Motorola Solutions, Inc. v Hytera Communications Corporation Ltd (No 4)
[2018] FCA 1651
•1 November 2018
FEDERAL COURT OF AUSTRALIA
Motorola Solutions, Inc. v Hytera Communications Corporation Ltd (No 4) [2018] FCA 1651
File number: NSD 1283 of 2017 Judge: PERRAM J Date of judgment: 1 November 2018 Catchwords: PRACTICE AND PROCEDURE – application for relief from previous discovery orders – whether discovery orders oppressive and disproportionate to costs incurred to review – where documents held in China potentially subject to Cybersecurity Law and State Secrets Law Date of hearing: 17 October 2018 Registry: New South Wales Division: General Division National Practice Area: Intellectual Property Sub-area: Patents and associated Statutes Category: Catchwords Number of paragraphs: 64 Counsel for the Applicant: Mr C A Moore SC with Mr A R Lang Solicitor for the Applicant: Herbert Smith Freehills Counsel for the Respondents: Mr S Lloyd SC with Mr H El-Hage Solicitor for the Respondents: Minter Ellison ORDERS
NSD 1283 of 2017 BETWEEN: MOTOROLA SOLUTIONS, INC.
Applicant
AND: HYTERA COMMUNICATIONS CORPORATION LTD
First Respondent
HYTERA COMMUNICATIONS (AUSTRALIA) PTY LTD ACN 165 879 701
Second Respondent
JUDGE:
PERRAM J
DATE OF ORDER:
1 NOVEMBER 2018
THE COURT ORDERS THAT:
1.The Respondents’ interlocutory application filed on 27 September 2018 be dismissed with costs.
2.Prayers 1 and 2 of the Applicant’s interlocutory application filed on 4 October 2018 be dismissed with no order as to costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
PERRAM J:
Before the Court is a discovery dispute. At its core is the Respondents’ contention that they should be relieved of their remaining discovery obligations because the documents concerned are physically located in China and it could be an offence under Chinese law for some of the documents to be taken out of China. That contention was first raised in this litigation in December last year. The Respondents submit that it would be burdensome and expensive for them to determine which documents are caught by Chinese law and that the number of documents likely to be discoverable at the end of that process was so small it did not justify the expense.
The present proceeding was commenced by the Applicant on 31 July 2017. The Applicant, a manufacturer of telecommunications equipment based in the United States, alleges that the Respondents, manufacturers of telecommunications equipment based in China, have infringed three of its Australian standard patents. These are Patent No 2005275355 (‘Method and System of scanning a TDMA Channel’), Patent No 2006276960 (‘Method and system of accessing a de-keyed base station’) and Patent No 2009298764 (‘Method of efficiently synchronizing to a desired timeslot in a time division multiple access communication system’). The infringements are alleged to relate to the Respondents’ importation and sale of certain digital mobile radio devices.
There is included in the Applicant’s allegations the serious contention that three of its former employees who worked on the development of the inventions the subject of the three patents downloaded documentation about the inventions and provided these to the Respondents for whom, as it happens, they now work (that is to say, industrial espionage). The three former employees are Mr Samuel Chia, Mr Y T Kok and Mr G S Kok. For the Respondents’ part, all this, including infringement, is denied and a cross-claim is brought against the Applicant alleging that the patents are invalid.
Discovery has been a difficult affair reflecting the relative complexity of the underlying dispute. Despite that, only three discovery categories remain in dispute. These are categories 3, 7 and 8. Category 3 seeks for each of the alleged infringing devices documents that describe, inter alia, the design, architecture or operation of the devices such as technical guides, technical specifications and schematics drawings. Category 7 is quite complex but may be summarised as consisting of documents created by the Respondents’ research and development department that refer to the Applicant’s three patents. Category 8 relates to the Applicant’s three former employees. It seeks documents sent or received by the three individuals whilst they were employed by the Applicant including source code relating to the features of the Respondents’ devices.
