A recent Seventh Circuit decision offers a reminder that even when proceeding before a non-US tribunal, companies located in the United States may be subject to the burdens of US discovery. For corporations litigating outside the United States (e.g., multijurisdictional patent infringement litigation), 28 U.S.C. §1782 may provide a way to obtain broad discovery when another party “resides or is found” in the United States. While this can be a useful tool in a foreign proceeding, Judge Posner, in writing the panel decision, cautioned that §1782 requests may be denied if made in abuse of the statute.
In Heraeus Kulzer, GmbH v. Biomet, Inc.,1 German bone-cement manufacturer Heraeus Kulzer appealed a denial of its application to compel discovery for use in its trade secret litigation pending in Germany against Biomet. The Court of Appeals reversed, citing two errors made by the lower court in denying Heraeus’s request.
First, the lower court erred by concluding that Heraeus was attempting to circumvent German law. According to Judge Posner, this ruling was incorrect because Heraeus could not obtain similar discovery in German courts and there was no indication that the German court would either be “affronted by” the use of US courts or that it would “refuse to admit” evidence obtained in US discovery. The court stated that, once a party has shown that it requires §1782 discovery, the burden shifts to the party opposing discovery to show that granting the request “would disserve the statutory objectives.”
The second error was to deny completely the request as too burdensome without “requiring Biomet to [either] negotiate” the scope of discovery or “ask the district court to limit the scope of discovery.” According to the Seventh Circuit, the lower court’s failure was not a §1782 mistake, because once a district court finds no abuse of the statute, discovery management should proceed under the ordinary rules for discovery in federal court unless the district court specifies otherwise. The appellate court remanded to the district court for consideration of the discovery request under relevant Federal Rules of Civil Procedure.
Pursuant to 28 U.S.C. §1782(a), a district court has authority to order discovery “for use in a proceeding in a foreign or international tribunal” from one who “resides or is found” in that district. Despite the plain wording of the statute, the Seventh Circuit noted that district courts must be aware of the potential for abuse of the statute. To illustrate, Judge Posner listed several possible situations that might justify denying a request for discovery, including:
- A party seeking discovery in the United States of material that could be acquired through the foreign proceeding may be unnecessarily increasing the burden on the other party by attempting to litigate in multiple jurisdictions. Such action may create an inference of harassment.
- A party seeking discovery of material that would be inadmissible evidence in the foreign proceeding may create an inference of harassment.
- A party seeking broad US discovery to “overwhelm” the foreign court, which may not have admissibility restrictions that are as strict as those in the US federal court system, may be seeking to abuse the statute.
- Possible misuse of the statute may be occurring if a party seeks discovery that the foreign court would condemn as requiring unnecessary expense for an opponent or third party.
- If the parties have a contract with a forum selection clause suggesting they prefer a court system with more restrictive discovery, a party’s use of US discovery may suggest abuse of the statute.
- A party seeking simultaneously to utilize foreign substantive law and broad American discovery may indicate that the plaintiff has chosen an inconvenient forum.
The court also addressed the potential abuse Biomet raised regarding a lack of reciprocity where one party (here, Heraeus) could obtain broad US discovery against a party in the United States (here, Biomet), while the US party (Biomet) could not obtain equivalent discovery against the non-US party (Heraeus). The court noted that this lack of reciprocity was not likely to be prejudicial as a plaintiff in a trade secret case typically requires greater discovery than the defendant, which appeared to the court to be true in this case.
Further, the court pointed out that Biomet, a “sophisticated global corporation,” could have requested that the district court condition a grant of discovery on Heraeus agreeing to similar discovery, just as Biomet could have asked the German court to “bar or limit” Heraeus’s discovery in federal court if Biomet was genuinely concerned that Heraeus was seeking US discovery in abuse of §1782 in any of the ways the court had outlined.
In a separate proceeding in the Third Circuit, Heraeus Kulzer GmbH v. Esschem, Inc.,2 Heraeus sought discovery from Esschem, which is a Biomet supplier. In the non-precedential opinion, the Third Circuit reversed the district court’s denial of Heraeus’s application, stating that it was an “[a]rguably … textbook” case of the proper use of §1782. While the district court there had not abused its broad discretion in denying the application, the decision was reversed by the Third Circuit because the district court in Indiana had denied Heraeus’s other application and Heraeus would soon face an important hearing in Germany while its appeal might be denied or be still pending at the Seventh Circuit.
In addition to considering the potential abuses of §1782 identified by Judge Posner, another potentially important consideration is the location of the documents as they may not need to be located in the United States to be subject to the statute.3 It may be sufficient if the party from whom discovery is sought has control over an ex- US third party possessing the documents.4 However, there is some disagreement on whether §1782 allows discovery of documents located outside the United States, as some courts have found that the statute does not extend to documents located outside of the United States.5 The issue may also be resolved on a discretionary basis as some district courts have not decided whether the statute permits discovery of foreign documents, but rather deemed the documents’ location to be a factor to consider exercising its discretionary power.6
Litigation in multiple jurisdictions between corporations located inside and outside of the countries in which they litigate is a reality in many life science industries, including pharmaceuticals, medical devices and biotechnology. A 2009 European report by Professor Dietmar Harhoff, Economic Cost-Benefit Analysis of a Unified and Integrated European Patent Litigation System, noted that the pharmaceutical industry, in particular, faced potentially duplicate litigation in European Union countries. Successfully using §1782 may increase the potential for success when litigating in foreign jurisdictions to protect valuable rights. Indeed, the use or threatened use of §1782 may provide leverage in settlement negotiations with a litigant who is unwilling to engage in US-style discovery.
The Seventh Circuit’s decision is a reminder of an important tool available to parties seeking to enforce their rights in foreign courts. It is also a reminder of the danger faced by US companies involved in non-US litigation. Whether one is the party seeking discovery or the party from whom discovery is sought, Judge Posner’s list of abuses may be helpful in crafting a discovery request or opposing such a request.