The Court submits this Report and Recommendation to the Honorable Edward Rafeedie,
Senior United States District Judge, pursuant to 28 U S.C. Section 636 and General Order 194
of the United States District Court for the Central District of California. For the reasons set forth
below, the Magistrate Judge recommends that plaintiff's Motion for Order to Show Cause Why
Defendants are Not in Contempt and for Sanctions (the "Motion") be granted in part. ¹

¹The Court has concluded that oral argument will not be of material assistance in determining
plaintiff's Motion. Accordingly, the hearing scheduled for July 17, 2007, is ordered off calendar
(see Local Rule 7-15).

I.

INTRODUCTION

In this action for patent infringement, plaintiff has sued multiple defendants surrounding the
sale of DVD products: Shenzhen Kaixinda Electronics Co. Ltd., Shenzhen KXD Multimedia Co.
Ltd., and KXD Digital Entertainment Ltd. (hereinafter collectively referred to as the "foreign
defendants"), KXD Technology, Inc., Astar Electronics, Inc., and Jingyi Luo (the six defendants
shall collectively be referred to herein as "defendants"). Plaintiff served interrogatories and
requests for production of documents on defendants. Following defendants' responses and
supplemental responses, the Court ordered the parties to further meet and confer to resolve the
outstanding discovery issues. The meeting occurred in December, 2006, and further
supplemental responses were submitted by defendants. Plaintiff then filed Motions to compel,
arguing that the responses were still deficient.

In an Order dated May 24, 2007 (the "Order"), the Court found that the documents sought
by plaintiff in each of the subject requests were relevant to its claims of infringement, and must
be produced. Responsive documents included invoices, purchase orders, shipping documents
and certificates of sales from and between Shenzhen KXD Multimedia Co. and KXD Technology,
documents regarding sales transactions between the foreign defendants and U.S. customers
other than KXD Technology, and testing protocols for the accused DVD products. Defendants,
both foreign and domestic, were ordered to produce responsive documents concerning all DVD
products imported into the United States. The Court ordered that defendants provide plaintiff with
all responsive documents no later than June 13, 2007.² To the extent any defendant claimed that
all responsive documents had already been provided as to any request, or that no responsive
documents were in that defendant's possession, custody, or control, that defendant, either
individually (for defendant Luo) or through a corporate officer, was ordered to set forth in detail,
under oath: (i) the efforts made to obtain the requested information, and (ii) that no further

²At the May 22, 2007, hearing on plaintiff's motions, the parties agreed that to the extent
responsive documents are kept in electronic format in the ordinary course of business, they may
be produced in electronic format, and to the extent they are maintained in paper format, they may
be so produced.

responsive information exists or is available. At a minimum, the declaration was to include: (1)
the names and titles of all the persons who conducted the search; (2) which databases and offices
were searched; and (3) whether there are any additional responsive documents. Defendants
were also ordered to further respond to four interrogatories.

On June 26, 2007, plaintiff filed the instant Motion, claiming that defendants had not
complied with the Court's May 24, 2007, Order, and that, as a result, it is unable to determine its
damages or respond to defendants' defenses. On June 28, 2007, the Court then ordered
defendants to indicate, unequivocally and under penalty of perjury: 1. whether or not a CD sent
by defendants to plaintiff on June 26, 2007 (Declaration of Anton N. Handal in Support of
Defendants' Objection and Opposition to Plaintiff's Ex Parte Application, at Ex. D), contains all of
the documents that the Court ordered produced; 2. whether defendants are relying on this
production as their response to the four interrogatories as to which additional information was
ordered by the Court, and if so, whether they had complied with the requirement of Fed.R.Civ.P.
33(d) that the responding party specify the records from which the answers to the interrogatories
may be derived (and that the specification be in sufficient detail to permit plaintiff to readily locate
and identify the records from which the answers may be ascertained). If defendants were so
relying, defendants were to provide the Court with proof that the specification was provided. If
they were not so relying, defendants were to address the alleged failure to comply with the Court's
order to provide responses to the four interrogatories; and 3. any support for their assertion that
the Court's May 24, 2007, Order "was stayed pending the outcome" of their "appeal" of that Order
to the District Judge (Defendants' Objection and Opposition to Plaintiff's Ex Parte Application, at
3 (emphasis in original)). See June 28, 2007, Order; see also Local Rule 72-2.2 ("Regardless of
whether a motion for review has been filed, the Magistrate Judge's ruling remains in effect unless
the ruling is stayed or modified by the Magistrate Judge or the District Judge.").