The question of when it was that the Respondents were ordered to give this discovery requires a digression. Initial discovery orders were made by the Court on 8 December 2017. At that time, categories 3, 7 and 8 had not been formulated and the process governing what was to be discovered was being managed at my direction by Registrars Pringle and Cho in an on-going fashion. The final form of categories 3 and 7 was not reached until a determination by the Registrars on 28 February 2018 and, in relation to category 8, until 22 March 2018. However, as early as December 2017 the Respondents first raised the possibility that a Chinese ‘Cybersecurity Law’ might impact on their ability to give discovery. This occurred on 4 December 2017 when one of the Respondents’ solicitors gave affidavit evidence to this effect:
‘I am informed by Vincent Wang, in house counsel at Hytera, that:
(a)new Cybersecurity Law of the People’s Republic of China and other relevant enforceable regulations came into force on about 1 June 2017, although some of them are still pending official release;
(b)it is difficult for the first respondent to assess whether it is exempt and immune from the new laws and regulations;
(c)the scope of the discovery which the first respondent may lawfully be able to give may be influenced by the new Cybersecurity Law. That is, the first respondent may not be able to disclose some particular technical and/or business information because of the new Cybersecurity Laws and regulations;
…’
In February 2018, while the discovery issues were still being debated before the Registrars, the Respondents raised the possible need for a ‘State Secret Review’ to be conducted as part of the discovery process in relation to documents held in China. On 20 March 2018 the Respondents clarified that the Cybersecurity Law and the State Secrets review were two different things.
As part of the process that was then taking place before the Registrars, the Respondents filed an affidavit from one of their solicitors dated 7 February 2018 in which it was said:
‘…the provisions of the Cybersecurity Law of China which came into effect on 1 June 2017 and affect the transfer of data (including documents) out of China, as referred to in paragraph 47 of my Second Affidavit, will affect the discovery process. In particular, I am informed by Ms Sun and Vincent Wang, in-house counsel at Hytera, that a “State Secret Review” will need to be completed, and a privacy review may also need to be undertaken, in relation to all documents required to be reviewed for potential production, before they are transferred out of China.’
As will be seen in due course, this is not correct, in at least two ways. First, the ‘Cybersecurity Law of China’ does not apply to the First Respondent. Secondly, the ‘State Secret Review’ has, in any event, nothing to do with the Cybersecurity Law. It relates to a different law.
Following the receipt of Mr Cooper’s affidavit, the Registrars directed the Respondents to clarify:
‘…the likely extent of impact, if any, on the timing of discovery by the Respondents arising from the provisions of the Cybersecurity Law of China that came into effect on 1 June 2017, as deposed to by Mr Cooper (per 13(d) of the affidavit of Mr Cooper dated 7 February 2018).’
On 15 February 2018 the Respondents’ solicitors informed the Registrars and the Applicant’s solicitors by email:
‘Paragraph 3(b): Impact of the new provisions of the Cybersecurity Law of China
This matter is primarily referred to in paragraph 14(d) of the Fourth Cooper Affidavit dated 7 February 2018 and paragraph 47 of the Second Cooper Affidavit dated 4 December 2017.
We are further instructed that:
Ÿall documents to be extracted and provided to an overseas recipient are subject to the new provisions of the Cybersecurity Law, including emails and other documents (that is, it is not limited to source code and other “software-type material”);
Ÿtherefore all documents provided to MinterEllison for relevance review must first be subject to the state secrets review (SSR);
Ÿthere are three in-house legal counsel at Hytera who are able to conduct the SSR; and
Ÿthe precise timing implications are difficult to estimate until the quantity of documents that may be sent to MinterEllison in Australia is known. However, the SSR is properly characterised as a further step in the document collection and review process that applies because our client (and its documents) are located in China and subject to the new law.’
The next development was the service by the Respondents of another affidavit of Mr Cooper dated 27 March 2018. This was served the day before the next case management hearing before me on 28 March 2018. This affidavit explained a little more than had been previously disclosed. On information and belief Mr Cooper now said that the Respondents had engaged external Chinese lawyers (DeHeng Law Offices) to provide advice regarding whether the ‘Chinese State Secret Laws’ and ‘Cybersecurity Laws’ would impact on discovery.
