Tag:dispute resolution and litigation-cross border investigation and litigation
I. Background
In No. 4:13-cv-01895 (E.D. Mo. Sept. 27, 2024) (“Opinion”), the U.S. District Court for the Eastern District of Missouri addressed the issue of whether the secrecy laws of another country may prevent discovery in the United States. Specifically, the Plaintiff filed a motion to compel the Defendants to respond to discovery seeking sales information regarding the products accused of infringing the Plaintiff’s patents. In opposing the Plaintiff’s motion, the Defendants requested a protective order barring the production of such information under Chinese secrecy law. The Defendants urged that a protective order should be granted because the production of information responsive to the Plaintiff’s discovery requests could expose Defendants to broad sanctions under the People’s Republic of China’s (PRC) recently enacted Counterespionage Law. The Defendants relied on the declaration of a Chinese attorney and a letter from the local Bureau of Commerce. The district court acknowledged that it had previously rejected arguments based on China’s Data Security Laws, its Cybersecurity Law, and its Personal Information Protection Law and similarly concluded that the threat of sanctions under the Counterespionage Law was speculative. As such, the court granted the Plaintiff’s motion to compel and denied the Defendants’ motion for a protective order.
II. The District Court Finds Defendants’ Argument About the Threat of Sanctions Under China’s Counterespionage Law Speculative
Prior to addressing the parties’ dispute with respect to the PRC’s Counterespionage Law, the district court first summarized its prior findings with respect to the PRC’s Data Security Laws, Cybersecurity Law, and Personal Information Protection Law, which it broadly referred to as “secrecy laws.” Opinion at 7. The court summarized its prior findings as follows:
[T]he United States’ substantial interest in vindicating the rights of American plaintiffs through the just, speedy, and inexpensive determination of litigation in its courts outweighs China’s interests in the enforcement of its secrecy laws; and Defendants offered only speculation that they would be subject to sanctions or penalties if they complied with the discovery requests.
Id. (citing prior order dated Jan. 20, 2023).
The district court then addressed the parties’ arguments under the PRC’s Counterespionage Law that became effective in July 2023 (after the earlier ruling). The court acknowledged “the additional restraints on information-sharing imposed under the PRC’s recently enacted Counterespionage Law” but rejected the Defendants’ argument that the “extremely broad nature” of the penalties they faced under the new law required the court to issue a protective order. Id. at 8. The court then analyzed the evidence relied on by the Defendants and determined that the Defendants’ claim that they would be subject to sanctions was too speculative.
With respect to the evidence, the district court first addressed the declaration of a Chinese attorney submitted by the Defendants in support of their request for a protective order. The court found the Declaration lacking because it failed to “discuss the newly promulgated Counterespionage Law” and did not provide any analysis of the likelihood of sanctions under such law. Opinion at 8. The court next addressed a letter from the local Bureau of Commerce submitted by the Defendants, which explained the Defendants were “expected to comply with China’s data security laws.” Id. However, the court found the letter did not evidence that sanctions were likely or more then speculative because “the letter provides no information about the likelihood of potential consequences of violating the Counterespionage Law, in particular.” Id.
After addressing the facts of the case, the district court addressed the applicability of U.S. discovery rules to the facts of the case. The court concluded that the evidence represented “nothing more than speculation that [the Defendants] may be subject to penalties under Chinese law if they produce the requested information.” Opinion at 8–9. Citing a number of decisions from other district courts, the court explained “Chinese litigants often attempt to avoid discovery in American courts by arguing that various PRC laws block compliance, and courts frequently reject that argument and enforce compliance with the Federal Rules of Civil Procedure regarding discovery.” Id. at 9. The court especially pointed out the Defendants’ failure to “cite [any] case in which a Chinese individual or entity has been sanctioned under Chinese privacy laws for complying with the Federal Rules of Civil Procedure in an American court.” Id. Ultimately, the court was not sympathetic to the Defendants’ argument that they faced the “untenable position of either complying with the Plaintiff’s discovery request and being subjected to Chinese sanctions or refusing to comply . . . and facing the risk of sanctions by this Court” due to circumstances outside of their control. The court explained that “[n]o one forced Defendants to market products in the United States” and the Defendants “chose to, knowing that they could be hauled into American courts, where they would be subject to the applicable rules.” Id.
III. Conclusion and Lessons
The decision in the case shows that U.S. courts may not preclude discovery based on generalized claims that the PRC’s counterespionage and privacy laws could subject the producing party to sanctions. However, the district court’s opinion suggests that the court may have been more receptive of particularized arguments directed to why production of the information in question was likely to subject one to sanctions under a particular aspect of the PRC’s counterespionage or secrecy laws. For example, the court specifically noted that the Chinese attorney declaration did not address how or why the Defendants would likely be subject to sanctions under any aspect of the PRC’s Counterespionage Law. Similarly, the court noted that the letter from the local Bureau of Commerce merely indicated that Chinese companies must comply with the PRC’s Counterespionage Law without articulating how or why production of the material in question would subject the Defendants to sanctions. In short, courts in the U.S. are less likely to be receptive to speculative arguments regarding the mere possibility of sanctions under PRC counterespionage and privacy laws. Companies making such arguments are more likely to be successful when they adduce evidence, e.g., through a Chinese attorney declaration, a letter from the local Bureau of Commerce, etc., addressing particularized concerns regarding such laws to establish more than the speculative probability of harm.
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