DD Holdings, LLC and T4 Data Group, LLC
(collectively, “4DD”), filed a claim for copyright infringement in August
2015, alleging that the United States infringed plaintiffs’ copyright in its data
federation 2 software. 4DD claims that the government, acting through its
contractors, infringed on 4DD’s copyright by copying 3 4DD’s software and
installing the software in excess of the purchased license.

        Defendant filed a motion to partially dismiss plaintiffs’ claim in June
2016. The government argues that the court does not have subject matter
jurisdiction over the claim as it relates to alleged infringement by the
agency’s contractor Systems Made Simple, Inc. (“SMS”) when SMS was
working with 4DD’s copyrighted software in SMS labs. The court stayed
the motion to allow for discovery and lifted the stay in December 2018. The
motion is fully briefed, and we held oral argument on April 9, 2019. Because
plaintiffs have established that the government authorized and consented to
its contractor’s use of TETRA in SMS labs, we deny defendant’s motion to
dismiss.

        On November 21, 2018, plaintiffs filed a motion for sanctions against
the government for the spoliation of evidence. That motion also is fully
briefed, and we held oral argument on plaintiffs’ motion on April 9, 2019, as
well. Because we find that the government destroyed relevant evidence that
it had a duty to preserve, we grant plaintiffs’ motion for sanctions.

2
  Data federation “refers to the systems and processes that permit disparate
data sources to be combined into a single source of data.” Def.’s Mot to
Dismiss 2. Where databases are concerned, data federation permits
information from multiple databases to be combined without creating a new
database in the process. Id.
3
  The parties use the terms copying and cloning interchangeably when
referring to an action that allegedly infringed on 4DD’s copyright. We use
the same terms throughout to describe the allegedly infringing activity. We
do not draw a conclusion regarding whether the agency’s actions constitute
copyright infringement.
                                       2
                            BACKGROUND 4

       When providing healthcare to servicemembers, veterans, and their
families, the Department of Defense (“DoD”) and Department of Veterans
Affairs (“VA”) historically have been unable to share healthcare records
among data systems. In 2011, DoD and VA committed to finding a data
federation solution that would allow the agencies to share health records.
The effort was coined the integrated Electronic Health Record (“iEHR”) and
would be developed by the Interagency Program Office (“IPO”). After a few
years of working together, DoD and VA agreed to develop their own
solutions to data federation. The Defense Medical Information Exchange
(“DMIX”) project emerged in 2013 as DoD’s effort to develop
interoperability among the systems. IPO supervised the DMIX project with
assistance from DoD’s Defense Health Agency (“DHA”). The Chief
Engineer on the DMIX project was David Calvin.

       The configuration and testing of data federation software for the
DMIX project would be carried out by the agency’s Systems Integration and
Engineering Support contractor, SMS. SMS performed its work through task
orders issued under an indefinite delivery indefinite quantity contract, the
Chief Information Officer – Solutions and Partners 3 contract. David Calvin
was also the agency’s Contracting Officer’s Representative on the SMS
contract.

       Before the agency licensed 4DD’s software, SMS prepared to test and
configure data federation software. The agency had planned to develop a
software solution in the agency’s Development Test Center (“DTC”). 5 But
the DTC fell behind schedule and the agency provided more resources to
SMS so that SMS could perform some of its DMIX project work in its own
labs. Throughout the course of its work, SMS performed its duties both in

4
  The background section is drawn from the parties’ briefing on both motions
and the appendices attached to the briefing.
5
  This center housed computer servers and supported various projects,
including the DMIX project. Programmers, including SMS employees, used
remote access through a Virtual Private Network or similar connection to
work on the DTC servers. The DMIX project on DTC servers was housed
in nine data environments divided into two areas, including DotCOM
environments and DotMIL environments that were more secure.

                                     3
its own labs and by remote access to the DTC. Furthermore, the agency
repeatedly required SMS to perform work on the DMIX project using 4DD’s
copyrighted software in the contractor’s own labs. E.g., Pls.’ Mot. Exs. E, F,
G, X.

       The first recorded SMS installation of 4DD’s software in the SMS
labs occurred in August 2013, before the agency purchased a license to use
4DD’s software. 4DD and SMS apparently had agreed to a limited license
to allow SMS to do preliminary work on the DMIX project prior to the
agency licensing 4DD’s products.

       Following an Analysis of Alternatives and a fly-off competition, the
agency chose to license two of 4DD’s copyrighted software products:
TETRA Healthcare Federator and TETRA Enterprise Studio. 4DD’s
software hopefully would provide the ability to seamlessly connect data
across legacy systems.

       Although plaintiffs’ claim includes copyright infringement of both
products, the present motions discuss only TETRA Healthcare Federator,
referred to as TETRA. TETRA is a package of server components that
provides data federation capability, allowing medical records to be
transferred and viewed between systems. TETRA runs in the background on
a computer server. A computer server may have varying numbers of central
processing unit cores; anywhere from one to several dozen cores. Thus,
TETRA server components are licensed per core to account for numbers of
cores on different devices. In other words, the number of cores the user
should license depends on the number and type of machines on which the
user plans to install TETRA. 6 The agency purchased a TETRA license from
4DD’s authorized reseller ImmixTechnology, Inc. (“Immix”) for 64 cores.

       Immix and the agency also incorporated an End User License
Agreement (“EULA”) into their contract. The EULA provides that TETRA
could be used “solely for the purpose of supporting your organization’s
objectives in accordance with the terms of this EULA.” Def.’s Mot. to


6
  4DD’s other software product, TETRA Enterprise Studio, is a graphic
interface that enables a user to instruct TETRA Healthcare Federator to use
data. TETRA Enterprise Studio is purchased separately and licensed by user
seat instead of core.

                                      4
Dismiss Ex. 9 at 423. 7 The EULA permitted the agency to make “one (1)
copy of the object code to [TETRA] solely for back-up purposes,” which it
could only use “if the original copy is damaged or destroyed.” Id. Other
than the single back-up copy, the license agreement forbade copying
TETRA, distributing copies of TETRA, or permitting others to copy or
distribute copies of TETRA.