When the matter came before the Court the next day the unsatisfactory nature of this evidence was raised. In essence, there were two issues. Mr Cooper’s evidence did not explain what the problem actually was in any level of detail and it was on information and belief and so difficult to confirm or challenge.
Consequently, I made this direction in order 3:
‘3.By 8 June 2018, the Respondents file and serve an affidavit explaining in detail the steps which have been taken by that time by the Respondents to give discovery within the categories in Annexure A of documents held by Hytera in China, which affidavit should include:
a. an estimate of when the process will be complete;
b.a precise description of the review processes required by Chinese law and their duration. (This description should not be on information and belief and should be detailed);
c.the date by which the Respondents anticipate the discovery process being complete.’
This called for a sworn, detailed first person account by 2 June 2018. That order was not complied with. Instead, several weeks out of time on 19 June 2018 the Respondents filed an affidavit of a Mr Luo. However, Mr Luo was not a lawyer and his statement as one of the Respondents’ employees merely reported what he had been told by another lawyer, Mr Liang Ding, about Chinese law. This was precisely what order 3 had said should not occur. This inability, or unwillingness – one cannot tell which – to produce a witness to say what the problem was seven months after the Respondents first raised the issue should be noted.
There was a further case management hearing on 6 September 2018. This was over five months after I first directed that there be provided a detailed first person account about what the problem was. At the hearing I expressed dissatisfaction with Mr Luo’s affidavit and the Respondents’ failure to comply with the direction. My concern needs to be understood in a context which includes the fact that the case is to be tried commencing on 22 July 2019 for five weeks. There is a very real risk that the Respondents’ dilatory approach to this issue will derail the trial.
At the end of a further case management hearing on 13 September 2018 I made these orders:
‘1.By 20 September 2018, the Respondents inform the Applicant in writing whether there is any document which is otherwise discoverable by the Respondents in this proceeding, and which has been or will be withheld (whether in whole or in part) from production in this proceeding based on the purported application of any Chinese State Security and Cybersecurity Laws, or any other Chinese laws (the Chinese Laws).
2.By 20 September 2018, the Respondents inform the Applicant in writing whether there are any documents which otherwise have been or will be excluded (whether in whole or in part) from the discovery review process in this proceeding, based on the purported application of any Chinese Laws.
3.In respect of any documents which have been or will be withheld or excluded pursuant to the purported application of any Chinese Laws, by 20 September 2018, the Respondents inform the Applicant in writing of an estimate of the number of such documents that would pass an initial search and filtering process for the purposes of undertaking discovery in this case, so as to then be subject to a more detailed review of each document.
4.By 26 September 2018, the Respondents file and serve any interlocutory application relating to the Chinese Laws and any evidence in support of such application.
5.By 3 October 2018, the Applicant file and serve any interlocutory application relating to the Chinese Laws.
6.By 10 October 2018, the Applicant file and serve any affidavit evidence in support of any interlocutory application filed pursuant to order 5 and in answer to any material filed by the Respondents under order 4 above.
7.By 2.00pm on 15 October 2018, the Respondents file and serve any evidence in reply.
8.By 15 October 2018, the parties file and serve written outlines of submissions in relation to the interlocutory applications filed pursuant to orders 4 and 5 above.’
The purpose of these orders was to bring the issue to a head. Expert evidence by a Chinese lawyer, Mr Ma, was prepared for the Respondents in accordance with this timetable. However, just before the hearing listed on 17 October 2018, the Respondents filed a further affidavit of Liang Ding dated 15 October 2018, in breach of the timetable, which dealt with issues relating to the application of Chinese law. To the extent that it dealt with the content of Chinese law (i.e. opinion evidence) I rejected it because (a) it was unfair for such important evidence to be served on the Applicant so late thereby denying it a chance to respond; (b) it was in breach of the timetable; and (c), the Respondents have had the period between December last year and October this year to put their case together on this topic. Mr Kelp, one of the Respondents’ solicitors, gave evidence of the difficulties they had encountered in getting Mr Ding’s evidence together. But that exercise began only in September 2018 and the evidence shows that Mr Ding was providing the Respondents with assistance on this topic at least as early as March this year. It is unacceptable for litigation to be conducted in this manner.
