«Xue Chen TABLE OF CONTENTS Table of contents...1 I. Introduction..2 II. Background on Chinese Economy and Policies.3 III. Trade Secret Laws in the ...»
IV. From Business Information to Economic Espionage The complexity of a trade secret misappropriation cases lies in the value of the “secret” to a competitor. Upon obtaining proprietary business information, competitors may price out a seller out of business by underbidding its customers, when they offered a better price to the customer. In Guang Dong Light Headgear Factory v. ACT Int’l, 25 pricing information (seller’s “pricing structure, product development and profitability”) amount to “trade secrets” because it would jeopardize seller’s position in the market since it contained the price seller would ultimately charge the customers. In most cases, non-competition and non-disclosure agreements can be an efficient tool to guard proprietary information and maintain its secrecy, if another party signed on it. But not all proprietary information falls within the definition of a “trade secret”.
Courts have distinguished between a process or device used to run a business and that produced by the business itself; the former qualifies as a trade secret but the latter does not.
In Four Star Capital Corp. v. NYNEX Corp.,26 plaintiff was a company engaged in finding business opportunities in China, claimed that it developed proprietary information of customers in the course of its business, and that such information “included, but was not limited to, the identity of plaintiff’s customers, the names of individuals within each customer’s organization, each customer’s desires and preferences as to products marketed by plaintiff, and financial details for each customer.”27 However, plaintiff’s propriety customer information was developed in the business of providing intelligence about the business landscape in China—which intelligence presumably consisted of the very information that plaintiff now alleges was its trade Guang Dong Light Headgear Factory v. ACT International Inc., 521 F.Supp.2d at 1173 (D.Kan. 2007) (These documents, according to ACI, contained the prices that ACI ultimately charged its customers, rather than the price that it paid for the products. Id.).
Four Star Capital Corporation v. NYNEX Corporation, 183 F.R.D. 91 (S.D.N.Y. 1997).
Id. at 107.
secret.28 Based on this, it is doubtful that plaintiff’s information is protectable under a misappropriation analysis. 29 The EEA’s definition of “misappropriation of trade secrets” is derived from the definition that appears in the Uniform Trade Secrets Act, a model statute which permits civil actions for the misappropriation of trade secrets. The EEA further provides, in pertinent part: “Whoever, intending or knowing that the offense will benefit any foreign government foreign instrumentality, or foreign agent, knowingly— (3) receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained, or converted without authorization; shall be fined not more than $500,000 or imprisoned not more than 15 years, or both.”30 To convict under § 1831 of the EEA, the government must prove that defendant acted with the intent to benefit a “foreign government, foreign instrumentality, or foreign agent.”31 Unlike the foreign agent count, which required evidence of a foreign government’s direction or control, criminal liability under the EEA may be established on the basis of Defendant’s intent alone.
In US v. Chung, defendant, a former Boeing engineer, was convicted for violating Economic Espionage Act of 1996 (“EEA”), and conspiring to violate EEA, with regard to government contractor’s documents relating to phased array antenna to be used on space shuttle, the appeals court held that these documents constituted “trade secret” under EEA.32 Evidence supported finding include 300,000 pages of Boeing documents, which were found in Defendant’s Id. at 108.
18 U.S.C. § 1831(a)(3).
18 U.S.C. § 1831(a).
U.S. v. Chung, 659 F.3d at 818 (9th Cir. 2011).
home.33 Four of the documents relate to a phased array antenna that Boeing developed for the space shuttle, “such information was significant because it established that Boeing could install antenna modules on the space shuttle without a system for active cooling.”34 (Defendant argues that the documents related to the phased array antenna did not contain trade secrets, since the documents contain information similar to that presented by Boeing engineers at a NASAsponsored conference that was attended by Boeing’s competitors. Id. at 826. But the portions of those documents relating to the number of elements in the phased array antenna were not disclosed at the conference. Id.) Boeing implemented general physical security measures for its entire plant, through security guards, and reserved the right to search all employees’ belongings and cars, and in addition, the training sessions instructing employees as to what to share with outsiders, and to sign confidentiality agreements.35 The phased antenna array documents secret has economic value since it would “tip off competitors to more than just the costs associated with this specific project,”36 and show a competitor how Boeing operates – “not just related to the integration, but has implication for everything else” Boeing was working on. 37 Defendant intended to benefit China by providing technical information responsive to requests from Chinese officials and by delivering presentations to Chinese engineers.38 Government presented such evidence that could be traced back to 1980s. Due to his history of passing technical documents to China, “a rational trier of fact reasonably could infer from Defendant’s more recent possession of similar documents that his intent to benefit China Id. at 824.