       The agency required 4DD to disable its TETRA tracking feature,
which otherwise would communicate with 4DD’s systems to inform 4DD if
a TETRA installation occurred. Consequently, as of September 26, 2013,
the agency had purchased a license to deploy TETRA on up to 64 cores and
to make only one back-up copy of TETRA, but 4DD could not track the use
of its software. 8    Sheila Swenson was the Contracting Officer’s
Representative on the contract with Immix for the TETRA license.

        After the agency entered into the TETRA license, SMS testing and
configuration work began in earnest. Mr. Calvin, deposed as a designated
representative on October 3, 2018, confirmed that, “yes,” “the general
workflow was, SMS would conduct development or testing, integration
activities, in their environment, and then move the results of that into a
production environment on the SMS side before it came over to the DTC[.]”
Pls.’ Resp. Mot. to Dismiss Ex. C at 14. Mr. Calvin also agreed, “yes,” “the
overall workflow involves the cloning of OVA images, and copying fully
configured virtual machines from the SMS lab to the DTC[.]” Id. at 15.

        Mr. Calvin went on to say “yes,” SMS’s work “in the SMS lab with
TETRA would have involved cloning TETRA virtual machines in their
labs[.]” Id. When asked, “And you understood [that SMS was] doing that,
and they had your authorization to do so,” Mr. Calvin responded, “Yes.” Id.
Similarly, when asked if SMS’s testing activities “to the extent that it
included cloning virtual machines of TETRA” were carried out with his

7
  Citations to the government’s appendices refer to the page number at the
bottom of the appendix page. Citations to plaintiffs’ appendices refer to the
page number at the top of the appendix page.
8
  The agency did not have an effective way to track TETRA use either.
Communications between Ms. Swenson, 4DD, Mr. Calvin, and SMS
demonstrate that the agency took responsibility for TETRA installations, but
also that it spent several months in late 2013 attempting to find an accurate
way to track TETRA use on the DMIX project. E.g., Pls.’ Resp. Ex. N, Ex.
O at 196, Ex. P at 198.

                                     5
authorization, Mr. Calvin responded, “Yes.” Id. at 16. In short, Mr. Calvin
explained, “Did they discuss with me what their plans were? Yes. Did they
say this is the direction we’re going with, and get concurrence? Yes.” Id.

        On December 27, 2013, the agency issued a change order for
environment builds. It directed copying service-oriented architecture
software from the initial DTC domain where TETRA was installed to other
DTC environments. Mr. Calvin stated in his July 30, 2018 declaration that,
when that software was copied, “the TETRA software, being also installed
in that environment, would have been copied as well . . . .” Def.’s Resp. Mot.
for Sanctions Ex. B.

       Following the December 2013 copying on DTC servers, on March 7,
2014, SMS Deputy Project Manager William Eubank provided a status report
to Mr. Calvin on activities in the DTC for the week. Mr. Eubank wrote,

       It appears the DFA software was cloned and moved[.] This
       should not have happened[;] SMS did not request this to be
       completed . . . . I need to know how you would like us to
       proceed: (Delete, Leave or Reimage) . . . . We will have to
       reimage in the future with newer version of DFA since we have
       delivered new versions since the clone of ICO1.

Pls.’ Mot. for Sanctions Ex. T.

      The attached “Weekly Project Status Report” states that TETRA had
been copied in at least three environments. Id. Mr. Calvin responded on
March 10, “I would say delete at this point.” Pls.’ Mot. Ex. U.

      On May 14, 2014, Mr. Eubank reported in a “TETRA License
Tracker” document that reconciling the number of cores in use had been
completed

       and all licenses from Tetra that were installed in the DTC have
       not been pulled due to government not wanting to break down
       the environments. We have been told to leave the DTC and we
       have stopped all work in those environments. I have also
       advised the government that they do not have enough licenses
       to support all the current environments within the DTC. I’m
       confirming with 4DD on how we can remove the keys from the
       DTC. 4DD is confirming the information.

                                      6
Pls.’ Resp. Ex. BB (emphasis added).

       In short, as early as May 2014, the agency knew that the project
required broader use of TETRA than the agency had contracted for on the
servers in the DTC alone, not accounting for the work being performed in
SMS labs.

      On May 20, 2014, Mr. Matus emailed the SMS test plan proposal for
the DTC to Mr. Calvin. Mr. Calvin responded by asking, “Do we have
enough TETRA licenses to cover testing?” Pls.’ Mot. Ex. W. Mr. Matus
responded with an accounting of TETRA downloads obtained by SMS. He
noted that the DTC had “the same licenses in multiple environments,”
concluding “[t]hose TETRA instances really need to be deleted.” Id.

        4DD contacted Ms. Swenson on August 29, 2014, alleging that more
than 64 cores were in use. 4DD’s 4DD Vice President of Business
Development Patrick Truxillo wrote, “The original purchase was for a block
of 64 cores, which was fulfilled on November 20, 2013.” Pls.’ Mot. Ex. Z.
Mr. Truxillo concluded that “68 additional cores” were in use for a total of
132 cores. Ms. Swenson replied, “Thank you for this report[.] We will
evaluate the data and get back to you to discuss.” Id. Ms. Swenson promptly
forwarded Mr. Truxillo’s email to Mr. Calvin, writing, “This is what I need
to talk to you about…….!!!! over[-]installs, I should have been paying
attention.” Pls.’ Mot. Ex. X.

         The agency agreed to engage in a true up with 4DD regarding the
use of TETRA. By this point Mr. Calvin had directed SMS to “remove the
cloned copie[s] (if there were any) from DMS in other environments.” Pls.’
Mot. Ex. AA. 4DD was not informed at the time that the agencies intended
to delete copies.

        Communications within the agency from September 2-4, 2014,
illustrate that the agency had not been keeping a detailed, easily accessible
record of TETRA use. After fifteen months of TETRA use, on September 2,
2014, Mr. Calvin asked: “Anyway for someone to tell me how many licenses
of TETRA are in the DTC?” Id. When Ken Allgood, involved in DTC
oversight, asked, “Would TETRA be included as part of each DMS
install/build that SMS has deployed,” Mr. Calvin responded, “Should be.”
Id.