After the conclusion of the debate about the extent to which Mr Ding’s affidavit should be received and after I had ruled on that issue, Mr Lloyd SC, for the Respondents, rose to submit that some of the paragraphs of the affidavit which I had rejected should be received because they were not opinion evidence. I declined to allow the topic to be revisited. The correct time for those points to be raised was during the principal argument on whether the paragraphs should be received. Whilst I would ordinarily have permitted that matter to be reopened, over one hour had already been consumed just on Mr Ding’s affidavit and the matter had only been fixed for a day. Further, the loss of that time was the result of the Respondents’ late service of Mr Ding’s affidavit. In assessing whether an indulgence should be granted, it was relevant in my view to bring to account who was responsible for the loss of over an hour of the hearing. That was the Respondents.
The foregoing explains the circumstances leading up to the hearing on Chinese law.
It is then useful to move to the issues thrown up by the Chinese laws. It is now apparent that there are two principal Chinese laws involved (and a number of associated rules). These are the Law of the People’s Republic of China on Protecting State Secrets (‘State Secrets Law’) and the Cybersecurity Law of the People’s Republic of China (‘Cybersecurity Law’). The Respondents’ submission, in summary, is this:
(a)the First Respondent holds in China a collection of approximately 28,000 documents which would need to be reviewed for discovery purposes. Some of these documents are attachments to other documents. If all of those other documents are included together with all of their other attachments a group of documents is identified which is referred to as a ‘family’ of documents. In this case, the family has around 83,557 documents which the Respondents say would need to be examined as part of the process of giving discovery of categories 3, 7 and 8;
(b)before these documents are removed from China it is necessary that they be reviewed to ascertain whether there are included amongst them any the removal of which would be illegal under either the State Secrets Law or the Cybersecurity Law;
(c)there is a high likelihood or, possibly a certainty, that there are documents caught by those laws;
(d)the percentage of the documents reviewed for discovery purposes which have so far ultimately turned out to be discoverable is around 1.04%. This percentage was calculated from other documents which have been reviewed and discovered;
(e)applying that figure to the 83,557 documents, the number of discovered documents was likely to be around 850; and
(f)to review these for discovery and State security purposes would cost $14.2 million. It was disproportionate to expend $14.2 million to give discovery of such a small number of documents.
The Applicant’s submission was that the evidence showed that the First Respondent was not subject to the Cybersecurity Law and that the State Secrets Law was not shown to apply either. Accordingly, the prohibitions did not apply. Further, the difficulties were overstated. Mr Ding’s figure would obviously be avoided if discovery were carried out first. In any event, to the extent that the Respondents found themselves in difficulties this was the result of their own choices (such as not commencing this process many months ago and not setting up their discovery team in China).
It is useful to begin with the Cybersecurity Law. Expert evidence about it was adduced on behalf of the Respondents from Mr Ma and, on behalf of the Applicant, from Mr Chen. Largely, they did not disagree. The evidence showed that by Art 37 the Cybersecurity Law only applied to Critical Information Infrastructure Operators (‘CIIO’).
This was both Mr Ma and Mr Chen’s evidence. Both Mr Ma and Mr Chen drew attention to Art 31 which is in these terms:
‘The State shall, based on the classified protection system for cyber security, focus on protecting both the key information infrastructure used for public communications and information service, energy, transport, water conservancy, finance, public services, e-government affairs and other important industries and fields and other key information infrastructure that will result in serious damage to the national security, national economy and people’s livelihood and public interests if they are destroyed, there are lost functions or they are subject to data leakage.’
