Between a Legal Rock and a Hard Place: Balancing Foreign Law and U.S. Discovery Obligations
As defendants undergo the discovery process in a United States District Court patent case, they may field requests to produce source code, technical documentation, and/or other documents and information that invoke privacy or security considerations. But when defendants are subject to foreign law and the scope of discovery goes beyond U.S. borders, more than the typical discovery issues may be in play. Specifically, defendants can find themselves being asked to produce materials in a U.S. case that are subject to—for example—foreign security, export, or privacy laws that block or limit disclosure. This can create a “catch-22”: on one hand, a defendant may face sanctions for failing to comply with a U.S. court’s order compelling cross-border production of documents, source code, or other information; on the other hand, that defendant might subject itself to civil and criminal penalties under foreign law by producing those same materials. Moreover, a plaintiff may face delays or may not get access to materials that could be important for its case—e.g., relevant source code in a patent infringement case. As foreign laws with discovery-blocking effects proliferate, and as foreign defendants (or domestic defendants with foreign parents, subsidiaries, or affiliates)[1] continue to face litigation in U.S. courts, these types of comity issues will likely arise on a more frequent basis.
Foreign laws that prevent disclosure of documents or information during U.S. pretrial discovery are often referred to as “blocking statutes.” Some of these laws are directly aimed to curtail the reach of U.S. discovery,[2] such as the French Blocking Statute,[3] which requires French companies to report foreign information requests (e.g., discovery requests) to the French Strategic Information and Economic Security Service (SISSE) so that the SISSE can produce an opinion about the applicability of the blocking statute to the requested information. Other foreign laws are not expressly directed toward limiting things like U.S. discovery, but they have the effect of prohibiting production of documents or disclosure of information. For example, Chinese entities must comply with China’s export control laws. Specifically, China’s Ministry of Commerce and Ministry of Science and Technology have issued a catalogue listing technologies that are subject to export prohibitions or to restrictions requiring an export license.[4] In patent cases, issues with export control laws in particular can potentially impact a defendant’s ability to export source code relating to technologies in the catalogue (or the speed at which such source code is produced). Another example of a law with a blocking-type effect is the EU’s General Data Protection Regulation (GDPR), which concerns the data protection and privacy of EU citizens and regulates the transfer of EU citizens’ personal data outside of EU member states.[5] Because the GDPR broadly defines personal data as “any information relating to an identified or identifiable natural person,”[6] the statute’s protections implicate “information that is generally considered benign in U.S. litigation and produced in discovery” like an individual’s name and job title.[7] These are only a few examples amongst a broader collection of foreign laws that may impact the course of U.S. discovery.[8]
When addressing conflicts between U.S. discovery law and foreign blocking statutes, courts often grapple with whether domestic discovery rules from the Federal Rules of Civil Procedure should be applied rather than the method set out in the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters of 1970 (the “Hague Convention”). The seminal case for this inquiry is the United States Supreme Court case Societe Nationale Industrielle Aerospatiale v. U.S. District Court for the Southern District of Iowa[9] (“Aerospatiale”), which involved an argument that—in light of the potential for foreign blocking statute violations—U.S. plaintiffs were required to go through Hague Convention procedures to obtain discovery of the defendants’ documents from France. The Supreme Court disagreed and found that the Convention was neither a required “first resort” nor the only method to acquire evidence located outside the U.S.[10] Rather, the Court explained that international comity requires a more case-by-case analysis.[11] Accordingly, in analyzing disputes over foreign discovery, U.S. courts consider the following five factors enumerated by Aerospatiale: “(1) the importance to the ... litigation of the documents or other information requested; (2) the degree of specificity of the request; (3) whether the information originated in the United States; (4) the availability of alternative means of securing the information; and (5) the extent to which noncompliance with the request would undermine important interests of the United States, or compliance with the request would undermine important interests of the state where the information is located.”[12] For cases in Texas district court (e.g., patent cases), two additional Fifth Circuit factors may be added to the inquiry: “(6) “the hardship of compliance on the party or witnesses from whom discovery is sought”; and (7) “the good faith of the party resisting discovery.”[13]
