Cross border misappropriation - PowerPoint Presentation

1. Cross border misappropriation of trade secretNari LeeHanken School of Economics, Finland

2. Lee N (2021 forthcoming) Hedging (into) Property? - Invisible Trade Secrets and International Trade in Goods Global Intellectual Property Protection and New Constitutionalism. Mylly, T. & Griffiths, J. (eds.). Oxford University Press (forthcoming 2021) Lee, N. (2021). Open Yet Secret – Trading of Tangible Goods and Trade Secrets. In N. Bruun, G. Dinwoodie, M. Levin, & A. Ohly (Eds.), Transition and Coherence in Intellectual Property Law: Essays in Honour of Annette Kur (Cambridge Intellectual Property and Information Law, pp. 242-253). Cambridge: Cambridge University Press. doi:10.1017/9781108688529.028Starting point : Is TS an (I)P ?

3. EU Primary LegCharter (ECHR A1P1)EU Secondary LegNational law transposing Trade Secret Directive (Lex Specialis)Definition, Misappropriation, Remedies, EnforcementAlso, IPR Enforcement Directive (if MS has transposed it including trade secret) EU law on disputesBrussels Regulation : Jurisdiction Rome II Regulation: Applicable law Other related EU regulations (i.e. GDPR, Transparency Regulation,…) Background - EU Law on Trade Secrets

4. EU TSD: MisappropriationMinimum harmonizationMS may provide more extensive class of ‘wrongs’ as part of the misappropriationMisappropriation (acquistion + use+ disclosure) (Art 4) Four types tied to underlying unlawfulness (principle) Art 4: each independent cause of actionUnlawful acquisition (4.2.) Use or disclosure after unlawful acquisition or in breach of contract or other duty not to disclose or use the trade secret) (4.3) Unlawful acquisition, use or disclosure by a third party (4.4)Knowing Trading of Infringing goods (4.5)

5. Art 4 Misappropriation Duty/contractKnowledge

6. Art 4 (5) Infringing goods5. The production, offering or placing on the market of infringing goods, or the importation, export or storage of infringing goods for those purposes, shall also be considered an unlawful use of a trade secret where the person carrying out such activities knew, or ought, under the circumstances, to have known that the trade secret was used unlawfully within the meaning of paragraph 3. Infringing goods : Art 2 (4)‘infringing goods’ means goods, the design, characteristics, functioning, production process or marketing of which significantly benefits from trade secrets unlawfully acquired, used or disclosed.  Broad & Open /MS law? Knowledge of whose unlawfulness ? Primary actorWhen? Knowledge when - at the time of action or before?Where? Country of import or export? Extra territorial application?

7. Legislative Purpose of 4(5) TSD Recitals?Recital 4…globalization... Without effective and comparable legal means for protecting trade secrets across the Union, incentives to engage in innovation-related cross-border activity within the internal market are undermined, and trade secrets are unable to fulfil their potential as drivers of economic growth and jobs. Thus, innovation and creativity are discouraged and investment diminishes, thereby affecting the smooth functioning of the internal market and undermining its growth-enhancing potential.Recital 28….Considering the global nature of trade, it is also necessary that such measures include the prohibition of the importation of those goods into the Union or their storage for the purposes of offering or placing them on the market….

8. Research Question : how to conceptualize TS cross border misappropriation Is itDomestic Trade Secret  Foreign misappropriation  Domestic Dispute OrForeign Trade Secret  Domestic misappropriation  Domestc Dispute OrForegin Trade Secret  Foreign misappropiration Domestic DisputeCan TS be localized (like IPRs?), or Does ’cross border’ misappropriation of TS actually crosses border?