On its face, this would appear to suggest that what is involved is ‘key information infrastructure’. According to Mr Chen the ancillary implementation regulations for the Cybersecurity Law are still under discussion so that the effective basis for determining whether an entity is a CIIO is the Operation Guidelines on National Cyber Security Inspection issued by the Office of Central Leading Group for Cyberspace Affairs Commission (‘CAC’) in 2016 (‘Guidelines’). The version of this which was in evidence was not in English but Mr Chen said that the Guidelines apply a 3-step approach in determining whether an information system constitutes a CIIO. It was apparently in these terms:
‘First, identify industries and critical businesses of the corresponding entity;
Second, identify information systems or industrial control systems that ensure the functioning of critical business; and
Third, identify critical information infrastructure based on the following two factors: (i) to what extent the critical businesses depend on the information systems or industrial control systems; and (ii) the losses that might result from the cybersecurity breach of these information system,’
The First Respondent manufactures digital mobile radio devices and provides products and services to customers. It does not operate information systems which could be seen as critical infrastructure. It does not fall within this guideline. In any event, both Mr Ma and Mr Chen agreed that the CAC could designate an entity as a CIIO and both agreed that the First Respondent had not been so designated. Mr Ma added that no entity has yet been declared to be a CIIO but that does not erase the fact that the First Respondent has not been.
Mr Ma also drew attention to the Circular of the Cyberspace Administration of China on Seeking Public Comments on the Measures for Evaluating the Security of Transmitting Personal Information and Important Data Overseas (Draft for comment) published on 4 November 2017.
According to Mr Ma this circular extends the prohibitions in the Cybersecurity Law to ‘network operators’ which was defined to mean ‘network owners, managers and network service providers’. Mr Ma thought that this was a broader concept than a CIIO. He did not say that the First Respondent fell within that provision. The Respondents did nevertheless submit that the First Respondent was a ‘network service provider’. They tendered Exhibit 2 to prove that it provided the service of building networks. I accept that Exhibit 2 shows that the First Respondent built a communication network in Inner Mongolia for the police. I do not accept that this means that it is a network service provider. It is a network builder.
Accordingly, I conclude that the First Respondent is not subject to the Cybersecurity Law. It has not been declared to be a CIIO, does not fit the description in the Guidelines and is not a network service provider. The existence of the Cybersecurity Law is not shown to provide any basis for relieving the Respondents of their discovery obligations.
It is then necessary to turn to the State Secrets Law. It was not in dispute that if a document were a State secret it cannot be disclosed to others or transmitted outside China on pain of heavy criminal penalty. The substantive debate was instead about the identification of State secrets. Mr Ma and Mr Chen again gave largely similar evidence on this topic. Articles 2, 3 and 6 of the State Secrets Law provide:
‘Article 2State secrets refer to matters which relate to the national security and interests as determined under statutory procedures and to which access is vested in a limited scope of persons during a given period of time.
Article 3 State secrets shall be protected by law.
All state organs, armed forces, political parties, social organizations, enterprises, public institutions and citizens shall have the obligation of guarding state secrets.
Any conduct endangering the safety of state secrets must be subject to legal liability.
…
Article 6A state organ or entity involved in any state secret (hereinafter referred to as “organ or entity”) shall administer the secrecy work of the organ or entity.
A central state organ shall, within its functions, administer or guide the secrecy work within its system.’
Mr Chen’s evidence was that the effect of this was that the State Secrets Law would apply when the party in question was an ‘entity involving State secrets’ and/or the object (i.e. the document) was a State Secret. Mr Ma’s evidence confirmed this although it seemed to suggest that ‘and/or’ should be read as ‘or’. On that view, the law would apply where the entity was an ‘entity involving State secrets’ or the document was a State secret. I propose to proceed on Mr Ma’s view which is more favourable to the Respondents.
There is no evidence that the First Respondent was an ‘entity involving State secrets’. Consequently, I conclude that the Respondents have not shown that this limb of the law applies to it.
As to the second limb, Art 9 provides:
‘Article 9The following matters involving state security and national interests shall be determined as state secrets if the leakage of such matters is likely to prejudice the state security and national interests in the field of politics, economy, national defences and foreign affairs, etc. shall be determined as state secrets:
(1)secrets concerning major policy decisions on state affairs;
(2)secrets concerning the construction of national defense and activities of the armed forces;
(3)secrets concerning diplomatic activities and foreign affairs as well as secrets to be maintained as commitments to foreign countries;
(4)secrets concerning national economic and social development;
(5)secrets concerning science and technology;
(6)secrets concerning activities for safeguarding state security and the investigation of criminal offences; and
(7)other matters that are categorized as state secrets by the state secret-protection department.
