Unique Discovery Challenges In International Cartel Cases

Competition Law360
January 31, 2014

By José M. Umbert, Judith A. Zahid and Qianwei Fu
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The global nature of many price-fixing cartels gives rise to unique challenges for obtaining evidence located outside the jurisdiction.

In cases involving international price-fixing conspiracies, information relevant to the litigation is frequently found outside of the country where the lawsuit is pending. For example, in an antitrust case filed in the U.S. against foreign manufacturers of a product sold here, relevant documents or data will likely be held overseas, by the foreign cartelists or non-U.S. third parties such as original equipment manufacturers.

The converse is also true: In a competition claim brought in the national courts of an EU member state, or in a Canadian court, against both foreign and American companies, evidence relevant to the claims may well be located within U.S. borders.

It is in these circumstances that cross-border discovery issues are likely to arise. In this article, we address some of the common challenges that practitioners in this area face.

Obtaining Discovery Abroad for U.S. Antitrust Cases

Parties litigating antitrust cases in U.S. courts benefit from broad pretrial discovery rights that enable them to access relevant evidence. This is in contrast to other common-law jurisdictions such as the U.K. and Canada, in which discovery rights are more limited, and to civil law countries like Germany or France, where pretrial discovery is almost non-existent. Further, U.S. federal courts have recognized that, in international cartel cases where defendants operate globally, information relating to conduct in furtherance of the conspiracy that occurred outside the U.S., as well as foreign transactional and financial data, is discoverable, because such information is relevant to plaintiffs’ price-fixing claims. In other words, discovery is not limited to only U.S. conduct and transactions.

Consequently, private antitrust plaintiffs in international cartel cases filed in the U.S. routinely seek to obtain discovery abroad. Plaintiffs’ requests to this effect frequently give rise to disputes. First, the parties may disagree on what legal regime should govern this foreign discovery: the Federal Rules of Civil Procedure with their generous discovery provisions, or the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial matters, which provides for substantially more limited procedures.

In Aerospatiale,[1] the U.S. Supreme Court set forth a three-prong test to determine whether the Federal Rules or the Hague Convention should apply to discovery of foreign data in U.S. cases. Pursuant to this test, district courts should consider: (1) the particular facts of the case, including whether the requests are relevant and not unduly burdensome; (2) the sovereign interests, not only of the foreign countries involved but also of the U.S.; and (3) the likelihood that resort to the Hague Convention’s procedures will prove effective. Applying Aerospatiale, federal courts have generally declined to resort to the Hague Convention and ruled in favor of production with regard to documents located abroad.

Another frequently contested issue in these cases is the application of the national privacy laws of foreign jurisdictions. Antitrust defendants can argue that complying with U.S. discovery requests would violate those privacy laws, which regulate the disclosure of personal data.

For example, in the massive CRT antitrust litigation pending in San Francisco federal court,[2] certain Japanese defendants are resisting the production of information regarding the whereabouts of their former employees, on the grounds that Japanese privacy laws preclude the disclosure of such information. In determining whether or not to compel discovery in these circumstances, U.S. courts will require the defendant to prove that foreign law bars production, and will in any event allow discovery if the information to be obtained from the request is necessary for the plaintiff to pursue the claim.

Obtaining U.S. Discovery for Foreign Competition Cases

The absence of broad pretrial discovery outside the U.S. creates an obstacle for the prosecution of private antitrust actions in other jurisdictions, because much of the evidence needed to prove antitrust liability and damages is often held by the defendants or third parties. Where an international price-fixing cartel results in damages actions in both the U.S. and foreign jurisdictions, as is often the case, there are mechanisms that may allow the claimants in the foreign proceedings to obtain discovery here, or to access the discovery generated in the parallel U.S. action, to pursue their claims overseas.

First, under Section 1782 of Title 28 of the U.S. Code, parties engaged in litigation outside the U.S. may directly petition federal courts to compel the production of documents and testimonial evidence for use in foreign tribunals. To obtain discovery under this statute, an applicant must satisfy three threshold requirements.