9. Any international law on this? No International TS HarmonizationParis Convention Article 10bisTRIPs Article 39.2CPTPP §18.78 (criminal liability)Minimum harmonization - EU Trade Secret Directive

10. Are there European Law on this? TS directive Nothing specific : leaving it open for the MS to define underlying cause of actions of unlawfulness (Art 4) which makes it possible to characterize it as a confidence breach, contractual breach, tort/delict (+ employment)different forums and different applicable rules Confusion? characterization of underlying right (property, tort, or IP violation) becomes a practical question of which court may be used to enforce the right using which applicable lawJurisdiction/ Forum : Brussels Regulation : Regulation No 1215/2012 (44/2001 recast) Applicable Law: (Rome I or) Rome II : Regulation No 864/2007 Types of Remedies: TS Directive + Enforcement Directive (if MS applies IP rules to TS)

11. TSD Recital 37 The Directive does not aim to establish harmonised rules for judicial cooperation, jurisdiction, the recognition and enforcement of judgments in civil and commercial matters, or deal with applicable law. Other Union instruments which govern such matters in general terms should, in principle, remain equally applicable to the field covered by this Directive.Brussels Regulation : ForumRome I& II Regulations : Applicable law

12. So, Crossborder : Territorial or Extraterritorial? National law application to cross border conduct with extraterritorial implication (i.e export/import)Conflict of law /private international law determines jurisdiction and applicable lawCrucial: characterization of dispute Public (govt disclosure) or Private ?Criminal or Civil? If Civil, Contract or non contractual ?IP(Property) or unfair competition (Tort)? Labour Law (Employment) ?Privacy?

13. TSD : No IP - Recital 16 ?In the interest of innovation and to foster competition, the provisions of this Directive should not create any exclusive right to know-how or information protected as trade secrets. Thus, the independent discovery of the same know-how or information should remain possible. Reverse engineering of a lawfully acquired product should be considered as a lawful means of acquiring information, except when otherwise contractually agreed. The freedom to enter into such contractual arrangements can, however, be limited by law.No separate exclusive rightDoes it means it is not IP? Or Does it only mean member states do not have to create separate exclusive right ? Member states decidesin reverse engineering dispute, does it become a contractual dispute ?

14. Maybe not unfair competition either? Recital 17 In some industry sectors, where creators and innovators cannot benefit from exclusive rights and where innovation has traditionally relied upon trade secrets, products can nowadays be easily reverse-engineered once in the market. In such cases, those creators and innovators can be victims of practices such as parasitic copying or slavish imitations that free-ride on their reputation and innovation efforts. Some national laws dealing with unfair competition address those practices. While this Directive does not aim to reform or harmonise the law on unfair competition in general, it would be appropriate that the Commission carefully examine the need for Union action in that area.Most trade secret protection is now found in unfair competition law of the MS but Not unfair competition law based tort?Or does it mean that no need to harmonize slavish imitation regulations under the unfair competition law ?

15. Brussels Regulation to TS: divided ?GENERAL: Civil and commercial matter: place of domicile (general: Art. 4) Art 7 special jurisdiction (1)(a) matters relating to a contract: as a general rule, these will be dealt with by the courts for the place of performance of the obligation in question; ND obligation in the contract: provision of services : 1(b) location of serviceND obligation in the employment contract?1(b): location of service ? Or Art 21-22:employment contract rule(2) matters relating to liability for tort, delict or quasi-delict: the place where the harmful event occurred or may occurmost TS misappropriation (3) civil claim based on act giving rise to criminal proceedings: the court seised of criminal proceedings MS law TS under criminal proceeding Art 8 Close connection (multiple defendants) Art 22 Employee DomicileArt 24. Exclusive Jurisdiction: IP  Trade Secret May be any one of these!