Secrets of political parties that conform to the provisions of the preceding paragraphs shall be state secrets.’
Mr Chen’s evidence, based on Art 9 and a survey he conducted of related published news and cases, was that Art 9 would only apply if at least one of the seven categories were present and the requirements of the chapeau were also met. This was not Mr Ma’s evidence in chief, but he did not respond to this aspect of Mr Chen’s in his reply evidence. I propose to proceed on the basis of Mr Chen’s evidence for the following reasons:
·if the secrets the subject of Art 9 did not have to satisfy the chapeau, i.e., be secrets whose release was likely to prejudice State security, this would extend Art 9 to a wide range of secrets which did not prejudice State security. Such a reading of Art 9 does not appear to be consonant with the evident purpose of the State Security Law;
·Mr Chen’s evidence suggests, without detail, that this is how the law has been applied in cases;
·I accept that the chaussure is capable of tending in the opposite direction because it refers to the requirements of ‘the preceding paragraphs’. However, that may be read as including the chapeau.
What is to occur in relation to a document which is subject to Art 9? If the First Respondent were an ‘entity involving state secrets’ it would have authority to classify and handle State secrets. However, since it is not such an entity it cannot do this. Instead, the entity would need to send the document to the appropriate State organs authorised to classify State secrets. This was Mr Ma’s evidence.
There was then a debate about the likelihood of the First Respondent having any documents which contained State secrets.
On this issue the evidence was as follows: Mr Ma said that even an entity which was not an entity involving State secrets could nevertheless come across State secrets in the course of its operations. This could occur where a firm had supply contracts with the Chinese government. Mr Ma also thought that in practice the government client would ask the entity to execute a confidentiality agreement. Mr Ding gave evidence to which objection was not taken that the First Respondent had supplied equipment including to the Ministry of National Security. In their submissions the Respondents also said that the First Respondent’s clients included the Ministry for Public Security and the Ministry of Emergency. I accept this. It seems to me appropriate to accept that, in principle, there may be documents of the First Respondent which contain or are State secrets under Art 9.
Mr Chen was of the view, however, that it was unlikely that documents falling within the categories of discovery would contain State secrets. He thought that there was nothing on their face to suggest that they contained materials that would fall within Art 9. He thought it most likely that, at best, what would be disclosed would be trade secrets to which Art 19 of the Interim Provisions on the Administration of State Secrets (‘Interim Provisions’) would apply:
‘Article 19 The following shall not be classified as State Secrets:
(1)Matters that require extensive public awareness or participation;
(2)Matters that are work secrets, trade secrets, or individual privacy;
(3)Matters that are already made available to the public in accordance with the law or to which access is uncontrollable;
(4)Matters that are required to be published by a law, a regulation, or any relevant provisions issued by the state.’
Mr Ma did not agree with Mr Chen about this. Although he made no express reference to Art 19 he thought that given the First Respondent was a supplier to government agencies, including the police, it was possible that there were documents which were, in the requisite sense, State secrets.
The evidence about this is hardly in a satisfactory state and neither Mr Ma nor Mr Chen has been cross-examined. I am not persuaded by Mr Chen’s evidence that because a document falls within Art 19 of the Interim Provisions it cannot be a State secret under Art 9. It would be curious that a State secret relating to national security would cease to be such because it was also a trade secret. That would be a large gap in the security rules. I think it more likely that Art 19 is a list of things which are not State secrets per se.
This debate between Mr Chen and Mr Ma did not involve any direct consideration of actual documents. However, the question is not whether there might be documents of First Respondent which contain State secrets, it is whether there is any reason to think that documents of the First Respondent bearing on categories 3, 7 and 8 might contain State secrets.