On July 3, 2007, defendants filed their Opposition to the Motion ("Opposition"), and the
Declaration of Anton N. Handal ("Handal Dec."). In the Declaration, defendants contend that they
filed a timely request for review of the Court's Order, which was not ruled on by the District Judge
until June 12, 2007. Defendants concede that the Order was not stayed pending the District

Judge's ruling on the request for review. Opposition, at 8-9. Defendants also claim that they
advised plaintiff that the documents that were ordered produced would be made available for
inspection and copying on June 13, 2007, in China, where they were kept in the normal course
of business, or that they would be photocopied and returned to the United States upon plaintiff's
agreement to pay the copying charges; that defense counsel was in China on June 13, 2007, to
prepare for the production, but plaintiff failed to show up; that defense counsel then instructed
defendants to begin copying the "documents in question," which were then shipped to plaintiff on
June 26, 2007; and that photos attached to the declaration show "the sheer volume of documents"
involved. Handal Dec., ¶¶ 4-17. Defendants admit that KXD Multimedia, Shenzhen Kaixinda and
KXD Technology did not provide a Rule 33(d) declaration as it took "an extensive amount of time
to photocopy and produce what the Defendant believed were responsive documents." Id , ¶ 19.
Defendants also provided plaintiff with declarations form Jingyi Luo and Astar Electronics, Inc.
(executed on June 13, 2007) and KXD Digital Entertainment, Ltd. (executed on June 19, 2007)
stating that they have no responsive documents.

Plaintiff filed its Reply on July 5, 2007.

II.

FINDINGS

The Court hereby finds that the following facts have been established:

1. Defendants failed to comply with the Court's Order of June 28, 2007, in that they did not
unequivocally indicate whether the CD sent to plaintiff on June 26, 2007, contained all of the
documents that the Court ordered produced in its May 24, 2007, Order ³ While their Opposition
indicates that they sent a CD containing copies of "all the documents [plaintiff] is seeking i[n] its
discovery motion" (Opposition, at 7), counsel for defendants contradicts that assertion, stating
under penalty of perjury that the CD represents only "a portion of the document production which
occurred on June 13, 2007." (Handal Dec., ¶ 15) Mr. Handal apparently contents that the CD

³Contrary to the Court's June 28, 2007, Order, defendants' counsel, not defendants,
provided a declaration concerning the contents of the CD.

contains only a portion of the documents that purportedly would have been made available in
China, i.e., it does not contain all of the responsive documents. Moreover, aside from the less-
than-unequivocal statement, the Court concludes that the CD does not contain all of the
documents ordered produced. As set forth by plaintiff, the CD contains only approximately 1,000
documents, consisting only of commercial invoices, packing lists, and bills of lading. It does not
contain purchases orders, contrary to defendants' assertion (see Handal Dec., ¶ 18(c); Declaration
of Joyce Craig-Rient in Support of Plaintiff's Reply, Ex. O). ⁴ The CD also does not contain, among
other things, all invoices and purchase orders from Shenzhen KXD Multimedia to KXD
Technology; documents such as certificates, shipping advices or customer communications
regarding sales transactions between the foreign defendants and U.S. customers other than KXD
Technology; testing protocols for the accused DVD products; a database of accounting
information; or marketing documents as to Shenzhen KXD Multimedia and Shenzhen Kaixinda
Electronics, despite evidence that all of these items exist and are responsive to plaintiff's requests.
See Plaintiff's Reply to Defendants' Opposition, at 11-13. While defendants Shenzhen Kaixinda
and Shenzhen KXD Multimedia assert that the documents produced for inspection and copying
in China on June 13, 2007, "represent their compliance with the Court's order commanding
production of records" (Handal Dec., ¶ 18(b)), the Court finds otherwise. Opening the vast
number of documents possessed and displayed by the defendants (see Handal Dec., Ex. E.) for
copying on the every last day ordered for production, on the other side of the world, is not
compliance with the Court's order;

