Online Exclusive: Protecting your trade secrets in facilities abroad

Imagine an American tourist, camera in hand, standing in the middle of a bustling bazaar in a foreign country. The inherent energy of the distant land she is visiting charms and intrigues her as she happily snaps photos of unfamiliar goods in the lively marketplace, where people are speaking a language she doesn’t understand but finds beautiful.

Now imagine an American lawyer who has just traveled abroad to interview witnesses for a multimillion-dollar lawsuit in which a U.S. corporation is suing a foreign company for allegedly misappropriating trade secrets.

This lawyer likely has a very different perspective on being enveloped in a different culture. After half a day of flying, she is attempting to gather important information from resistant deponents who don’t speak English. The language barrier and other cultural disparities make her job challenging and, at times, frustrating.

The anecdote is familiar to many corporate lawyers who have been involved in international litigation.

“There are some unique challenges that come up,” says Dean Pelletier, a shareholder at McAndrews, Held & Malloy. “You’re dealing with different time zones, you’re trying to coordinate the assembling of information—it can be a logistical nightmare.”

Corporate litigators say that more in-house counsel in various industries could soon encounter this scenario. As companies are increasingly competing on a global scale to develop profitable innovations in a still-shaky economy, experts say that over the past few years, they’ve seen an uptick in U.S. companies pursuing international trade secret cases in which they accuse foreign businesses of stealing proprietary information.

Two U.S. companies—steel products manufacturer Amsted Industries Inc. and chemical company DuPont—recently obtained major victories in such cases. But experts note that winning isn’t easy. Lawyers must remain level-headed, organized, and committed to grasping cultural and logistical complexities when suing foreign companies for trade secret theft.

Nabbing Thieves

Amsted owns a secret process for manufacturing steel railway wheels. In the past,  the company has licensed its process to Chinese manufacturers. But in 2005, one  Chinese company, TianRui Group Co. Ltd., was unable to successfully negotiate a license with Amsted to use the process, and subsequently poached employees from one of Amsted’s licensees. The pilfered workers disclosed Amsted’s secret process to TianRui, which used it to make wheels imported to the U.S. 

Amsted filed a complaint with the International Trade Commission (ITC) in August 2008, claiming TianRui had misappropriated its trade secrets and was violating the Tariff Act of 1930, which prohibits unfair competition and unfair importation into the U.S. The ITC found in October 2009 that TianRui had violated the act, and in February 2010 it issued a 10-year limited exclusion order and 10-year cease-and- desist order against TianRui, prohibiting it from marketing, selling or importing its wheels in the U.S. The Federal Circuit affirmed the ITC’s ruling on Oct. 11, 2011.

DuPont experienced a similar robbery. In February 2009, the company sued Kolon Industries Inc., a South Korean industrial materials company, for allegedly stealing trade secrets. DuPont claimed that a former employee, Michael Mitchell, left the company in 2006, but retained highly confidential information about Kevlar, a  DuPont fiber used to make bulletproof vests and other products. Mitchell later began working at Kolon, where DuPont claimed he shared secret information about Kevlar.

Mitchell pleaded guilty to trade secret theft in March 2010 and served 18 months in prison. On Sept. 14, 2011, a U.S. federal jury found Kolon guilty of misappropriating trade secrets and awarded DuPont $919.9 million in damages, one of the largest trade secret awards in history.

Ensuring Success

Amsted’s and DuPont’s litigation teams credit the companies’ triumphs against foreign thieves to highly orchestrated efforts among in-house counsel and outside law firms. Lawyers who successfully argued on behalf of these companies say businesses pursuing international trade secret cases should consider the following advice.

First and foremost, companies should conduct a cost-benefit analysis of proceeding with a lawsuit against a foreign business.

“General counsel need to understand that this is going to be far more expensive than domestic litigation,” says Brian Riopelle, a McGuireWoods partner who represented DuPont in its case against Kolon. He says translation services were one of the top expenses in DuPont’s case because electronic translating services couldn’t sufficiently translate Kolon’s documents, which were in Korean, a language in which characters have multiple meanings. Companies also should be prepared to spend a lot of money on travel for depositions and inspections, he says.

Next, legal teams must focus on the logistical basics, such as obtaining the appropriate visas for traveling abroad and hiring interpreters, whom lawyers should prepare for depositions. 

“Parties should work together to come up with a glossary of terms so that interpreters are comfortable with the names, places and other words that will come up in the course of a deposition,” says Pelletier, who represented Amsted in the Federal Circuit case. Additionally, he says, lawyers should consult with interpreters before depositions to check whether certain words or phrases in their questions won’t translate well. “You really need to retrain your questioning and the vocabulary that you’re going to be using. You need to ask specific, precise, short questions.”

It’s also important to review local laws to determine permissible discovery venues. Depending on the country, lawyers may need to depose individuals in a U.S. embassy or consulate. Amsted’s lawyers deposed Chinese witnesses in Hong Kong, which allows U.S.-style depositions.

Experts stress that counsel will need patience during depositions. After a lawyer asks a question, a translator will need to translate it, the witness will need to answer it and the translator will need to translate the witness’s answer. Meanwhile, the opposing side may have inserted an objection, which translators also will need to translate. Thus, lawyers should be prepared to lose one-third to one-half of the typical U.S. deposition time when factoring in translations.

Lawyers also should expect foreign witnesses to be somewhat reticent during depositions. Pelletier recommends asking deponents at the onset whether they speak English. If a witness who claims to only speak a foreign language answers “no” in English, red flags should go up. “It provides you with some leeway and eliminates perhaps some gamesmanship,” he says.

Maintaining Skepticism
Inspections are another source of frustration for lawyers involved in international litigation.

“You need to expect a lack of cooperation and unresponsiveness,” Pelletier says. “If you’re asking the facility person that’s been appointed to take you through the facility about where certain things are, you would be naïve to think that you’re always going to be getting a straight answer. Don’t necessarily believe that the tour path is consistent with what you’re entitled to see.”

Lawyers also should maintain skepticism when reviewing documents. Riopelle recommends scouring all produced documents to see if there is any evidence that other documents have been destroyed. “The fact of the matter is that the U.S. has the most sweeping discovery rules in the world, and a lot of foreign entities just don’t comply with document retention the way U.S. companies are now trained to do,” he explains.

In the DuPont case, lawyers pinpointed three documents indicating that Kolon had destroyed other relative documents. The team brought a motion for spoliation, and the judge ordered forensic analysis of Kolon’s computers. The analysis uncovered widespread deletion of electronic files and emails.

“A best practice is to be—more than you are now—aggressive in looking to see if spoliation claims occur,” says Michael Songer, a partner at Crowell & Moring, which served as co-counsel on the DuPont case. “Whether a company has ill intent or not, it’s something that you should have on your checklist.”