16. Applicable Law - First source question? Rome Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) orRome II (non contractual) Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II)ROME II : Travaux: Explanatory Memorandum in support of the Commission's 2003 proposal for the Rome II Regulation.But CJEU Brogsitter Case C-548/12

17. Rome II – but still uncertain?Art 4 General the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred  However, where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply.Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply….such as a contractArt 6 Unfair competition Market Art 8 Intellectual Property Lex Loci protectionis1.Damage (Rule)2. Habitual Connection (exception)3. Close connection (escape clause)Art 6& 8Parties may not choose

18. Rome II: Unfair Competition still dividedArticle 6 Unfair competition and acts restricting free competition1.   The law applicable to a non-contractual obligation arising out of an act of unfair competition shall be the law of the country where competitive relations or the collective interests of consumers are, or are likely to be, affected.2.   Where an act of unfair competition affects exclusively the interests of a specific competitor, Article 4 shall apply.Law of the Market OrA specific competitor: Law of place of damage /competitor’s domicile(4.1.)  ’seat of TS holder’ (DE prevailing view) Extra territorial applicaation

19. Rome II: Market 3. a. the law applicable to a non-contractual obligation arising out of a restriction of competition shall be the law of the country where the market is, or is likely to be, affected3.b . When the market is, or is likely to be, affected in more than one country, the person seeking compensation for damage who sues in the court of the domicile of the defendant, may instead choose to base his or her claim on the law of the court seised, provided that the market in that Member State is amongst those directly and substantially affected by the restriction of competition out of which the non-contractual obligation on which the claim is based arises; where the claimant sues, in accordance with the applicable rules on jurisdiction, more than one defendant in that court, he or she can only choose to base his or her claim on the law of that court if the restriction of competition on which the claim against each of these defendants relies directly and substantially affects also the market in the Member State of that court.4. The law applicable under this Article may not be derogated from by an agreement pursuant to Article 14.Parties may not chooseMarket Is 4(5) always this case as infringing goods would compete with TS holder’s product?

20. Senior v Celgard (UK)  [2020] EWCA Civ 1293USITC Investigation No 337-TA 1159 (Lithium ion batteries etcs.) (2021, US) USITC Investigation No 337-TA 1145 (Botulinum toxin product) (2021, US) Sino Legend (Zhangjiagang) Chem. Co. v. Int'l Trade Comm'n (Jan. 9, 2017) Cert. denied sub nom. 623 F. App'x 1016 (Fed Cir 2015), (USITC 337-TA-849, 2011 Rubber Resins ) Tian Rui Group Co v. ITC, 661 F.3d 1322, 1337 (Fed Cir 2011) Appealed from (Cast Steel Railway Wheels) 337 TA 655Cases

21. Cross border misappropriation Primary actor §4.2, §4.3 unlawful Secondary actor§4.4 direct/indirect §4.5 use + §2 (marketing, benefits) Is it a trade secret?§2 DefinitionsPlaintiffs/complainantAmsteadSI GroupMedytox/AllerganLG ElectronicsCelgardFormer employees (acquire, disclose)DefendantTianRuiSinolegendEvolus/DaewoongSK InnovationSeniorExporter, Distributor, ImporterKnowledge of unlawfulnessdutyCN, KRUS, UK, EUTS holder

22. Complainant/Celgard LG EletronicsMedytox/Allergan (licensee) SI Group AmstedPrimary ActorFormer employeeDr Zhang XiamoninSeveral former employeesFormer EmployeeDr Byung Kook LeeFormer Employees(Mr Zack Zu, Mr CYLai) Former employess of Licensee of Amstead (Datong, CN) Respondent /defendantSenior SK InnovationDaewoong /EvolusSino LegendTian Rui and othersContract?Employment/NDAEmployment Employment:Employement: Confidentiality and non competeEmployement: Confidentiality Parallel proceedings?Yes in CN/USYes in KR(Pending) Yes in KR(Pending) Yes in CN: No misappropriationExcluded ITC review NoJurisdictionUK CourtITCITC (importation) ITC (importation)  Fed Cir (review) ITC(importation) Fed Cir (review)Remedy Interim injunction LEO (10 years)LEO (21 months)LEO(10 yrs) LEO Applicable lawImportationUK /EU Law(TS Directive §4.5) USTariff Act (19 U.S.C. § 1337 )US Tariff Act (19 U.S.C. § 1337 )US Tariff Act (19 U.S.C. § 1337US Tariff ActApplicable law Misappropriation (Not treated but maybe CN para 68)US law (UTSA)US law (UTSA) US law (UTSA and Federal common law) US law (UTSA)Location of acquisition/ Primary ActorUSKRKRCN USImportUKUSUSUSUSManufacturing (use/disclose) CN USKRCN CN