Id. at 826.
Id. at 827 (Boeing engineer testified that the estimates of hours, ties to the list of tasks, and although Boeing had no competitors for the integration project itself, a competing company might bid against Boeing for integration work.).
Id. at 827.
Id. at 828.
persisted well into the limitations period and extended to his possession of the trade secrets,” absent any scholarly or literary intentions that he possessed the documents because he intended to write a book.39
When a foreign defendant is sued in a U.S. district court, it is most likely than not that the Defendant would file in her counterclaims, contesting the appropriateness of jurisdiction and venue. Reviewing the standards might shed light on how courts rule on these challenges brought up in counterclaims, or in Defendant’s memorandum of law in support of motion to dismiss.
A. Personal Jurisdiction “In evaluating the appropriateness of personal jurisdiction over a nonresident defendant, [courts] ordinarily examine whether such jurisdiction satisfies the ‘requirements of the applicable state long-arm statute’ and ‘comports with federal due process.’”40 “For due process to be satisfied, a defendant, if not present in the forum, must have ‘minimum contacts’ with the forum state such that the assertion of jurisdiction ‘does not offend traditional notions of fair play and substantial justice.’”41 “There are two types of personal jurisdiction: general and specific.”42 Specific jurisdiction is relevant only if the defendant’s “contacts with the forum give rise to the Id. (The Court held that the evidence in the light most favorable to the prosecution, there was sufficient evidence to conclude, beyond a reasonable doubt, that Defendant possessed the trade secret documents with the intent to benefit China.) Bauman v. Daimler-Chrysler Corp., 644 F.3d 909, 919 (9th Cir.2011) (quoting Chan v. Soc’y Expeditions, Inc., 39 F.3d 1398, 1404–05 (9th Cir.1994)).
Pebble Beach Co. v. Caddy, 453 F.3d at 1155 (quoting Int’l Shoe Co. v. Washington, 326 U.S.
310, 315, 66 S.Ct. 154, 90 L.Ed. 95 (1945)).
Ziegler v. Indian River County., 64 F.3d 470, 473 (9th Cir.1995).
cause of action before the court.”43 By contrast, “when the cause of action does not arise out of or relate to the foreign corporation’s activities in the forum State,” the State is exercising ‘general jurisdiction over the defendant.”44 “If a plaintiff’s claims relate to different forum contacts of the defendant, specific jurisdiction must be established for each claim.”45 In S&D Trading Academy, LLC v. AAFIS,46 the Court said while plaintiff’s trade secrets were allegedly misappropriated in China, the first step of the alleged misappropriation— learning the trade secrets—occurred in Texas. If the Defendant had not obtained the intellectual property in Texas, they would not have been able to misappropriate it.47 (The Chinese day traders came to Texas to learn S & D’s day trading method,48 and took this intellectual property back to China with them and allegedly misappropriated it there.) Finally, when misappropriation of trade secrets claim is “so intertwined with its breach of contract claim that due process would not be offended if the Court were to exercise specific jurisdiction over both claims after finding that the breach of contract claim” arose out of defendant’s contacts in the forum state.49 Bauman v. Daimlerchrysler Corp., 644 F.3d at 919 (quoting Doe v. Unocal, 248 F.3d 915, 923 (9th Cir.2001)).
Id. (quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414, 415 n. 9, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984)).
Seiferth v. Helicopteros Atuneros, Inc., 472 F.3d 266, 275 (5th Cir.2006).
