November 30, 2021

Volume XI, Number 334

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November 30, 2021

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November 29, 2021

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Illinois Court Finds China Inadequate Forum For Trade Secret Misappropriation Claims Against Chinese Tech Company

Amidst long-simmering diplomatic tensions between China and the United States, disputes arising out of Chinese companies’ alleged theft of technological trade secrets from rival American companies[1] have found their way to federal courtrooms. This stems, in part, from the availability of worldwide injunctive relief under the Defend Trade Secrets Act (“DTSA”), which provides American companies with a robust tool to combat trade secret misappropriation by foreign entities in cases where “an act in furtherance of the offense was committed in the United States.” 18 U.S.C. § 1837(2).

But the effectiveness of the DTSA’s remedies hinges on the ability of plaintiffs to prosecute trade secret misappropriation claims against Chinese companies in U.S. courts. This raises a novel question: What if a Chinese defendant challenges a DTSA lawsuit on forum non conveniens grounds? Must the federal court dismiss the lawsuit and consign the dispute to the Chinese judicial system?

This precise issue arose in the recent case of Inventus Power, Inc., et al. v. Shenzhen Ace Battery Co., Ltd., No. 20-cv-3375, 2021 WL 1978342 (N.D. Ill. May 18, 2021). Headquartered in Woodridge, Illinois, Inventus has built advanced battery and power systems for global original equipment manufacturers (“OEMs”)—e.g., lithium ion battery packs, smart chargers, and efficient power supplies across a broad range of portable, mobile, and stationary applications—for more than sixty years. See Inventus Power, Inc., et al. v. Shenzhen Ace Battery Co., Ltd., No. 20-cv-3375, 2020 WL 3960451, at *1 (N.D. Ill. July 13, 2020) (“TRO Order”). Inventus and its wholly owned Chinese subsidiary sued a Chinese competitor, Shenzhen Ace Battery Co., Ltd. (“ACE”), for trade secret misappropriation under the DTSA and the Illinois Trade Secrets Act, 765 ILCS 1065, et seq. The plaintiffs’ complaint alleged ACE engineered a scheme to recruit high-ranking employees from Inventus who had substantial access to Inventus’s proprietary technology. See TRO Order at *2. The former Inventus employees allegedly downloaded more than 100,000 confidential technical documents and source code from Inventus’s computers in the weeks and days prior to their departure in order to benefit ACE by facilitating its expansion into the battery pack market. Id.

On July 13, 2020, the court granted Inventus’s motion for a temporary restraining order and enjoined ACE from disclosing, using, selling, or reviewing the stolen trade secrets. See TRO Order at *15-16. The court also ordered the parties to take expedited discovery in preparation for a preliminary injunction hearing. Id.

ACE then filed a motion to dismiss the lawsuit in its entirety on forum non conveniens grounds. The court denied ACE’s motion on the primary ground that China was not an “available” or “adequate” alternative forum.

As to availability, the court first held that ACE failed to establish that the “local court of Shenzhen City” in China would accept a lawsuit concerning a U.S.-based plaintiff injured in the United States. See 2021 WL 1978342, at *4. The court found this factor especially salient considering the lawsuit had been pending in the Northern District of Illinois for nearly a year while the parties had made “substantial inroads on discovery and other issues.” Id.  Though these factors may have been enough to convince the court to deem China unavailable as a forum, the court ultimately concluded China was “presently unavailable” as an alternative forum due to continued travel restrictions imposed by the Chinese government to control the COVID-19 pandemic. The inability of U.S.-based witnesses to travel to China for a trial thus proved dispositive to the court’s finding that Chinese courts were unavailable to adjudicate the lawsuit.

As to adequacy, ACE contended China is an adequate forum because trade secrets violations are punishable under Chinese law, and also because entities who misappropriate “commercial secrets” can be held criminally liable in China. The court disagreed for two reasons. First, the court credited a declaration from Inventus’s expert who stated that no preservation order functionally similar to injunctive relief had ever been issued by the courts in Guangdong Province, where ACE and Inventus’s subsidiary are located. Second, even if injunctive relief was available in China, the court found ACE did not establish that a Chinese court could monitor extraterritorial activity or require ACE’s compliance with an injunction outside of China. In stark contrast, the court’s TRO enjoined ACE throughout the world, and ACE had confirmed its compliance with the TRO. On these facts, the court could not conclude “with any confidence” that Inventus and its subsidiary would have a viable means of relief in China if the court dismissed the action.

It remains to be seen what enduring principles, if any, Inventus provides for jurisdictional disputes between U.S. and Chinese companies in future trade secrets lawsuits. Eventually, the Chinese travel restrictions that led the Northern District of Illinois to find Chinese courts “presently unavailable” to U.S. witnesses will be lifted. And the court’s decision indicates that China could potentially qualify as an “adequate” forum if the defendant proves the local Chinese courts have the power to grant robust injunctive relief with worldwide applicability.

Even in a post-COVID world, however, it is difficult to imagine a federal court dismissing a DTSA suit on forum non conveniens ground when the only alternative forum is China. The availability of worldwide injunctive relief under the DTSA reflects Congress’s judgment that American trade secrets deserve global protection. The DTSA’s deterrent effect and private right of action would both be severely undermined if courts were inclined to relegate trade secret disputes to a defendant’s foreign country—especially one that lacks a sufficiently robust analog to the DTSA.

[1] See, e.g., Keith Bradsher, How China Obtains American Trade Secrets, N.Y. Times, Jan. 15, 2020, https://www.nytimes.com/2020/01/15/business/china-technology-transfer.html.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 148
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About this Author

David M. Poell Business Trial Attorney Sheppard Mullin Chicago, IL
Associate

David Poell is an associate in the Business Trial Practice Group in the firm’s Chicago office, particularly focusing on the areas of consumer privacy and class action litigation.

Areas of Practice

David represents companies in a variety of class actions, multi-district litigations and other complex commercial litigation matters in state and federal courts. He specializes in defending corporate clients in high-stakes litigation matters involving federal consumer-protection statutes, privacy torts, unfair business practices, false advertising claims and large...

312-499-6349
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