Courts generally consider the fifth factor of comity analysis—which involves balancing the national interests of the United States and the foreign nation at issue—to be “the most important, as it directly addresses the relations between sovereign nations.”[14] U.S. courts have recognized multiple U.S. interests for this factor, including a “‘substantial’ interest in ‘vindicating the rights of American plaintiffs’ and an ‘overriding interest in the just, speedy, and inexpensive determination of litigation in [its] courts,’”[15] an interest in “ensur[ing] a fair and transparent legal adjudication of the liability,”[16] and an “‘obvious interest’ in having [the United States’s] own procedural rules applied to discovery.”[17] In intellectual property cases specifically, courts have recognized that the U.S. has a “powerful interest in enforcing the acts of Congress, especially those . . . that are designed to protect intellectual property rights.”[18] Although defendants may argue that foreign countries have a privacy, security, or other foreign policy interest in preventing disclosure, some U.S. courts have viewed blocking statutes “with some skepticism”—particularly where there is no evidence that the relevant foreign nation actively enforces the blocking statute at issue.[19] Moreover, courts have found that a foreign government’s interest in confidentiality is diminished where the party seeking the information is required to keep it confidential under a protective order.[20]
U.S. courts are generally not deferential to foreign blocking statutes in light of United States interests, as indicated by the above discussion of comity balancing caselaw and by an oft-quoted portion of Aerospatiale: “It is well settled that [blocking] statutes do not deprive an American court of the power to order a party subject to its jurisdiction to produce evidence even though the act of production may violate that statute.”[21] As another example, in In re Valsartan, Losartan, & Irbesartan Prod. Liab. Litig., the court stated:[22]
In looking at the likely effect these PRC laws do and will have on the U.S. market, I find this a most important consideration. Even though between a “legal rock and hard place”, PRC defendants cannot enter the U.S. market expecting a possible shield from unfavorable discovery by PRC blocking statutes. As one judge’s decision has implied, if you don't like the rules, then stop doing business in the U.S.
Indeed, Valsartan was cited by Judge Schroeder in a July 2023 order overruling a defendant’s objections to a protective order entered by Judge Payne in an Eastern District of Texas patent case.[23] In that case, the defendants were Chinese entities that did not produce portions of requested source code on the basis that it required an export license under Chinese export control laws.[24] Although the defendants argued that they may be penalized under Chinese law if they were to produce the source code without first obtaining an export license, the plaintiff argued that defendants should not be permitted to “use the non-production of its code as a shield in its non-infringement defense.”[25] The court, noting that the defendants did not identify cases where courts adopted similar restrictions to protective orders involving foreign defendants, overruled the defendants’ objections to the magistrate judge’s order.[26]
Although the Aerospatiale case sets forth a fact-specific balancing test, both parties generally apply at least some similar arguments from case to case. Plaintiffs are likely to tout the importance of U.S. interests and the importance of the withheld material, and they are likely to argue that foreign blocking statutes should not be overextended and used as a shield against possible unfavorable discovery. On the other side, Defendants may move for a protective order and are likely to cite any potential criminal or civil penalties incurred for breaking foreign law, along with pointing to alternative means of acquiring the information at issue.[27] Regardless of the party, however, it should be recognized that the tension between U.S. discovery and foreign law is an important issue with potentially significant effects in the case—e.g., the plaintiff not obtaining what could be significant evidence for its case, or the defendant facing sanctions from the court for failing to produce compelled materials. Plaintiffs can identify relevant foreign blocking issues early in the case (including whether any affiliates, parents, or subsidiaries located abroad may have relevant information), diligently request materials, ensure that requests subject to blocking statutes are targeted and not overbroad, and develop their case so that they can demonstrate why the requested material is important. Defendants should also be aware of any foreign blocking issues as early in the case as possible (particularly given the caselaw favoring the Federal Rules of Civil Procedure in the balancing inquiry) and can demonstrate diligence in undergoing any necessary steps required by foreign governments to obtain the information or in proposing alternatives. Defendants can also collect any information regarding the enforcement history of the relevant blocking statute to have ready in the event that they seek a protective order or respond to a motion to compel.
Many litigation matters extend beyond purely domestic issues, and patent cases often involve source code or other information that could implicate export, privacy, or security considerations. As foreign laws continue to proliferate, foreign data privacy laws, export control laws, and other blocking statutes that prohibit transfer of information to the U.S. should be identified early and kept in mind throughout the discovery process.
[1] Even cases involving disputes between two domestic parties may trigger foreign discovery obligations—e.g., a domestic entity outsourcing functions to foreign service providers or a domestic company maintaining ESI on a cloud platform with physical servers in a foreign country.