                                       7
       Just as the true up was getting underway, on September 6, 2014,
SMS’s Mr. Eubank emailed the agency, “Attached are the servers, IP’s and
environments that we will be deleting from the DTC environments. . . . Our
COR has purchased enough licenses and wants to maintain the ICO1
environment as it was set up and installed in the beginning.” Pls.’ Mot. Ex.
BB. A September 9, 2014 change request signed by Mr. Calvin, states,
“Need to remove all cloned VM of TETRA from .com and .mil except ICO1
environment,” and, “Remove all DMS/TETRA instances in the DTC on the
.com/.mil environments. The only exception is the ICO1 environment.”
Pls.’ Mot. Ex. CC. The scheduling explanation section states, “This is a
license issue that we must clear up with ICO1 environment being the only
environment that we have paid for this year.” Id.

       Regarding this change request, during his May 16, 2018 deposition in
his personal capacity, Mr. Calvin stated that he would have discussed the
change request approving the deletion of TETRA copies with Ms. Swenson.
Pls.’ Mot. Ex. C. He stated that she could have shared the decision to delete
copies of TETRA with 4DD but that she did not do so. Id.

       Ms. Swenson indeed did not inform 4DD of the deletions. During
November 10 and 14, 2014 conference calls, the agency agreed to research
the cores in use in the DTC and SMS environments. Between these calls, on
November 12, Mr. Calvin emailed Ms. Swenson and other agency
employees, “I’m attaching the original request to delete the VMs that have
been talked about and a new request to delete the one remaining environment
that was left in .com.” Pls.’ Mot. Ex. HH. He attached the September
deletion order as well as a new November order, which states, “Remove all
DMS/TETRA instances in the DTC on the .com/.mil environments.” Id. The
new deletion order also refers to the reason for deletion as “a license issue.”
Id. A third deletion order was created November 14. Pls.’ Mot. Ex. CC.

       During a conference call on December 12, 2014, the agency
represented that it was continuing to gather information and confirm the
number of cores allocated to the DTC. By December 16, 2014, the agency
reported to 4DD that 64 cores were in use on DTC servers. The agency also
had “identified an over deployment of 168 core licenses to development
servers.” Def.’s Mot. Ex. 12 at 459.

       Despite these representations, Ms. Swenson explained in her May 21,
2018 deposition that 64 cores were reported because that was the number of
cores the agency had originally paid for in the TETRA license. In fact,

                                      8
although she “knew something was wrong” and was “suspicious,” she had
“no idea” how many cores were in use on DTC servers when the agency
represented to 4DD that only 64 cores were in use. Pls.’ Mot. Ex. JJ.

       As the true up continued, a few relevant events occurred in early 2015.
In January 2015, SMS communicated to the agency through a slide
presentation that it was the contractor’s position that SMS labs “was not
Government directed or tasked” and that 4DD was aware it would not receive
compensation for TETRA installations in SMS labs. Def.’s Mot. Ex. 5 at
202–07. In its privilege log, defendant claimed work product protection for
a document dated January 23, 2015, because it was an “[e]mail [that] contains
information for the purpose of receiving legal advice, and prepared in
anticipation of 4DD Holdings, LLC v US litigation.” Pls.’ Mot. Ex. OO.
Finally, in February 2015, the agency began the preliminary steps of
decommissioning the DTC. Personnel from DHA were staffed with the
decommissioning process, namely Joshua Zamarripa and Lauro Salais, who
worked with contractors from ICS Nett and KSJ, particularly KSJ’s Denise
Stokely.

       The true up concluded on March 16, 2015, with the agency and Immix
modifying the TETRA license to increase the licensed quantity by 168 cores.
The agency thus paid for 232 cores: 64 cores under the 2013 TETRA license,
which the agency represented were used on DTC servers, and 168 cores
under the 2015 modification, which the agency represented were used in
SMS labs. The modification also states, “[T]he contractor hereby releases
the Government from any and all liability under this contract for further
equitable adjustments attributable to such facts and circumstances giving rise
to this particular modification. All other terms and conditions remain
unchanged.” Def.’s Mot. Ex. 3 at 194. TETRA ultimately did not continue
in use beyond the DMIX project.

        4DD filed this lawsuit on August 28, 2015. On September 9, 2015,
the Department of Justice sent the statutorily-required call letter to DoD,
alerting DoD of its responsibility to provide a litigation report and to furnish
all evidence in DoD’s possession. Def.’s Resp. Ex. H. The letter includes
these notes regarding evidence preservation:

              IMPORTANT: In the past it has been discovered that
       documents and papers necessary to the defense of an already
       pending suit were destroyed by an agency under its regular
       records screening and destruction program. In order to obviate

                                       9
       such costly and detrimental occurrences, it is requested that all
       records storage centers and other facilities where records are
       kept be immediately notified to forthwith identify, physically
       segregate and withhold from destruction all documents and
       papers touching upon the claims set forth in the complaint. As
       soon as practicable, you are requested to send me a separate
       report designating each location where records are being held,
       together with a brief description of the nature of the records
       being held.

               It has also been our experience that in some cases there
       has been a failure to communicate with all field offices and
       installations having knowledge of the facts. . . . To assist you
       in communicating with these field offices, we are enclosing an
       extra copy of this document. If you need further copies, we
       shall be glad to furnish them.

Id.

        Despite that notice, the decommissioning process did not change or
stop to accommodate the need for evidence preservation. A month after 4DD
filed its complaint, on September 22, 2015, Ms. Stokely emailed DHA
personnel, “It looks like we are a go for the destruction of the hard drives on
Saturday.” Pls.’ Mot. Ex. MM. She copied DHA’s Mr. Zamarripa who was
responsible for DTC oversight. The DTC hard drives were shredded,
destroying all of the information on those hard drives, on September 26,
2015.

       Nearly three months after 4DD filed this lawsuit, on November 13,
2015, the government sent out litigation hold notices. Mr. Salais, supervisor
of the DTC decommissioning, did not receive a litigation hold notice until
two years later, shortly before he was deposed.