2. The CD provided to plaintiff by defendants was not timely. Production was required on
June 13, 2007. The CD was provided on June 26, 2007;

⁴At the May 22, 2007, hearing, the parties agreed that defendant KXD Technology, Inc.
would either produce a set of all invoices and purchases orders between it and Shenzhen KXD
Multimedia Co., or identify with specificity where in the documents already in plaintiff's possession
those documents are located. Defendant KXD Technology was ordered to comply with this
agreement by June 13, 2007. Defendant did not timely comply with this order.

3.  Certain of the documents provided on the untimely CD cannot be read, as they are
obstructed by strategically-placed fruit (Craig-Rient Dec. in Support of Plaintiff's Reply, Ex. L); ⁵

4.  Defendants failed to comply with the Court's June 28, 2007, order in that they did not
specify the records from which the answer to Interrogatory No. 7 (seeking information concerning
defendants' contention that the DVD products sold or imported into the United States were
licensed under the patents in suit) may be derived (let alone with sufficient detail to permit plaintiff
to readily locate and identify the records from which the answer could have been ascertained);

5.  Defendants have now complied with the Court's Order concerning the location of
documents responsive to Interrogatories Nos. 10, 11, and 12 (Handal Dec., ¶ 18). Defendants
had not complied with Fed.R.Civ.P. 33(d) prior to July 3, 2007;

6.  On June 7, 2007 (just 6 days prior to the date for production), defendants' counsel
indicated he was going to assemble the responsive documents in China and ship them back, and
could have them "on a disc sometime the week of the 18th." Declaration of Joyce Criag-Rient in
Support of Motion, Ex. A. Plaintiff responded by stating it expected the documents by the Court's
deadline, and that a "disk with electronic copies of the information would be fine." Id., Ex. B.
Defendants' June 8, 2007, offer to make the documents available for copying in China on June
13, 2007 (just three business days later), or to copy them at plaintiff's expense and deliver them
to plaintiff after he deadline set by the Court, did not comply with the Order. Plaintiff offered to
pay the copying and shipping costs associated with producing the documents in Los Angeles, but
expected compliance with the deadline (Id , Ex. C);

7.  Defendants Astar Electronics, Inc., Jingyi Luo, and KXD Digital Entertainment, through
their declarations, have complied with the Court's Order, though just barely (Craig-Rient Dec. in
Support of Motion, Exs. G-J);

8.  Plaintiff's counsel traveled to China in January, 2007, to inspect documents. Shenzhen
KXD Multimedia Co. refused to make various categories of documents available, and made
available only documents pertaining to quality assurance and testing. Defendant Shenzhen KXD

⁵ An example of a fruit-obstructed document is attached to this Report and
Recommendation.

Multimedia Co. agreed to copy and deliver these documents to defendants' counsel for delivery
to plaintiff's counsel. Shenzhen KXD Multimedia Co. has not produced the approximately 30,000
pages of documents that plaintiff inspected at KXD Multimedia's offices in China in January, 2007,
and which defendants agreed to produce to plaintiff. Declaration of Malcolm T. Meeks in Support
of Agreement to Produce Documents, Ex. D to Declaration of Joyce Craig-Rient in Support of
Plaintiff's Reply;

9. The Court specifically ordered that defendants produce documents concerning all DVD
products that entered the United States, regardless of shipping terms, despite defendants'
argument that such products are non-infringing as title passed outside of the United States
Order, at 3.

