While Chinese companies are expanding their global reach, the U.S. judicial system is grappling to reconcile its transparent electronic discovery framework with China’s more opaque and relatively secretive legal system. In particular, the Chinese approach to e-discovery poses major challenges regarding the preservation and the accessibility of electronically stored information (ESI).
To complicate matters, American companies and their intellectual property are often at risk due to cyber-attacks from China. The recently retired Shawn Henry, former executive assistant director of the Federal Bureau of Investigation and head of the cybercrime unit, testified before Congress that cyber-theft poses “the greatest transfer of wealth in history.” When these attacks happen, the U.S. (as an obvious target) is vulnerable. This is because litigating with China as a means of legal recourse is not predictable, nor does it carry any guarantees of achieving complete e-discovery. The cases between China and the U.S. range from product liability issues to criminal indictments under the Foreign Corrupt Practices Act, with an ever-growing number of securities and intellectual property disputes mixed in.
Another factor that limits the scope of discovery in China is the parties’ reluctance to disclose sensitive information that might be deemed a state secret. Divulgence of such information would amount to a violation of PRC law. With an increasing amount of cross-border litigation, the chances that such information would be exported outside of China are heightened; thus, parties have to pay particular attention to avoid fines or even criminal liabilities when seeking discovery. The definition of a state secret under PRC law includes a wide range of information and is more ambiguous than Western definitions about national security (for example, the Chinese definitions are less defined than those in the U.S. Patriot Act). Politically sensitive data is susceptible to the government’s scrutiny and protection, regardless of whether it is possessed by PRC citizens or officials working for foreign corporations.
Chinese courts are not necessarily sympathetic towards the discovery or investigatory requirements of U.S. regulatory bodies. For example, in the still unresolved Steven Jacobs v. Las Vegas Sands case, the defendant alleged that relevant ESI could not be produced because Chinese privacy and data protection laws prohibited the release of this information without the permission of local Chinese authorities.