Judge William Pauley

Harkabi and Elazar established Mobile Digital Rights Management (MDRM) in 2002. MDRM’s BookLocker flash drive product enabled schools to acquire educational materials. Each BookLocker device was programmed a unique device identification or “DID” code. Following negotiations and meetings earlier in the year, SanDisk acquired MDRM under a Sept. 13, 2004, agreement promising Harkabi and Elazar a $4 million earn-out if MDRM technology drove sales of SanDisk products. After previously sanctioning SanDisk for spoliation of certain laptops and authorizing an adverse inference against SanDisk at trial, district court ruled in Harkabi’s and Elazar’s favor on contract breach claims arising from sale of more than 3.2 million of SanDisk’s U3 flash drive devices, which used or embedded MDRM’s technology, or its derivatives. Thus, Harkabi and Elazar were qualified for the earn-out, and entitled to $3.8 million in contract damages given SanDisk’s failure to include sales of its U3 devices as MDRM units sold under the agreement. Had the sales of U3 devices in 2005 and 2006 been included as MDRM units sold, the maximum $4 million earn-out would have been due.