       As SMS concluded its work on the DMIX project, it began returning
agency-issued laptops. On August 10, 2015, SMS returned 15 laptops to the
agency. On October 1, 2015, SMS returned an additional 19 laptops. The
government represents, based on DHA’s deposition preparation chart, that
most of the laptops that SMS returned were reimaged or retired and destroyed
around or during March 2016. Def.’s Resp. 13. Reimaging erases the
laptop’s hard drives. The reimaging occurred months after the preservation
hold had been issued.

                                      10
      During this period, Ms. Stokely also returned a laptop to the agency
and was issued a second laptop. On March 16, 2016, the agency reimaged
Ms. Stokely’s first laptop, erasing all data on its hard drive.

        Ms. Swenson testified as the government’s representative regarding
the laptop reimaging. In her October 19, 2017 deposition, Ms. Swenson
acknowledged that she was aware of the lawsuit as of October 2015. She
explained that her focus was gathering data relating to the true up. She stated
that she “[d]id not even consider that SMS was a player in relevance of the
case, since we already had their data from the true-up.” Def.’s Resp. Ex N.
Furthermore, she explained that SMS had other ways than the project laptops
to document their work and communicate with the government. She
explained the process of reimaging as follows: “I followed my standard
process of I get laptops in, I give them to IT, I reissue them as needed. I
inadvertently didn’t even consider those laptops having anything relevant to
this case because they are laptops, not servers, with 4DD documentation.”
Id.

       In a subsequent December 21, 2017 deposition as a designated
representative, Ms. Swenson stated that she was responsible for accepting
the laptops at the end of the contract. She explained that neither she, nor any
other agency employee, evaluated the laptops returned by SMS for relevant
material that should have been preserved. She stated, “It became a blinding
flash of the obvious when it was discussed in May of 2017.” Pls.’ Mot. Ex.
TT.

       The government was able to produce responsive documents from a
few of the laptops that had not been reimaged. Furthermore, the government
produced the contents of laptops issued to contractor ICS Nett, which was
involved in both the execution of the 2014 deletion orders and the later DTC
decommissioning.

      The government filed its partial motion to dismiss plaintiffs’ claim on
June 24, 2016. The court ultimately stayed this motion to allow for
discovery.

       In July 2016, Mr. Zamarripa corresponded with DHA contractors
regarding a preservation and search order from Glinda Hodgkin, DHA’s
Records Management Officer. He was seeking information regarding where
TETRA had been installed in the past and whether any instances of it were

                                      11
presently installed in listed labs. Some contractors responded that they did
not find a record of TETRA, but Ms. Stokely responded on July 12, 2016,
“[W]e can substantiate the existence of TETRA software in our prior lab. . .
. the TETRA software did reside on a number of VMs in the DTC that were
decommissioned . . . . Attached is a document containing a list of the VMs
that were in the DTC as well as the CR requesting the decommission of said
VMs.” Pls.’ Mot. Ex. UU.

        Mr. Zamarripa reported this information to the government’s counsel
at the time. He explained that he had “just been informed that the DTC did
indeed have the software in the decommissioned DTC.                Prior to
decommissioning the DTC all Virtual Machines which contained the
software were permanently deleted.” Pls.’ Mot. Ex. VV.

       Ms. Stokely returned her second laptop to the agency on November
14, 2016. On May 3, 2017, the government’s counsel reminded DHA of its
obligations to follow-up regarding data from these various agency-issued
laptops. Despite its preservation obligation, on August 28, 2017, DHA
erased the hard drive on the second Stokely laptop. The government was
able to produce the emailed referenced above and the attached spreadsheet.

      As discovery wound down, plaintiffs filed their motion for sanctions
on November 21, 2018.

                               DISCUSSION

       Plaintiffs claim that the government infringed 4DD’s copyright by
making more copies of TETRA than the single back-up copy permitted by
the EULA and by using TETRA beyond the number of installations that the
TETRA license permitted. At issue here are both the government’s partial
motion to dismiss for lack of jurisdiction and plaintiffs’ motion for sanctions
due to the government’s spoliation of evidence.

I.     We Deny The Partial Motion To Dismiss, Because Plaintiffs
       Established That The Government Authorized Or Consented To Its
       Contractor’s Excessive Use Of TETRA In The Contractor’s Labs.

        Plaintiffs bear the burden of establishing this court’s subject matter
jurisdiction by a preponderance of the evidence. Trusted Integration, Inc. v.
United States, 659 F.3d 1159, 1163 (Fed. Cir. 2011) (citing Reynolds v. Army
& Air Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988)). When

                                      12
considering a motion to dismiss for lack of jurisdiction, the court accepts as
true the undisputed facts in plaintiffs’ complaint and draws reasonable
inferences in plaintiffs’ favor. Id. To determine whether it has jurisdiction,
however, the court also may consider other relevant evidence. Reynolds, 846
F.2d at 748.

        Defendant argues that this court does not have jurisdiction over part
of plaintiffs’ claim because 28 U.S.C. § 1498(b) (2012) requires that the
government authorize or consent to its contractor’s infringement for the
government to be held responsible for that infringement. 9 The government
concedes that it authorized or consented to any infringing activity that
occurred when SMS, or other contractors, worked with TETRA on DTC
servers, but it contends that it did not authorize or consent to infringing
activity that occurred when SMS worked with TETRA in SMS labs.

       Section 1498(b) states,

       [W]henever the copyright in any work protected under the
       copyright laws of the United States shall be infringed . . . by a
       contractor, subcontractor, or any person, firm, or corporation
       acting for the Government and with the authorization or
       consent of the Government, the exclusive action which may be
       brought for such infringement shall be an action by the
       copyright owner against the United States in the Court of
       Federal Claims . . . .

       The question here is whether SMS was acting (1) “for the
Government” and (2) “with the authorization or consent of the Government”
when it performed any infringing activity in SMS labs. Id. The answer is
plainly yes.