The Respondents accepted this to be so and sought to demonstrate a link between the 83,557 documents which needed to be reviewed for discovery purposes and State secrets. The manner in which they did so was described by Mr Ding. First, the Respondents retained a third party e-discovery company, Epiq, to conduct an on-site (i.e. in China) keyword search of the documents to identify documents that needed to be reviewed for State secrets. Secondly, they provided Epiq with 25 keywords for that purpose. These were selected by a Mr Wang and Mr Luo. Thirdly, Epiq then applied the 25 keywords to the documents held in China to create what Mr Ding referred to as the review set.
Fourthly, having created the review set Epiq then applied the filter process used in the Australian discovery. The purpose of this filter, as I understood it, was to identify the documents which would need to be reviewed for discovery purposes.
It was this process which resulted in the 83,557 documents to which reference has been made. Mr Ding then examined a sample of these documents. This examination revealed that each document contained at least one of the 25 keywords. Since the sample created by Epiq was done by reference to these keywords this is unsurprising.
If one accepts the validity of the 25 keywords, what has been created in the 83,557 documents is a collection of documents which need to be reviewed both for discovery purposes and for State secrets purposes.
The Applicant was critical of the keywords which had been selected to identify the documents which needed to be reviewed for State secret purposes. The keywords were in Mandarin and their translations included:
·Emergency response to accidents [应急];
·Public security [公安];
·National security [囯家安全];
·Security [安保];
·Firefighting [消防];
·PDT or Professional Digital Trunking (or Police Digital Trunking);
·Xiamen BRCCS (an international security project) [厦门金碚];
·Other such projects which are too secret to be revealed (there were 3 of them);
·Ministry of National Security [国家安全部];
·Provincial Department [省厅]; and
·Municipal Bureau [市局].
Whilst some of these are a little outlandish as national security matters – for example, firefighting – it needs to be kept in mind that the keywords are only for the purposes of identifying the documents which would need to reviewed for State secret purposes; they do not establish State secrets themselves. For the same reason, Ms Gilchrist’s observation that many of the keywords appear in documents which have already been discovered is not so damning viewed in that light. Further, I accept that the connotation of these expressions may be more narrow in Mandarin (i.e. ‘firefighting’ might not be as outré as a national security matter in Mandarin as it is English.)
Whilst I am to a degree sceptical about the breadth of some of the keywords, some of them are obviously acceptable, for example, ‘national security’. The fact that some of the keyword searches are appropriate therefore means that the Court cannot dismiss the process suggested by Mr Ding as entirely misconceived or likely to yield nothing. I must therefore proceed on the basis that there are plausible reasons to think that amongst the 83,557 documents there may be some which involve State secrets within the meaning of Art 9.
In that circumstance, the notion that the Respondents should be given an opportunity to review the documents for State secrets purposes is a reasonable one.
Although I do not accept the Respondents’ submission that there are unlikely to be any documents within the 83,557 documents for review, I would accept that there are unlikely to be many. The nature of categories 3, 7 and 8 do not lend themselves very readily to questions of national security. Category 3 concerns the design of the infringing devices. Without knowing whether the devices which are alleged to infringe the Applicant’s patents were supplied to government agencies it is difficult to assess what the actual natural security concern might be. If the devices in question were shown to be supplied to the Chinese government then this argument would rise beyond speculation. It was quite within the Respondents’ abilities to say that the devices had been supplied to the Chinese government but they have led no such evidence.
Category 7 concerns documents of the Respondents referring to the Applicant’s patents. Again, without some indication of a connection between the devices and the Chinese government, the possibility that there are States secrets in this category seems tenuous. The same applies to Category 8 which is only about documents passing between the Respondents and the three employees whilst they were employed by the Applicant.
In those circumstances, whilst I accept that the Respondents should be entitled to review the 83,557 documents for State secret purposes, they have not demonstrated that there will be many documents which are so affected and my estimate is that the number is low.
I then turn to the practicalities of the situation. One begins by observing that the Respondents have already discovered documents which were located in China and have done so without any apparent need to conduct the reviews which they now says are essential.
The evidence about this came from one of their solicitors, Mr Kelp. He says that 987,660 documents from the Respondents’ records in China have been reviewed for discovery and of these at least 299 have been identified as relevant and not privileged.