First, the person or entity from whom discovery is sought must reside or be found within the judicial district in which the application is filed. For corporations, this generally means the district where the company is incorporated or headquartered. Second, the discovery must be sought for use in a proceeding in a foreign tribunal. The proceeding need not be pending or imminent, but it must be within reasonable contemplation. Third, the applicant must be an interested person. The statute is not limited to parties to the foreign proceeding, and includes any other person with a reasonable interest in obtaining the court’s assistance. In addition, a majority of courts have held that information sought by the section 1782 applicant must be physically located within the U.S.

If an applicant satisfies these requirements, the district court has discretion as to whether and to what extent to grant the request for assistance. In exercising this discretion, federal courts are guided by four factors set out by the U.S. Supreme Court Intel decision.[3]

First, when the person from whom discovery is sought is a participant in the foreign proceeding, the need for Section 1782 aid is not as apparent, because the foreign tribunal could itself order the production of the evidence. Discovery is therefore more likely to be granted from nonparticipants in the foreign litigation. Second, courts may consider the nature of the foreign tribunal, the character of the proceedings, and the receptivity of the foreign country to court assistance from the U.S.

This factor will weigh against discovery only when there is a clear directive from the foreign government or tribunal that it would reject evidence obtained in the U.S. The third consideration is whether the request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country. However, there is no requirement that the foreign tribunal would allow similar discovery under its own rules, or that the evidence sought be admissible in the foreign proceeding. Finally, federal courts may reject or limit requests that are unduly intrusive or burdensome, under the general standards for obtaining discovery in the U.S.

In the CRT litigation mentioned above, the court was presented with a novel request for access to U.S. discovery. Sharp, which was pursuing an antitrust case similar to the multidistrict litigation in South Korea, made a request under Section 1782 to obtain the discovery produced by the defendants in the U.S. action, not from defendants, but from class counsel for the direct purchaser plaintiffs. Applying the four Intel factors, and adopting the special master’s report and recommendation, the district court denied Sharp’s motion to compel production.[4]

A second mechanism to access U.S. discovery is for a party — generally the plaintiff — to a parallel foreign proceeding to move to intervene in the U.S. antitrust action, for the limited purpose of obtaining the discovery taken in the case. In addressing these requests, courts in the U.S. conduct a balancing test, considering the various interests at stake.

In doing so, courts have noted that requiring foreign claimants to repeat the work already done by U.S. plaintiffs may result in a significant waste of time and money, and that allowing shared discovery advances the objectives of disclosure and efficiency in the judicial system. Courts have also found that permitting foreign plaintiffs to access U.S. discovery materials does not offend the discovery or evidentiary procedures of other countries, such as Canada. U.S. courts have granted motions to intervene to obtain access to documents and data produced in discovery for use in collateral Canadian antitrust actions. To avoid the unauthorized disclosure of confidential information, the foreign plaintiffs will be bound by the terms of the protective order entered in the U.S. action.

The cross-border discovery issues outlined in this article will continue to arise in price-fixing and other global competition cases, and will likely become even more prevalent in antitrust litigation as the importance of obtaining evidence located in foreign jurisdictions continues to grow. The procedures discussed here are therefore very relevant to practitioners involved in global competition matters.

—By José Umbert, Judith Zahid and Qianwei Fu, Zelle Hofmann Voelbel & Mason LLP

José Umbert and Judith Zahid are partners and Qianwei Fu is a senior associate in Zelle Hofmann’s San Francisco office.

Zelle Hofmann is class counsel for the indirect purchaser plaintiffs in the CRT litigation.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Société Nationale Industrielle Aérospatiale v. United States Dist. Court for the S. Dist. of Iowa, 482 U.S. 522, 544 (1987).

[2] In re Cathode Ray Tube (CRT) Antitrust Litig., MDL No. 1917 (N.D. Cal.).

[3] Intel Corp. v. Advanced Micr o Devices, Inc., 542 U.S. 241, 264-65 (2004).

[4] CRT, 2013 WL 183944 (N.D. Cal. Jan. 17, 2013).