        To establish that the contractor was acting for the government,
plaintiffs must show that the “infringing activity has been performed by a
government contractor pursuant to a government contract and for the benefit

9
  Defendant also argues that plaintiffs cannot rely on the EULA as a
substantive source of subject matter jurisdiction. Because 4DD states
unequivocally that its “sole claim is for copyright infringement under 17
U.S.C. §§ 106, 504 and 28 U.S.C. § 1498(b)—not a breach of contract claim
under the EULA,” Pls.’ Resp. 35, the EULA is not the potential source of
jurisdiction.

                                      13
of the government . . . .” Sevenson Environ. Servs., Inc. v. Shaw Environ.,
Inc., 477 F.3d 1361, 1366 (Fed. Cir. 2007) (interpreting “for the United
States” in the patent infringement section, 28 U.S.C. § 1498(a)). The
evidence presented shows that SMS was at all relevant times the agency’s
contractor for testing and configuring TETRA on the DMIX project. The
communications between SMS and the government also reflect that the only
reason SMS was using TETRA was for the DMIX project, despite SMS
statements to the agency that SMS did not believe that its TETRA use was
agency-directed. Thus, SMS’s actions were undertaken for the government.

        Plaintiffs also must establish that the government “authorize[d] or
consent[ed] to infringement by a third party acting for it.” Boyle v. United
States, 200 F.3d 1369, 1373 (Fed. Cir. 2000). The Federal Circuit in Boyle
cited Auerbach v. Sverdup Corp., 829 F.2d 175, 179 (D.C. Cir. 1987), to
explain that although the government is liable for infringing activity it
authorizes, it is not responsible for “any copyright infringement the third
party may choose to undertake within the sphere of the authorized action,”
i.e., on its own initiative.

        Plaintiffs must point to “explicit acts or extrinsic evidence sufficient
to prove the government’s intention to accept liability for a specific act of
infringement.” Id. at 177. Authorization or consent may be either express,
such as a contract clause, or implied, such as when infringement is necessary
to the contractor’s performance of its contract. Id. at 180.

        In TVI Energy Corp. v. Blane, 806 F.2d 1057, 1060 (Fed. Cir. 1986),
the Federal Circuit found that the government’s authorization could be
implied where bidding procedures required the offeror to include certain
allegedly infringing material. The court reasoned that “[t]he mere fact that
the Government specifications for the targets did not absolutely require
Blane to infringe TVI’s patent at that demonstration does not extinguish the
Government’s consent.” Id. at 1060. The court explained that the “coverage
of § 1498 should be broad so as not to limit the Government’s freedom in
procurement . . . .” Id. Similarly, in Advanced Software Design Corp. v.
Fed. Reserve Bank of St. Louis, 583 F.3d 1371, 1376 (Fed. Cir. 2009), the
Federal Circuit found government authorization when the Treasury had sent
letters and made statements to certain banks directing the allegedly infringing
use of a technology. The Court of Claims summarized in Hughes Aircraft
Co. v. United States, 534 F.2d 889, 901 (Ct. Cl. 1976), that




                                      14
       ‘authorization or consent’ on the part of the Government may
       be given in many ways other than by letter or other direct form
       of communication—e.g., by contracting officer instructions,
       by specifications or drawings which impliedly sanction and
       necessitate infringement, [or] by post hoc intervention of the
       Government in pending infringement litigation against
       individual contractors.

        On the other hand, the fact that the government simply benefits from
infringement is insufficient to demonstrate authorization or consent. In
Auerbach, a contractor copied an architect’s plans to build a garage for the
government. The court held that “[t]he fact that the federal government
might benefit from the copying because it subsequently will have ownership
of the building does not make the United States a party to the copyright
violation.” 829 F.2d at 180. Since there was not an authorization clause, a
statement or action authorizing copying the plans, or some requirement that
necessitated using the plans, the government did not authorize or consent to
that infringing activity. Id.

       The government argues that any infringing use of TETRA in SMS
labs was on the contractor’s own initiative, perhaps within the range of
options SMS could have used to accomplish its tasks but not endorsed by the
agency. The government explained that although it would have authorized
actions relating to the DTC, it did not know how SMS was using TETRA in
its own labs. Defendant points out that there was no authorization clause in
the contract and that the agency attempted to determine how many cores the
license should include. Defendant also relies on SMS statements to the
agency that it did not believe the agency had directed its actions.

       We find that the agency did authorize or consent to its contractor’s
allegedly infringing use of TETRA in SMS labs, namely making additional
copies of TETRA and installing TETRA in excess of the purchased license.
Plaintiffs allege that any copying would have exceeded the license and any
direction to copy would have constituted a direction to exceed the license.
Plaintiffs also allege that any use beyond the purchased cores exceeds the
license and constitutes infringement.         Plaintiffs have demonstrated
authorization or consent to these actions by SMS in at least two ways. First,
the agency directed SMS to engage in actions that necessitated copying
TETRA and it approved SMS’s plan to copy virtual machines containing



                                     15
TETRA. Second, the agency accepted liability for SMS’s excessive use of
TETRA in SMS labs in the 2015 TETRA license modification.

       First, Mr. Calvin approved SMS’s plan to copy virtual machines
containing TETRA and directed SMS to accomplish tasks that required
cloning the software. When it directed SMS to perform work in its own labs,
the agency understood that SMS’s work necessarily would have involved
cloning virtual machines containing TETRA, and Mr. Calvin stated that such
copying was done with his authorization. The agency expressly directed a
DTC environment that contained TETRA to be cloned in December 2013.
Furthermore, the agency’s approved workflow in the DTC alone required
SMS to exceed the licensed amount of TETRA use, meaning that, of
necessity, SMS’s work in its own labs would exceed the licensed number of
cores. Even if SMS could have accomplished the tasks another way, which
defendant did not argue, “the mere fact that” options exist “does not
extinguish the Government’s consent.” TVI Energy Corp., 806 F.2d at 1060.

        Defendant is correct that SMS’s contract lacked an authorization
clause, but such a clause is not the only way to demonstrate authorization.
Here, the agency directed software copying and SMS’s reports on its work
further alerted the agency to SMS’s copying. Mr. Calvin did not shy away
from the fact that the agency approved the copying. SMS’s statements that
it did not believe the agency was directing its work are contradicted by the
agency’s directions, SMS’s reports, and Mr. Calvin’s statements.