[2] The Federal Rules of Civil Procedure require parties to produce all materials that are “relevant to any party’s claim or defense and proportional to the needs of the case,” whether or not those materials are admissible in evidence. Fed. R. Civ. P. 26(b)(1). Blocking statutes have arisen due to the disparity between the scope of discovery under the Federal Rules and the relatively narrower scope of discovery under foreign legal systems.
[3] French Penal Law Code no. 80-538.
[5] See Phillips v. Vesuvius USA Corp., 2020-Ohio-3285 (Ct. App.) (finding that personnel files should be produced in U.S. discovery in part because appellants “failed to produce evidence that the disclosure of the personnel files would lead to hardship or an enforcement action from an EU data protection supervisory authority).
[6] GDPR Article 4(1).
[7] In re Mercedes-Benz Emissions Litigation, D.N.J. Civil Action No. 16-cv-881 (KM) (ESK), 2020 U.S. Dist. LEXIS 15967, *5 (Jan. 30, 2020).
[8] Other examples include at least the German Federal Data Protection Act, the Chinese State Secrets Act, the Chinese Tort Liability Law, the Chinese Bank Secrets Law, the Swiss Banking Act, the Malaysian Bank Secrets Law, the Chilean Bank Secrets Law, the South African Protection of Businesses Act, the Israeli Basic Laws relating to the Protection of Privacy, the Israeli Bank Secrecy Ordinance, the British Bank Secrecy Law, the Singapore Government Secrets Law, the Singapore Bank Secrecy Law, the United Arab Emirates Bank Secrecy Law, the Jordanian Bank Secrecy Law, the Lebanese Bank Secrecy Law, the Ecuadorian Bank Secrecy Law, the Ecuadorian Professional Disclosure Law, the Uruguayan Bank Secrets Law, the Spanish Law of Civil Procedure, and the Mexican Holding Company Nondisclosure Law.
[9] 482 U.S. 522 (1987).
[10] Id. at 542-44.
[11] Id. at 544.
[12] Id. at 544 n.28. These factors mirror the framework set forth in the Restatement (Second) of Foreign Relations Law.
[13] S.E.C. v. Stanford Int'l Bank, Ltd., 776 F. Supp. 2d 323, 330 (N.D. Tex. 2011).
[14] Wultz v. Bank of China, Ltd., 910 F. Supp. 2d 548, 558 (S.D.N.Y. 2013) (citation omitted); see also SEC v. Stanford Int’l Bank, Ltd., 776 F. Supp. 2d 323, 329 (N.D. Tex. 2011) (“In line with Second Circuit caselaw, the Court places greater emphasis on the factors concerning the countries’ competing interests and the hardships associated with compliance.”); Nidec Motor Corp. v. Broad Ocean Motor, LLC, No. 4:13-cv-01895-SEP, 2023 U.S. Dist. LEXIS 10458, at *8 (E.D. Mo. Jan. 20, 2023); In re Valsartan, Losartan, & Irbesartan Prod. Liab. Litig., No. MDL 2875 (RBK), 2021 WL 6010575, at *12 (D.N.J. Dec. 18, 2021) (finding the fifth factor “carries the greatest weight”).
[15] Nidec Motor Corp., 2023 U.S. Dist. LEXIS 10458, at *8; Inventus Power v. Shenzhen Ace Battery, 339 F.R.D. 487, 504 (N.D. Ill. 2021) (first quoting Richmark Corp. v. Timber Falling Consultants, 959 F.2d 1468, 1475 (9th Cir. 1992), then quoting Aerospatiale, 482 U.S. at 542-43).
[16] See In re Valsartan, 2021 WL 6010575, at *12; see also Strauss v. Credit Lyonnais, S.A., 242 F.R.D. 199, 214 (E.D.N.Y. 2007) (“[T]he United States has ‘a substantial interest in fully and fairly adjudicating matters before its courts.’”) (internal citations omitted).
[17] Laydon v. Mizuho Bank, Ltd., 183 F. Supp. 3d 409, 423 (S.D.N.Y. 2016) (citation omitted), 183 F. Supp. 3d at 423 (quoting Tansey v. Cochlear Ltd., 2014 WL 4676588, at *4 (E.D.N.Y. Sept. 18, 2014)).
