Software is playing an increasingly central role in the investment processes of hedge funds, high frequency traders and other market participants. Most of the growing body of law around trading software focuses on who owns it, when it has been stolen and the remedies for theft. See “Recent Developments Affecting the Protection of Trade Secrets by Hedge Fund Managers
,” Hedge Fund Law Report, Vol. 6, No. 41 (Oct. 25, 2013). There is less law, and less commentary, on the application of civil procedure to trading technology disputes. Accordingly, a recent federal court decision is uniquely interesting to hedge fund managers and others that create and own trading technology; to technology and investment professionals that leave one shop to start another; and to lawyers and others professionally focused on intellectual property issues. A technology-based trading firm asked the court to impose spoliation sanctions on former employees who allegedly stole code from the firm, incorporated versions of that code into the trading technology of a new firm then – while aware of litigation involving the code – destroyed or erased various iterations of the code. In a carefully drafted opinion, the court applied the law of spoliation to this dispute involving trading software code. The court’s opinion provides valuable guidance as to when, and to what extent, a duty to preserve electronic information pertaining to proprietary software exists and the criteria for imposing an appropriate sanction for spoliation.