       Moreover, defendant’s attempt to draw a distinction between SMS
engaging in infringing activity in its own labs versus in the DTC is
unavailing. There is no appreciable difference between the work completed
in the two locations. The agency expressly authorized SMS to perform
TETRA testing and configuration in both SMS labs and the DTC. Mr. Calvin
confirmed that SMS accomplished its duties by copying software from its
own labs into the DTC—the work performed in the different locations was
inextricably linked.

       Second, when 4DD requested an investigation into whether TETRA
was being used in accordance with the license agreement, the agency
included SMS labs in its assessment and chose to pay for over-installations
of TETRA in SMS labs. The agency did not treat the use of TETRA in SMS

                                    16
      labs any differently than the use of TETRA in the DTC. Instead, the agency
      assumed responsibility for SMS activities in both locations. In fact, the
      agency maintained that the 168 additional cores that it paid for in March 2015
      were those cores found in SMS labs, not those on the DTC servers.

             Furthermore, the TETRA license modification flowed naturally from
      the agency’s statements at the beginning of project that it was responsible for
      how TETRA was deployed. Mr. Calvin and Ms. Swenson expressly
      communicated to both 4DD and SMS, just after purchasing the TETRA
      license, that the agency would manage the TETRA license and that it was
      responsible for TETRA use on virtual machines. SMS was not given a
      general objective and permitted to execute it however it saw fit. Instead, Mr.
      Calvin and Ms. Swenson sought accounting of TETRA installations; SMS
      reported to the agency weekly; and Mr. Calvin conceded that he approved
      the virtual machine copying. When SMS thought that its use of TETRA
      between the DTC and its labs would exceed the license purchased, SMS
      sought direction from Mr. Calvin, involving him at every turn. The
      government may not have known exactly how widespread the usage was, but
      it was certainly hands-on in its directions on where to use the TETRA
      software. Its hand-on approach culminated in accepting responsibility for
      excessive use of TETRA in SMS labs.

             Taken together, the agency’s instructions, concessions, and
      acceptance of responsibility demonstrate that the agency authorized or
      consented to SMS’s allegedly infringing use of the TETRA software.

II.   The Government With A Culpable State Of Mind Destroyed Relevant
      Evidence That It Had A Duty To Preserve And Sanctions Are Appropriate.

              We now turn to plaintiffs’ motion for sanctions. 4DD argues that the
      government destroyed evidence relevant to prove that infringement occurred
      and to determine the damages associated with any infringement. Plaintiffs
      contend that the court should impose all available sanctions for this
      destruction of evidence, including granting 4DD a default judgment on
      liability and imposing an adverse inference against the government with
      respect to damages. It argues that the court also should preclude the
      government from cross-examining 4DD’s witnesses, submitting secondary
      evidence, and arguing that evidentiary gaps should be construed in the
      government’s favor. Finally, plaintiffs ask the court to award it fees and costs

                                            17
for bringing the motion and for conducting additional discovery necessary to
assess and ameliorate the government’s spoliation.

       The parties agree on the key events: The agency deleted instances of
TETRA during the true-up period without informing 4DD. The agency
destroyed the DTC servers’ hard drives. The agency erased all the
information on many laptops used on the DMIX project. The government
nevertheless argues that these three categories of evidence destruction do not
constitute spoliation. It contends that the agency had no duty to preserve this
evidence, that some of it was not relevant, and that the evidence can be
replaced by other discovery. The government also contends that the most
severe sanctions cannot be imposed because the evidence was not destroyed
with intent to deprive 4DD of its use in litigation.

       Spoliation occurs when a party destroys or materially alters relevant
evidence that it had a duty to preserve. United Med. Supply Co. v. United
States, 77 Fed. Cl. 257, 268 (2007). The court may impose sanctions for
spoliation based on the court’s inherent authority to govern the judicial
process and pursuant to Rule 37 of the Rules of the United States Court of
Federal Claims. Chambers v. NASCO, Inc., 501 U.S. 32, 45–46 (1991).

       Parties have a duty to preserve evidence when litigation is “‘pending
or reasonably foreseeable.’” Micron Tech., Inc. v. Rambus Inc., 645 F.3d
1311, 1320 (Fed. Cir. 2011) (quoting Silvestri v. General Motors Corp., 271
F.3d 583, 590 (4th Cir. 2001)). Determining when litigation is reasonably
foreseeable “is a flexible fact-specific standard,” allowing the court to
exercise its discretion. Id. The duty is not triggered by the “distant
possibility of litigation” but does not require imminent litigation. Id. at
1319–20. “This is an objective standard, asking not whether the party in fact
reasonably foresaw litigation, but whether a reasonable party in the same
factual circumstances would have reasonably foreseen litigation.” Id. at
1320. When determining what sanctions are warranted, the spoliator’s state
of mind is relevant. United Med. Supply Co., 77 Fed. Cl. at 268–70.
Ordinary negligence may be sufficient to show the culpable state of mind,
but for more severe sanctions, the showing of culpability may require more
than negligence. Id.

        When the evidence at issue is electronically stored information, Rule
37(e) sets out the framework for imposing sanctions. Rule 37(e) adopts the
traditional spoliation standards but adds the requirement that the court find


                                      18
“intent to deprive another party of the information’s use in litigation” before
imposing the most severe sanctions:

       If electronically stored information that should have been
       preserved in the anticipation or conduct of litigation is lost
       because a party failed to take reasonable steps to preserve it,
       and it cannot be restored or replaced through additional
       discovery, the court: (1) upon finding prejudice to another
       party from loss of the information, may order measures no
       greater than necessary to cure the prejudice; or (2) only upon
       finding that the party acted with the intent to deprive another
       party of the information’s use in the litigation may: (A)
       presume that the lost information as unfavorable to the party; .
       . . or (C) dismiss the action or enter a default judgment.