23. Problem of knoweledge- Directive Art 4.55.   The production, offering or placing on the market of infringing goods, or the importation, export or storage of infringing goods for those purposes, shall also be considered an unlawful use of a trade secret where the person carrying out such activities knew, or ought, under the circumstances, to have known that the trade secret was used unlawfully within the meaning of paragraph 3. Can importation of infringing goods’ alone be the cause of action even without determining the unlawfulness of the underlying conduct? DECEPAGE or Mosaic Approach? If divided: To apply the law of the country of importation, a ‘presumption of (un)lawfulness of the conduct of primary actor - in the country of origin (acquisition)’ has to be made : Should we need a statutory expression to that effect? If NOT: Extraterritorial application

24. Claim by Celgard17. The Direct Claim is a claim that Senior is liable for importing into, and marketing (or threatening to market) in, the UK battery separators whose design, characteristics, functioning and/or production process benefit significantly from Celgard's trade secrets on the grounds that such acts amount to a breach of an equitable obligation of confidence and/or a breach of regulation 3 of the Trade Secrets (Enforcement, etc) Regulations 2018 (SI 2018/597) ("the Regulations") which (partially) implement European Parliament and Council Directive 18. The Vicarious Claim is a claim that Senior is vicariously liable for the wrongdoing of Dr Zhang in disclosing Celgard's trade secrets to Senior in breach of an equitable obligation of confidence and/or regulation 3 of the Regulations. Although Celgard pleads that Dr Zhang was subject to an express contractual obligation of confidence pursuant to the NDA in support of its case that its trade secrets are confidential information, it does not allege breach of the NDA by Dr Zhang.Disclosure/use In CHINAImport to UK

25. Celgard v Senior …Applicable Law UK TS Regulation ’wider protection’Art 4.5 Importation (main) : Art 4.1-4.3 : Use/disclosure  not main claim Applicable law? UK because 1) Importation ? TSD Art 4.5 Unfair competition and NOT IP Not Art 8 – Lex loci protectionis as TS is not IPRROME II Article 6(2) ’Unfair competition’ 4(1) ’Place of damage”  UK law Also governs ’liability for the acts of another person’ (ROME II Art 15(g)) 2) Knowledge of unlawfulnes ? Applicable law? EU law or UK(MS) law? Or even Chinese law?  Applying Rome II : UK law ’Fortunately, it is not necessary at this stage of the proceedings to reach a conclusion as to the correct answer.’ (para 67)3) Disclosure, Use? (Art 4.3) Chinese law? US law or UK law?

26. Conclusion : how to conceptualize TS cross border misappropriation Is itDomestic Trade Secret  Foreign misappropriation  Domestic Dispute Or Foreign Trade Secret  Domestic misappropriation  Domestc Dispute Or Foregin Trade Secret  Foreign misappropiration Domestic DisputeCan TS be localized (like IPRs?) NODoes ’cross border’ misappropriation of TS actually crosses border? Maybe not. If so, it leads to another question: ’The answer to this may be, however, that it is simply a consequence of the way in which different claims involving different primary actors are framed, and that there is nothing wrong in Senior being held liable for its own actions even if it is not liable for the actions of Dr Zhang’ (Arnold LJ, para 68)’Art 4.5. Liability is a primary actor liability otherwise this would require a presumption on the unlawfulness of the primary actor?: If so an extraterritorial application of EU law to all exporters to EU?

27. Ps. Shame on BREXIT…. LJ Arnold para 67.’In my view, this is a very difficult question. It is one which may well have to be answered (for the Member States of the EU) by the Court of Justice of the European Union in due course,….’

28. THANK YOU