In Cadence Design Sys., Inc. v. Syntronic AB, No. 21-cv-03610-SI (JCS) (N.D. Cal. June 24, 2022), California Magistrate Judge Joseph C. Spero rejected the defendants’ claim that the exception in Article 13 of the Chinese privacy law PIPL was limited to Chinese law, finding that “the Court’s order to produce computers for inspection in the United States creates a legal obligation sufficient to invoke the exception of Article 13 and proceed without the individual employees’ consent under Article 39” and that PIPL doesn’t prohibit production of the computers in China for inspection.

Case Discussion

In this case alleging unlicensed use of the plaintiff’s software, the defendants argued that China’s relatively new Personal Information Protection Law (PIPL) prohibited transfer of computers in China across international borders without the consent of current and former employees, who declined to agree.

The Court had previously ordered the defendants to complete certain searches of its computers and answer certain interrogatories. The parties disputed whether the defendants had adequately complied with those orders. As a result, on April 15, 2022, the Court ordered as follows:

As to the 24 computers that were identified in the phone home reports and which are in the custody of defendants in China, defendants shall comply with the Court’s prior orders and those computers shall be delivered to the United States and produced for inspection no later than April 29, 2022.

At the hearing that precipitated that order, the Court rejected the defendants’ objections based on Chinese data privacy law, holding that despite numerous opportunities to do so, the defendants had neither identified any particular provision of Chinese law affecting its ability to meet its discovery obligations nor provided the sort of expert opinion evidence necessary for this Court to consider foreign law, and therefore waived any such argument.

The defendants filed a motion for reconsideration addressing particular provisions of PIPL, which was enacted in 2021 and seeking to modify the previous order to permit production of the computers at issue for inspection in China rather than in the United States, arguing that Article 39 of the PIPL requires consent from an individual before that individual’s personal information may be transferred outside of China and ordering them to produce the computers would violate Chinese law.

The plaintiff contended that the defendants waived the objection based on the PIPL by failing to raise that argument with any specificity before the motion for reconsideration, also noting that the PIPL was not yet effective when the plaintiff first requested inspection of these computers. The plaintiff also contended that the PIPL includes an applicable exemption for compliance with a legal obligation (clause 3 in Article 13, which includes the exception “Where necessary to fulfill statutory duties and responsibilities or statutory obligations”) and that the PIPL doesn’t prohibit production of the computers because it does not distinguish between obligations under Chinese or foreign law, and therefore does not prevent the defendants from complying with the discovery obligations in this case, including the Court’s previous order.

Judge’s Ruling

Judge Spero began his analysis by finding that the defendants had not satisfied Local Rule 7-9(b) regarding requirements for a motion for leave to file a motion for reconsideration, stating: “Although the Court in an abundance of caution granted Syntronic leave to file its present motion for reconsideration, and holds for the reasons discussed below that the PIPL provides no reason to alter the previous discovery order, Syntronic’s failure to meet the standard for reconsideration under Local Rule 7-9(b) is itself sufficient reason to deny this motion.”

Nonetheless, Judge Spero proceeded to analyze whether the PIPL doesn’t prohibit production of the computers. Finding the interpretation of its provisions by the plaintiff’s expert “more persuasive” than that of the defendants’ expert, Judge Spero stated: “The Court holds that the exceptions in Article 13 apply to the consent requirement of Article 39.” As for whether the exceptions were limited to Chinese law, Judge Spero stated: “nothing in the PIPL itself indicates that the exception is limited to Chinese law. And as noted by Wang, inclusion of foreign legal obligations in the exception makes sense when at least some portions of the PIPL can apply extraterritorially to foreign companies outside of China, which would be subject to potentially contradictory duties under foreign law…The Court declines to limit Article 13’s legal obligation exception to obligations under Chinese law.”

Therefore, finding that “Syntronic has not met its burden to show a true conflict between Chinese law and the Court’s previous order”, Judge Spero denied the motion for reconsideration and, finding that the PIPL doesn’t prohibit production of the computers, ordered the defendants to “produce the computers at issue for inspection in the United States no later than July 15, 2022.” That’s tomorrow!

So, what do you think? Do you agree that the PIPL doesn’t prohibit production of the computers? Or should it have been limited to Chinese law? Please share any comments you might have or if you’d like to know more about a particular topic.

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