       Since the evidence at issue here is electronically stored information,
we will follow the elements set out in Rule 37(e)(2). 10 The first question is
whether the government had a duty to preserve any of this evidence.
Plaintiffs successfully demonstrated that the evidence at issue is relevant.
The deleted copies of TETRA and data stored on DTC servers are at the heart
of the claim: the copying on DTC servers is one of the alleged infringing
acts. In addition, based on the limited laptop production, plaintiffs have
shown that the reimaged laptops likely contained communications and other
information relevant to how TETRA was used.

       The government argues that the deleted copies of TETRA are not
evidence that the agency should have preserved because they were
“nonfunctional,” in other words not configured or not usable. The notion of
“nonfunctional” installations of TETRA arose after litigation commenced
during discovery disagreements. Mr. Calvin appears to have first raised the
concept. At oral argument defendant took the position that if an installation
of TETRA either could not work in a particular environment because it was
not properly configured or because of security constraints, it was

10
  Rule 37(e) does not define electronically stored information, but plaintiffs
concede that the deleted copies of TETRA and the data erased from the
project laptops are electronically stored information. Plaintiffs argue that the
shredded DTC hard drives could be viewed as physical evidence. We
disagree: the hard drives are not the relevant evidence here; the evidence is
the data that the DTC servers stored prior to their destruction. Thus, all three
categories are electronically stored information.

                                      19
“nonfunctional” and the agency could delete those copies with impunity; it
had no duty to preserve, or make reasonable efforts to preserve, such copies
and the deletion was not prejudicial because the agency would not need to
pay 4DD for those copies.

         The government is unable to point to a single instance, during the
DMIX project, in which anyone referred to copies of TETRA as
“nonfunctional.” Nor could defendant point to an instance where anyone
suggested that certain copies of or use of TETRA would not need to be paid
for if they exceeded the rights granted under the TETRA license— functional
or otherwise. The evidence shows the opposite: the deletion orders explain
the reason for deletion as a concern with “a license issue,” not because the
software was not fully configured or because it was inconsistent with security
protocols.

        Turning to when the duty to preserve evidence arose, at the point at
which the DTC hard drives were shredded and when many of the laptops
were reimaged, litigation was already pending. Defendant undoubtedly had
a duty to preserve the evidence contained on the DTC servers and the laptops
after litigation had commenced.

        The agency should have preserved evidence in the anticipation of
litigation before 4DD filed its complaint, however. On August 29, 2014,
4DD placed the agency on notice that it believed the agency had used its
software inconsistently with the agency’s rights under the TETRA license.
The agency agreed to investigate the use of TETRA in agency- and
contractor-owned labs. A reasonable party would certainly anticipate
litigation when faced with an allegation that it had exceeded rights under a
contract and when it agreed to investigate that allegation.

        Furthermore, the agency spent several months agreeing to investigate
the extent of copying while simultaneously deleting evidence of what 4DD
had asked the agency to enumerate. Indeed, during the true up process, the
agency created documents that the government later marked as work product
on its privilege log, stating that this material was created in anticipation of
litigation. Although defendant later waived its claim of privilege for those
documents, the fact remains that the agency had reason to anticipate litigation
with plaintiffs at the beginning of the true up period. The agency in fact
foresaw litigation as early as January 2015.




                                      20
        Since the government had a duty to preserve the evidence at issue, the
next question is whether the government took reasonable steps to preserve it.
Regarding copies of TETRA deleted during the true up process, the agency
chose to destroy rather than preserve evidence. Also, the government never
attempted to accurately account for TETRA used on the DTC servers. It
simply arbitrarily assigned the original 64 paid-for cores to the DTC and
allowed the DTC to continue along the path to decommissioning without
making records of how many copies of TETRA had existed. During the true
up process and thereafter, the agency did the opposite of taking reasonable
steps to preserve a record of TETRA use, leaving the DTC servers and other
environments where TETRA was installed as the only complete record.

        After 4DD filed its complaint, the government delayed nearly three
months in issuing preservation notices, by which point data on the DTC hard
drives was lost. The exact danger that the call letter predicted came to pass.
Had the government more promptly notified DHA, perhaps the DTC
destruction could have been averted or the data stored there archived for
future access. Even when the government did issue a preservation hold, that
notice failed to reach the personnel responsible for the decommissioning
until nearly two years later. In addition to the delayed release of the
preservation hold, the government continued to allow evidence to slip
through the cracks: laptop reimaging occurred long after the complaint was
filed, apparently because no process was in place to check for relevant data.
Even though the government eventually produced some information from a
few laptops, the effort to preserve electronically stored information was
inexcusably shoddy.

        The government argues that sanctions are inappropriate because the
information that has been lost can be replaced by other discovery. For
instance, the government contends that images of hard drives containing data
made before decommissioning, server diagrams, change orders, and SMS
weekly progress reports are sufficient to demonstrate where and in what
quantities TETRA was installed. Those copies, however, are incomplete.
Also, as plaintiffs note, the change orders list environments in which to delete
TETRA without an accompanying instruction to note the copies of TETRA
or the cores in use. SMS weekly reports merely reflect TETRA use in general
terms. Likewise, license trackers were incomplete and voluntary from the
beginning, making them unreliable sources of data.

       Furthermore, plaintiffs argue that SMS project data could have been
stored on the project laptops and plaintiffs represent that SMS production has

                                      21
not included a replacement way to account for TETRA copies and cores.
Although plaintiffs have been able to access some evidence of where TETRA
was present, this evidence is partial and cannot offer a comprehensive,
reliable picture.

         To impose sanctions, the only remaining step is to determine whether
plaintiffs suffer prejudice because of the agency’s spoliation. Prejudice may
appear in many forms, such as plaintiffs being “unable to fully respond to the
secondary evidence” or being required to go to great lengths in discovery to
fill in the gaps in the evidence. Lab. Corp. v. United States, 108 Fed. Cl.
549, 562 (Fed. Cl. 2012); see also United Med. Supply Co., 77 Fed. Cl. at
274–75. We find that the government’s destruction of evidence prejudices
plaintiffs in their attempt to demonstrate both the fact of infringement and
any damages flowing from that infringement. First, the government’s
consistent deletion of evidence—whether purposeful or inadvertent—created
gaps that plaintiffs must now try to fill by cobbling together secondary
evidence. Plaintiffs note that the government’s argument that the deleted
copies of TETRA were nonfunctional is a perfect example of how the
deletion works in the government’s favor. If that allegation were relevant,
plaintiffs effectively cannot combat the assertion because the copies no
longer exist. The government’s failure to preserve also dramatically added
to the time and resources dedicated to discovery.