[18] Nike, Inc. v. Wu, 349 F. Supp. 3d 310, 339 (S.D.N.Y. 2018) (quotation marks and citation omitted) (emphasis added); Nidec Motor Corp., 2023 U.S. Dist. LEXIS 10458, at *8.
[19] This argument regarding lack of enforcement has been used in connection with at least Chinese state secrecy laws, the GDPR, and the French Blocking Statute. See, e.g., Nidec Motor Corp., 2023 U.S. Dist. LEXIS 10458, at *8 (finding that the fifth factor weighs against Hague Convention procedures because “Defendants offer only speculation that they may be subject to penalties under Chines law if they produce the requested information” and noting that defendants “fail to cite a single instance of a Chines entity being penalized or prosecuted for producing documents for use in a United State litigation”); Vesuvius USA Corp., 2020-Ohio-3285, ¶ 28 (“Appellants have failed to produce evidence that the disclosure of the personnel files would lead to hardship or an enforcement action from an EU data protection supervisory authority for breach of the GDPR.”); Bodner v. Paribas, 202 F.R.D. 370, 374–75 (E.D.N.Y. 2000) (“As held by numerous courts, the French Blocking Statute does not subject defendants to a realistic risk of prosecution, and cannot be construed as a law intended to universally govern the conduct of litigation within the jurisdiction of a United States court. Thus, applying Aerospatiale and Minpeco, other courts have uniformly declined to give effect to the French Blocking Statute, or to hold that the existence of the statute requires that discovery of French defendants take place under the Hague Convention.”); Meggitt Orange Cty. v. Nie Yongzhong, No. SA CV 13-0239-DOC (DFMx), 2014 U.S. Dist. LEXIS 206841, at *7-9 (C.D. Cal. Mar. 21, 2014) (denying defendant motion for protective order in light of Chinese state secret law; other courts have discounted a foreign state’s interests where, as here, there is no indication that the foreign government has voiced any objections to the disclosure of the information sought, an absence that ‘militates against a finding that strong national interests of the foreign country are at stake’”).
[20] See United States v. Vetco, Inc., 691 F.2d 1281, 1289 (9th Cir. 1981); Meggitt Orange Cty, 2014 U.S. Dist. LEXIS 206841, at *8-9.
[21] 482 U.S. at 544 n.29; see, e.g., Arigna Tech. Ltd. v. Nissan Motor Co., No. 2-22-cv-00126, slip op. at 2 (E.D. Tex. July 29, 2022) (finding that foreign law “do[es] not deprive an American court of the power to order a party subject to its jurisdiction to produce evidence”).
[22] 2021 WL 6010575, at *18.
[23] Textron Innovations Inc. v. SZ Dji Tech. Co., LTD, Civil Action No. 2:22-CV-351-RWS-RSP, 2023 U.S. Dist. LEXIS 124364 (E.D. Tex. July 19, 2023).
[24] Id. at *2-3.
[25] Id. at *4-5.
[26] Id. at *6.
[27] Courts often do not view the Hague Convention procedures as an acceptable alternative to the Federal Rules of Civil Procedure, unless the information is being sought from a non-party. See, e.g., Meggitt Orange Cty, 2014 U.S. Dist. LEXIS 206841, at *6-7(“The Court is not persuaded that the Hague Convention offers an alternative means of obtaining this information that is "substantially equivalent" to discovery. Other courts have recognized that the procedures of the Hague Convention ‘are slow and cumbersome, and subject discovery to the law of the country where the producing party is located.’” (quoting Munoz v. China Expert Technology, Inc., No. 07-10531, 2011 U.S. Dist. LEXIS 128539, 2011 WL 5346323, at *1 (S.D.N.Y. Nov. 7, 2011)); Autodesk, Inc. v. ZWCAD Software Co., Ltd., No. 5:14-cv-01409-EJD, 2015 U.S. Dist. LEXIS 39695, at *18-19 (N.D. Cal. Mar. 27, 2015) (“Further, discovery under the Hague Convention is too slow to be an effective alternative to the Federal Rules of Civil Procedure.”); Laydon v. Mizuho Bank, Ltd., 183 F. Supp. 3d 409, 422 (S.D.N.Y. 2016) (“[T]here is a real possibility that plaintiff would not be able to obtain the discovery he seeks through the Hague Convention.”).
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