Historically in Japan, trade secret theft by an employee was viewed as a low-risk proposition, given the strong sense of employee loyalty stemming from lifetime employment at Japanese corporations. As a result, significant trade secret misappropriation claims rarely appeared before the Japanese courts. That trend has changed, however. Two recent cases clearly illustrate the commitment and willingness of Japanese companies to enforce their intellectual property rights in their home jurisdiction: Nippon Steel & Sumitomo Metal Corporation (Nippon Steel) v. POSCO (formerly Pohang Iron & Steel Co.) and Toshiba Corporation v. SK Hynix Inc. In both cases, the plaintiffs sought over 100 billion yen in damages and, in a country where the filing fee for a claim of this size is approximately one million USD, the record-breaking claims demonstrated plaintiffs’ commitment to enforcing their trade secret rights in Japan.
Nippon Steel
In the Nippon Steel case, Nippon Steel sued its Korean rival POSCO for trade secret misappropriation in Tokyo District Court. Nippon Steel alleged that one of its former employees stole know-how for manufacturing high-grade steel and delivered it to POSCO.
Somewhat unusually, Nippon Steel initially learned of the theft thanks to POSCO. A few years prior, the Korean government arrested a former POSCO employee on suspicion that he had sold POSCO trade secrets to a Chinese steel manufacturer. When confronted with his act, the accused thief claimed that he didn’t steal any POSCO trade secrets because the “trade secrets” were actually Nippon Steel technology that POSCO did not own.
This surprising turn of events led Nippon Steel to initiate legal action in Japan to first seize documents from the trade secret thief’s residence (in Japan). The Court granted this request in December 2011 and gave Nippon Steel the ammunition it needed. Armed with these documents, Nippon Steel filed suit against POSCO in April 2012.
Nippon Steel’s complaint made a massive damages claim by Japanese standards: 100bn yen or over onebn USD at that time. According to Nippon Steel, the magnitude of POSCO’s theft justified this large damages claim. The stolen trade secrets allowed POSCO to close the large technology gap that used to exist between the two companies.
The Nippon Steel case remains pending before the Tokyo District Court, now over two years into its life. Part of the long case pendency can be attributed to POSCO’s initial attempt to contest jurisdiction. POSCO argued that Japanese courts should not have jurisdiction over the case because POSCO does all of its product development in Korea and all of the relevant evidence would be located in Korea. Furthermore, POSCO also argued that, to the extent Nippon Steel is seeking damages based on sales in foreign countries, Nippon Steel should be litigating in those countries and that it was inappropriate to aggregate the case in Japan. Ultimately, the Japanese court rejected POSCO’s challenge to jurisdiction and the case continues on today.
Toshiba Corporation
In the second case, Toshiba sued its competitor SK Hynix of Korea for trade secret misappropriation, also in Tokyo District Court. Like Nippon Steel, Toshiba’s complaint sought a large damages award—in excess of 100bn yen.
This case involved not only a civil action, but also a criminal one. On the same day that Toshiba filed its trade secret complaint, the Tokyo Metropolitan Police initiated a criminal action against the alleged trade secret thief and arrested him. Pictures and videos of the thief’s arrest appeared on headline news.
Toshiba filed its suit on learning that the trade secret thief had been arrested in Japan. The employee formerly worked for SanDisk in a NAND flash memory development project conducted in partnership with Toshiba at Toshiba’s flash memory technology development and mass production base at Yokaiichi, Japan. The employee allegedly stole Toshiba’s proprietary technical information in 2008, and subsequently provided it to SK Hynix when he began employment there.
The case itself was resolved relatively quickly. According to press reports, SK Hynix paid USD 278m to Toshiba in exchange for Toshiba’s withdrawal of its lawsuit.
The criminal case was also quickly dispatched. In March 2015, the thief was sentenced to five years’ imprisonment. During sentencing, Presiding Judge Masahito Murohashi noted that the thief leaked some of the data to the South Korean company in a bid to secure his position. The judge went on to note that “[l]eaking data on the world’s smallest memory chip at the time to a foreign country was extremely heinous.”
Going Forward
Perhaps as a response to the increased media attention being paid to trade secret misappropriation cases in Japan, the Japanese government has also been considering revising trade secret laws to further strengthen protections for trade secrets. For example, one of the items being considered is an enhancement to the civil and criminal penalties for trade secret misappropriation; currently, the maximum fines are 10 million yen for an individual and 300 million yen for a corporation. Another item up for consideration is a change to the burden of proof; currently, the plaintiff must prove misappropriation. This can be difficult given Japan’s limited discovery regime. To alleviate this issue, the government is considering putting the onus on the accused individual or company to prove they did not steal trade secrets. It remains to be seen how far the Japanese lawmakers will go with their reform efforts, but the reforms illustrate the increased attention these types of claims have received in Japan.
Even if the reforms are not forthcoming, the Nippon Steel and Toshiba cases indicate a willingness to use the Japanese legal system to enforce trade secret rights. Moreover, the reported settlement born out of the Toshiba case suggests that Japanese courts may be an effective, but previously underutilized, vehicle. The cases also serve as a warning to would-be trade secret thieves: Japanese companies will pursue entities that deliberately misappropriate their trade secrets and their efforts, at least so far, are effective.
For further information, please contact:
Akira Irie, Morrison & Foerster
airie@mofo.com