The second matter to note is that the Respondents’ argument does not suggest that they should be relieved of discovery categories 3, 7 and 8 because to do so would be contrary to Chinese law. Instead what they say is that it would be inconvenient to ascertain which documents might be subject to the State Security Law so that, given that expensive inconvenience, they should be relieved of the obligation to give discovery of those categories altogether.
The third matter involves an assessment of that inconvenience. Mr Ding estimated that to review all 83,557 documents to assess whether they contained State secrets would take 3,551 person days and would cost $14.2 million.
There are certain aspects of the present situation which appear to be self-inflicted. For example, one obvious solution would be for the State security review only to be conducted once actually discoverable documents have been identified. The Respondents’ estimate that there are likely only to be a limited number of such documents would mean any State secrets review would be minor in nature.
It is not, however, presently possible to take this course because the discovery process is being managed from Australia. This solution would only work if the discovery process was conducted in China by Chinese lawyers. As the Respondents correctly point out, there would be considerable inconvenience and expense if they had to engage Chinese lawyers to do that at this stage. But it is legitimate to ask why this was not done from the outset. The fact that Chinese law might require a review was revealed to this Court in December 2017 at the early stages of the discovery process. Further, the Respondents were well aware of the issue by reason of their involvement in proceedings in the United States where similar issues were encountered. It would have been much more sensible for the whole discovery process to be carried out in China so that this known problem could be avoided.
It is not clear to me why that decision was not taken and I do not need to determine that. For present purposes it is sufficient to observe that responsibility for the current state of affairs lies with the Respondents not the Applicant. This is a factor which should be weighed in the balance.
I therefore accept that the Respondents are legitimately entitled to conduct a State secrets review. I do not think that many secrets are likely to be unearthed on the evidence placed before me but that there may be some cannot be excluded. I accept that the yield of documents actually discovered from the 83,557 may be relatively low in number but this does not mean they will not be significant in relevance. These three categories appear to go to the heart of several central issues in the case. The discovery, for example, of documents in category 8 may be a significant matter just by their existence.
I also accept that to give discovery of these categories and carry out the State secrets review will be very burdensome for the Respondents. It may even take, as they suggest, six months to complete although I am to a degree sceptical about this. They have the capacity to reduce some aspects of this, for example, by changing the situs of their discovery project but I accept the heavy burden, expense and delay involved. Even so, when all is said and done this is the Respondents’ problem and has been since December 2017. The time to be getting to work on the problem was then and certainly no later than March 2018 when the categories were specified.
In those circumstances, I see no reason why the Respondents should be relieved of their discovery obligations. I will entertain an adjustment to the discovery timetable to take account of the necessity for State secret review process but the price for that will be a candid explanation of just exactly what the Respondents are going to do vis-à-vis the State secrets review. Given the Respondents’ role in failing to address this problem in a timely fashion, this work will need to be done urgently and a degree of asperity in the timetable must be expected. In that regard, I do not find persuasive the alleged fact that the room in which these documents are being held can only accommodate 6 people.
The Applicant sought a declaration that the Respondents had not complied with their discovery obligations. I see no utility in that course.
The Respondents’ interlocutory application of 27 September 2018 is dismissed with costs. I dismiss prayers 1 and 2 of the Applicant’s interlocutory application dated 4 October 2018 with no order as to costs. Prayer 3 was not pressed and may be mentioned at the next case management hearing. I would just say, however, that it appears to me to be premature at this stage to be talking of striking out parts of the Respondents’ defence for failure to comply with their discovery obligations. The time for that question will arrive if the Respondents’ failures in that regard begin to raise a risk of the loss of the trial dates. If the way the Respondents have approached discovery results in an inability to have the issues relating to categories 3, 7 and 8 ready for the trial which is set down then the interests of justice may require those issues to be jettisoned from the trial by removing the Respondents’ right to defend them. I express no concluded view on that matter.
Were I to be asked, I would not be disposed to grant leave to appeal in this matter.
I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram. Associate:
Dated: 1 November 2018
0
0
0