      We find that it is appropriate to award 4DD fees and costs for bringing
this motion and conducting additional discovery necessary to assess and
ameliorate the government’s spoliation. Furthermore, the government will
be precluded from arguing that evidentiary gaps created by its spoliation
should be construed in the government’s favor.

        Rule 37(e)(2) imposes a prerequisite to going further, however, to
presume that the lost information is unfavorable to the spoliator. The court
first must find that the party acted with the intent to deprive another party of
the information’s use in litigation. This 2015 addition to Rule 37 has been
interpreted by various trial courts to require a showing of anything from bad
faith to irresponsible behavior that lacks any other explanation than intent to
deprive. E.g., Brewer v. Leprino Foods Co., 2019 WL 356657, *10 (E.D.
Cal. Jan. 29, 2019) (finding that the “pattern of conduct suggests intentional
spoliation”); Oracle Am., Inc. v. Hewlett Packard Enter. Co., 328 F.R.D.
543, 549 (N.D. Cal. 2018) (“not merely negligent or even grossly negligent,
but an intentional effort to keep the ESI from the opposing party”); Alabama
Aircraft Indus. v. Boeing Co., 319 F.R.D. 730, 746 (N.D. Ala. 2017)

                                      22
(“blatantly irresponsible behavior”); Ottoson v. SMBC Leasing & Finance,
Inc., 268 F. Supp. 3d 570, 584 (S.D.N.Y 2017) (“acted willfully or in bad
faith”). The matching Federal Rule of Civil Procedure 37(e)(2) Advisory
Committee Notes state that the amendment rejects cases “that authorize the
giving of adverse-inference instructions on a finding of negligence or gross
negligence.”

        Here, Mr. Calvin’s orders directing contractors to delete instances of
TETRA in listed environments because of “a license issue” is sufficient to
demonstrate that he intentionally deprived 4DD of the use of that information
in litigation. 4DD had made the agency aware of its contention that it was
owed money for over-installation of the software at a time when the agency
held out that it was engaged in a “true up.” While the agency represented to
4DD that it was still counting instances of TETRA, Mr. Calvin was ordering
that evidence of installation be deleted. We can conclude based on Mr.
Calvin’s direction and his explanation that the agency intended to deprive
4DD of the use of that information at a time when litigation was plainly
foreseeable. Therefore, it is appropriate to presume that a preserved, accurate
count of the number of copies of TETRA on DTC servers would have been
unfavorable to the government.

        The DTC decommissioning and laptop reimaging are not as clear cut.
Regarding the SMS laptops, Ms. Swenson apparently did not consider
whether those laptops contained relevant information at all, much less
whether to delete information intentionally to avoid its disclosure to another
party. But that explanation is conveniently narrow: why would the agency
only be retaining information related to the true up when the complaint and
preservation hold were not limited in that way? Long after litigation had
begun, there was no effort made to alert people who had been intimately
involved with TETRA installations, like Ms. Swenson, to the need to retain
all relevant information and not undertake any deletions. The lack of any
credible explanation for the deletion of the laptop data months into this
litigation and in the face of a preservation hold is sufficient to infer that the
agency deleted information that was detrimental to it.

       The decommissioning, on the other hand, appears to have occurred
according to regular process rather than an intentional effort to keep that
information from plaintiffs. We agree with plaintiffs that, at a minimum, the
agency acted negligently regarding the information stored on DTC servers.
The agency should have availed itself of alternatives to retaining those hard
drives, such as creating a record of how software was used and where it was

                                       23
installed on DTC and its contractor’s servers. The result of the destruction
is that both parties are left without any complete record of the contents of the
DTC servers.

       But there is not a pattern of willful behavior here as there is with
repeated laptop reimaging. Instead, the agency suffered from the exact
problem that the Department of Justice call letter predicted: a failure to
communicate within this sprawling project. The process began in February
2015 as the project wound down and continued to completion without any
regard for this lawsuit. The appropriate personnel apparently did not know
about the litigation hold prior to the decommissioning. The contractors
responsible for giving the “go” for shredding similarly did not know the
effect that decommissioning would have. This communication failure is
undoubtedly negligent but falls short of the intentional behavior expected
under Rule 37(e)(2). We therefore will not draw an adverse inference against
the government regarding the content of the destroyed hard drives.

        Ultimately, all three sources of evidence discussed in this section
would have aided in determining the extent of the government’s use of
4DD’s software, and, if it exceeded the government’s rights in the software,
in determining what damages are owed. As discussed at oral argument, we
will not enter a default judgment on liability, but we will draw the necessary
adverse inferences against the government to account for deletion of TETRA
on DTC servers and deletion of project data from agency laptops. This
remedy is sufficient, particularly when coupled with fees and costs associated
with this motion and conducting additional discovery and precluding the
government from arguing that evidentiary gaps created by its spoliation
should be construed in its favor. Because the parties currently are working
toward the conclusion of discovery, we will defer until summary judgment
or trial the question of how specifically to apply the inferences that plaintiffs
ask us to draw against defendant.

                               CONCLUSION

        Because plaintiffs established that the government authorized or
consented to SMS’s allegedly infringing activity when working in SMS labs,
we deny defendant’s motion to dismiss. Furthermore, we grant plaintiffs’
motion for sanctions because the government destroyed relevant evidence
that it had a duty to preserve. Plaintiffs are directed to file a motion,
appropriately supported, seeking a recovery of its costs and fees related to
the motion for sanctions and with respect to discovery prompted by the

                                       24
destruction of evidence. The court will defer until summary judgment or trial
the application of the evidentiary implications of this ruling.


                                   s/Eric G. Bruggink
                                   ERIC G. BRUGGINK
                                   Senior Judge




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