Id. (Day trading trainer brought diversity action against nonresident corporation, its majority shareholder, principal officer, and director, and related person, alleging breach of contract and misappropriation of trade secrets. Corporation brought motion to dismiss on grounds of lack of personal jurisdiction.) S & D Trading Academy, LLC v. AAFIS, Inc., 494 F.Supp.2d at 567 (S.D.Tex. 2007) B. Choice of Law When the alleged injury occurred in more than one state, according to the Restatement, the place of injury is entitled to little weight.50 In Good Earth Lighting, Inc. v. New Chao Peng Industrial Co.,51 Defendant sold fixtures incorporating plaintiff’s misappropriated trade secrets “to retail stores across the United States,” but the most significant contact is the location of defendant's conduct, which in this case, is Taiwan. Although Good Earth Lighting, Inc. (“GEL”) was injured by nationwide sales, the allegedly unlawful conduct, manufacturing and selling flourescent lighting fixtures to U.S. customers other than GEL, occurred in Taiwan. Therefore, the significant contacts test of the Restatement favors applying Taiwanese, not Illinois, law to the parties' trade secrets dispute.52 C. Forum Non Conveniens Forum non conveniens is a nonmerits ground for dismissal.53 It is an exceptional tool to be employed sparingly, but not a doctrine that “compels plaintiffs to choose the optimal forum for their claim.”54 The standard to be applied for a motion to dismiss on the ground of forum non conveniens is whether the defendants have made a clear showing of facts which establish that trial in the chosen forum would “establish such oppression and vexation of a defendant as to be out of proportion to plaintiff's convenience.”55 Therefore, a party moving to dismiss based on forum non conveniens bears a heavy burden of showing (1) that there is an adequate alternative forum, and (2) that the balance of public and private interest factors favor dismissal of Restatement (Second) of Conflict of Laws § 145(1), cmt. f (1971) Good Earth Lighting, Inc. v. New Chao Peng Industrial Co., 1999 WL 58555*3 Id.
American Dredging Co. v. Miller, 510 U.S. 443, 447-448, 114 S.Ct. 981, 127 L.Ed.2d 285 (1994).
Boston Telecomm. Grp., Inc. v. Wood, 588 F.3d 1201, 1206 (9th Cir.2009).
American Dredging Co. v. Miller, 510 U.S. at 447-48 (1994).
suit.56 Unless the balance of “private interest” and “public interest” factors strongly favors trial
in the foreign country, a plaintiff's choice of forum will not be disturbed.57
[T]he private interest factors are: (1) the residence of the parties and the witnesses;
(2) the forum’s convenience to the litigants; (3) access to physical evidence and other sources of proof; (4) whether unwilling witnesses can be compelled to testify; (5) the cost of bringing witnesses to trial; (6) the enforceability of the judgment; and (7) all other practical problems that make trial of a case easy, expeditious and inexpensive. The public interest factors are: “(1) the local interest in the lawsuit, (2) the court’s familiarity with the governing law, (3) the burden on local courts and juries, (4) congestion in the court, and (5) the costs of resolving a dispute unrelated to a particular forum.” See Boston TelecommunicationsGroup,Inc. v. Wood, 588 F.3d at 1206-07 (9th Cir.2009); see also Tuazon v. R.J. Reynolds Tobacco Co., 433 F.3d 1163, 1181 (9th Cir.2006).
In Cybersitter, LLC v. PRC,58 Defendants moved to dismiss the action for forum non conveniens arguing that California is an inconvenient forum and the dispute should be heard in China, since they would be severely burdened if the case were to be litigated in California rather than China due to “the difficulty of compelling third-party witnesses to testify in California and the substantial cost of transporting witnesses and evidence to California and translating documents from Chinese to English.” 59 The Court said defendants failed to show that their inability to compel potential witnesses to testify in California, the costs they would incur in transporting witnesses and evidence to California, or any other factor would result in Lueck v. Sundstrand Corp., 236 F.3d 1137, 1142-43 (9th Cir.2001).
Gates Learjet Corp. v. Jensen, 743 F.2d 1325, 1334 (9th Cir.1984).
Cybersitter, LLC v. PRC, 805 F.Supp.2d 958 (C.D.Cal. 2011).
Id. at 966.