III.

THE LAW AND ANALYSIS

Rules 37(b)(2)(A) and (B) of the Federal Rules of Civil Procedure direct that a party that
fails to obey an order to provide or permit discovery be sanctioned, such "that the matters
regarding which the order was made or any other designated facts…be taken to be established
for the purposes of the action in accordance with the claim of he party obtaining the order," and
by "refusing to allow the disobedient party to support or oppose designated claims or defenses,
or prohibiting that party from introducing designated matters in evidence." In lieu of or in addition
to the above, the Court can enter an order treating the failure to obey the order as a contempt of
court. Fed.R.Civ.P. 37(b)(2)(D). In assessing the propriety of an order precluding the offending
party from introducing certain testimony at trial as a sanction for violating a court order, the
following factors are considered: "(1) the party's explanation for the failure to comply with the
discovery order; (2) the importance of the testimony of the precluded witness; (3) the prejudice
suffered by the opposing party as a result of having to prepare to meet the new testimony; and
(4) the possibility of a continuance." Reilly v. Natwest Markets Group Inc., 181 F.3d 253, 269 (2nd
Cir. 1999) (quoting Softel, Inc. v Dragon Medical and Scientific Communications, Inc., 118 F.3d
955, 961 (2nd Cir. 1997)). The Court can also order that the matters at issue be deemed

established for purposes of the action. Insurance Corp of Ireland, Ltd v Compagnie des
Bauxites de Guinee, 456 U.S. 694, 707, 102 S.Ct 2099, 72 L.Ed.2d 492 (1982) (within trial court's
discretion to impose sanction that court had personal jurisdiction when petitioner failed to comply
with court's order for production of information). Belated compliance with discovery orders does
not preclude the imposition of sanction. Fair Housing of Marin v. Combs, 285 F.3d 899, 906 (9th
Cir. 2002).

Sanctions precluding defendants from presenting certain evidence at trial and from
challenging other evidence by plaintiff are appropriate here. Pursuant to the Court's Order,
production of documents and further interrogatory responses was required by June 13, 2007.
Plaintiff indicated that it wanted the documents copied and provided to it within that time frame.
Defendants' "offer" -- to require plaintiff to travel to China just weeks before trial and begin the
inspection and copying process on the date by which production was required, or to accept a copy
of the documents well after the Court ordered deadline -- is not compliance. Rather, it was
perfectly appropriate for plaintiff to insist on compliance within the deadline. Indeed, no party has
the discretion to alter a court order, and plaintiff did not have the authority to agree to change the
June 13 deadline. This gamesmanship by defendants resulted in obstruction of the discovery
process. This obstruction is especially apparent as plaintiff already traveled to China to inspect
and copy documents in January, 2007, but was prevented from doing so at that time as to the bulk
of the documents, and those that it inspected and requested copies of were never provided.
Neither did the production of the CD cure the lack of compliance. First, the CD was produced two
weeks after the deadline. Second, it is far from complete. Third, and inexplicably, some of the
documents it does contain are obstructed by well-positioned fruit. The Court is hard-pressed to
imagine an explanation for this truly bizarre occurrence, other than defendants' intention to
deliberately thumb its nose at the Court's Order and thwart the discovery process. Plaintiff's
ability to present its case has been harmed by this late and incomplete production. Defendants'
explanation for their lack of compliance -- that they believed, mistakenly, that their obligations had
been stayed while seeking review of the Court's Order, and in any event that they have complied

with the Court's Order by making the documents available in China and producing the CD -- does
not stand up.

