In part one of this series, we outlined the plight of a hypothetical U.S. company, SFilm, which designed an innovative flexible solar film and invested $750 million in a new plant to capitalize on its breakthrough technology. A Chinese company stole critical trade secrets covering the new technology, and entered the market with a competing product, thereby placing SFilm’s entire business in jeopardy. SFilm began to fight back by commencing federal court trade secrets litigation in a district with jurisdiction over the foreign defendant.
In this second installment of SFilm’s story, we explore the various defenses the Chinese defendant throws up, both in the U.S. and its home country, to elude responsibility for its theft, and how SFilm fights back.
Fight the fight
The Chinese defendant comes back swinging. It shows up to defend itself in the federal court case out of fear that failure to do so will result in contempt orders impairing its broader interests in the U.S. But once it appears, it engages in wholesale obstruction of SFilm’s efforts to prove its case.
It produces electronic discovery that reeks of tampering. It claims it no longer has control over key witnesses—its own employees who paid SFilm employees for trade secrets and had since mysteriously left the company or been turned over to separate counsel. And it brings antitrust counterclaims against SFilm, claiming that the U.S. company was trying to monopolize the market.
The defendant also opens up a new front in its war against SFilm in China. It appeals to the relevant government agencies to open investigations of SFilm, both for unfair competition and for theft of the Chinese company’s trade secrets. It also launches an intensive public relations campaign against SFilm in the local press.
These counter-attacks are not a surprise. SFilm knew the Chinese defendant would aim to distract attention from the primary case at hand and try to create off-setting leverage. SFilm was ready with a comprehensive litigation and diplomatic strategy to take the battle to the Chinese defendant on all fronts. Here is how SFilm fights the fight:
1. Prove spoliation.
SFilm is suspicious of the dearth of electronic evidence from the files of the key defendant witnesses. SFilm takes aggressive discovery, including analysis of metadata, and uses forensic expertise to analyze records retention and gaps. SFilm proves intentional destruction of massive amounts of relevant evidence. After multiple motions and an evidentiary hearing, SFilm persuades the court to issue findings of spoliation and order an adverse inference at trial regarding defendant’s destruction of material evidence.
2. Inspect the plant.
SFilm uses the defendant’s obstructionist approach to discovery to its own advantage, persuading the court to order a physical inspection of the defendant’s plant in China. SFilm conducts the inspection with the jury trial in mind, knowing that the inspection findings not only will help it uncover facts but also help it tell a broader story that the jury will want to hear.
SFilm sends its counsel over for the inspection, but it also sends its technology experts and a videographer to the plant. The team is able to return to the States with new ammunition for SFilm’s case. They can now graphically display the scope of theft: The defendant had built an almost identical plant, right down to the workarounds in SFilm’s own plant. The Chinese company indisputably stole the blueprints to SFilm’s facility, as the video dramatically captures. For SFilm’s counsel, closing arguments nearly write themselves.
3. Help the U.S. government help you.
Early on, the Federal Bureau of Investigation (FBI) and Department Of Justice launched investigations into the employees who had absconded with SFilm’s technology and sold it to the defendant. These agencies continue to gather evidence from SFilm regarding its trade secrets, which helps the DOJ to return indictments against the defendant and key employees for criminal theft of trade secrets.
In addition, several witnesses under criminal investigation refused to testify in SFilm’s civil litigation, repeatedly invoking their Fifth Amendment privilege. As a result, the court ordered the issuance of adverse instructions to the jury regarding the witnesses’ refusal to testify. The adverse instructions serve as another opportunity for the jury to understand the depth and scope of the theft.
4. Watch your back in the defendant’s home country.
Given its size, the Chinese market is critical to SFilm's future. The expectation, indeed the certainty, that the defendant will slander SFilm in China thus carries serious risks. SFilm knows it must protect its long-term business interests no matter what happens with the U.S. litigation. What to do?
Recognizing that the protection of American technology is the most important goal of U.S. trade policy, it seeks help from the powerful U.S. government agencies responsible for this effort, including the Office of the U.S.Trade Representative, the State Department and the White House Office of the IP Czar. They will ensure that the Chinese government is also aware that in stealing SFilm's technology, the defendant is putting the critically important U.S.-China political relationship at risk.
Second, SFilm engages sophisticated counsel in China, who are experienced in both regulatory and political processes, to represent SFilm’s interests in China. As a result, SFilm is ready to respond to the Chinese government with information about the defendant’s theft, to counter the negative press propagated by the defendant and to disprove the defendant’s charges against SFilm. As a result, SFilm is able to obtain a stay of any Chinese regulatory actions pending the outcome of the U.S. litigation.
5. Win big at trial.
The only acceptable settlement for SFilm requires substantial compensation for its technology development and a full return of its trade secrets. Since the defendant won’t even acknowledge its theft, much less pay for it, SFilm deploys an aggressive strategy to take the case to trial. It presents its liability evidence and an investment-driven damages theory that seeks to recover damages from the defendant for avoiding the millions of R&D dollars that SFilm expended in developing its innovations. Its case is aided by the very tactics the defendant used to evade detection and responsibility, including adverse inferences from spoliation and Fifth Amendment invocations, an effort to impede access to certain witnesses during discovery and the devastating impact of the plant inspection videotapes.
The jury returns a verdict fully in favor of SFilm, finding willful theft of trade secrets, and substantial damages. The jury rejects the antitrust counterclaims entirely in the face of vivid evidence of rampant theft. The court enters a comprehensive injunction against further use of SFilm’s trade secrets and a multi-year worldwide production ban on sales of defendant’s competing products. In the wake of this comprehensive victory, the Chinese government closes its investigations of SFilm, and opens an investigation into the defendant. SFilm is able to declare a major victory.
But did SFilm really win? Immediately after the jury’s damages verdict and the court’s imposition of a broad production injunction, SFilm must prepare itself for defendant's response and its international implications. We will explore the company’s next steps to fully secure its victory in the third and final installment of this series.