The Court further finds that while the evidence that the Court recommends be precluded
is important to defendants' defense, the prejudice to plaintiff from defendants' failure to produce
the required documents is far greater. Without the purchase orders, shipping documents,
documents regarding sales transactions and the accounting database, plaintiff is prevented from
learning the details of the full scope of sales of the allegedly infringing products engaged in by
defendants. Without documents concerning the shipping terms of the DVD products sold by
Shenzhen KXD Multimedia to U.S. customers other than KXD Technology, Inc., plaintiff cannot
challenge defendants' assertion that these products are non-infringing because title passed to
defendants' customers outside of the United States. Neither can they prepare for the license
defense without the response to Interrogatory No. 7 previously ordered by the Court.

Finally, the possibility of a continuance sufficient for defendants to produce, in Los Angeles,
all ordered documents, and for plaintiff to have sufficient time to review and incorporate them into
its case, is small. The matter is set for trial in less than one week. In these circumstances,
evidentiary sanctions are warranted. In addition, monetary sanctions are warranted based on
defendants' failure to comply with the Court's May 24, 2007, Order.

IV.

CONCLUSION

Accordingly, the Court orders that defendants Shenzhen KXD Multimedia Co., Shenzhen
KXD Electronics Co., and KXD Technology, Inc. pay to plaintiff, no later than July 17, 2007,
sanctions in the amount of $13,000, based on a sanction of $500 for each of the 26 days that
defendants had not complied with the June 13, 2007, deadline and the requirements set forth in
the Court's May 24, 2007, and June 28, 2007, Orders, up to the time of the issuance of this Order,
and their production of fruit-obscured documents. Failure to timely pay the sanctions will result
in a daily fine of $1,000 until paid.

The Court recommends that evidentiary sanctions be imposed on defendants Shenzhen
KXD Multimedia Co., Shenzhen KXD Electronics Co., and KXD Technology, Inc. as follows:

1. That the court preclude defendants from introducing evidence at trial related to
defendants' defense that any or all of the DVD products defendants made, used, sold, offered for
sale, or imported into the United States were licensed, and the defense of unclean hands and
unjust enrichment to the extent those defenses rely on the purported licenses;

2. That the Court direct that the fact be established in the record that no DVD products
were licensed under the patents in suit with the exception of products reported and paid for under
a July 2002 DVD Video Player and DVD ROM Player Patent License Agreement entered into by
Shenzhen KXD Electronics Co. Ltd. (see Craig-Rient Dec. in Support of Plaintiff' Ex Parte
Application, Ex. O (unclear seal));

3. That defendants be precluded from introducing evidence at trial that contradicts the data
relied on by plaintiff's damages expert, Mark Peterson, except as to any relevant evidence
contained in the CD provided to plaintiff on June 26, 2007, or otherwise already produced by
defendants;

4. That defendants be precluded from introducing at trial any evidence or testimony based
on documents not produced by defendants, and which the Court ordered produced prior to the
date of this Report and Recommendation.

Plaintiff's request for attorney's fees in connection with the filing of this Motion is denied.
Plaintiff failed to provide any information concerning the amount of time spent on the Motion, or
the hourly rates for its attorneys, choosing instead to present that issue, "at the Court's request,"
following a ruling on the Motion. Plaintiff's Memorandum in Support of Motion, at 21. The Court
declines to conduct satellite litigation concerning attorney's fees especially in light of the rapidly
approaching trial date.
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V.

RECOMMENDATION

It is recommended that the District Court issue an Order: (1) adopting this Report and
Recommendation; and (2) granting in part plaintiff's Motion, as set forth above.

NOTICE

Reports and Recommendations are not appealable to the Court of Appeals, but are subject
to the right of any party to file Objections as provided in the Local Rules Governing Duties of
Magistrate Judges, and review by the District Judge whose initials appear in the docket number.
No Notice of Appeal pursuant to the Federal Rules of Appellate Procedure should be filed until
entry of the Judgment of the District Court.