Bressler Risk Blog

Excellent and comprehensive article from the co-chair of the firm’s legal ethics and malpractice group, and two associates from Harris Wiltshire & Grannis LLP: “6 Ethics Tips For Attorneys Making Lateral Transfers” —

• “Every year, approximately 3,000 partners at AmLaw 200 law firms will lateral to a new firm. That number is rising: Law360 reported that in the first half of 2019, there was an 18% overall increase in the number of attorney hires across all tiers, with partner lateral moves rising by 8%.Given these trends, it is more important than ever for partners to understand the steps they must take to adhere to the ethics rules when making a transition. This article outlines those steps and provides a practical overview of the pertinent rules.”
• “First, review your firm’s partnership agreement…Notice: How much advance notice of a departure is required? Typical provisions call for 30-60 days. What are the consequences of a departure before the end of the notice period? Can the notice period be waived?”
• “Notification of clients: While the ethics rules provide guidance on how to notify clients, you should also be cognizant of what, if anything, your partnership agreement says about notification… Do not solicit associates or staff members while you are still a partner at your current firm.”
• “Once you have decided to move, you should begin the process of getting your client files in order. To do this, save all documents and emails in designated client folders. Do not download any files or email any documents to yourself. Any manipulation of a client’s file — downloading documents onto a USB, emailing correspondence to a personal email account, etc. — will leave a record. Your current firm could be alerted to the manipulation, and could misconstrue it as an effort to remove client files without firm or client authorization.”
• “Remember that the client file is the client’s property — it does not belong to you or your firm. The firm acts as the custodian of the client file if and until the client requests her file. Accordingly, your current firm is obligated to maintain the client’s file until instructed in writing to provide the file elsewhere… If your client intends to follow you to your new firm, have her request her file upon your departure… As a general matter, a lawyer cannot contact clients in advance of informing her current firm of the departure… Some jurisdictions offer guidance or impose requirements regarding the content of your departure notice to clients. “
• “Pursuant to ABA Model Rule 1.7, among others, a lawyer has an ethical duty to check if conflicts exist at the new firm before making the move. To do that, you’ll need to provide the new firm with a list of all your clients, and all clients about whom you learned information even if you did not perform work for them.
  But note that pursuant to ABA Model Rule 1.6,[11] you cannot provide that information until “substantive discussions regarding the new relationship” have begun. ABA Model Rule 1.6(b)(7) allows for a lawyer to disclose nonprivileged information about her clients and the nature of her representation, provided disclosure does not prejudice the client.”

And more from Ethical Grounds: The Unofficial Blog of Vermont’s Bar Counsel: “Leaving a Law Firm” —

• “As for a ‘to do’ list, I’ve included several helpful resources at the end of this post. Many draw from ABA Formal Opinion No. 99-414: Ethical Obligations When a Lawyer Changes Firms.”
• “The key takeaway from ABA Opinion: both the firm and the departing lawyer must ensure that the lawyer’s departure does not have a ‘material adverse effect on the interests of the clients with active matters upon which the lawyer is currently working.'”
• “Here’s an outline of the rest of the ABA Opinion:
  • Notice to clients. The firm and lawyer should provide notice of the lawyer’s “pending departure in a timely fashion to clients for whose active matters (s)he currently is responsible or plays a principal role in the current delivery of legal services.”
  • Who sends it? When possible, joint notification from the firm & departing lawyer is preferred.
  • Include:
    • when the lawyer is leaving & where the lawyer is going;
    • whether the firm & lawyer are able & willing to continue representing the client;
    • that the client has the absolute right to choose to remain with the firm, to go with the lawyer, or to secure new representation altogether.
  • Do not include: The departing lawyer “should not urge the client to sever its relationship with the firm . . . [or] disparage the firm.”
  • Other considerations. The departing lawyer should be mindful not to:
    • engage in any conduct that is deceitful or dishonest (secreting files is big no-no);
    • do anything that would put client property, data, information, or confidences at risk; or,
    • improperly solicit business from clients with whom the lawyer has no prior working relationship.”

“PTAB Axes Nasdaq Patents Under Alice, Won’t DQ Fish” —

• “The Patent Trial and Appeal Board on Tuesday cleared Fish & Richardson PC to represent Miami International Holdings Inc. as it lodges covered business method reviews of patents owned by a subsidiary of its former client, Nasdaq, and then invalidated claims from two of those patents.”
• “While Fish & Richardson did prosecute patents for Nasdaq, it was not involved in these specific Nasdaq ISE LLC patents, and there’s no evidence that confidential information has been changing hands, a panel of six judges overseeing the various CBMs said.”
• “Fish & Richardson is representing Miami International Holdings, which operates electronic trading exchanges such as MIAX, in these various reviews. The firm had represented Nasdaq from February 1998 through October 2011, prosecuting several patents, but not the ones in suit here, according to the PTAB. In 2016, Nasdaq acquired International Securities Exchange Inc., which later became Nasdaq ISE, and Fish & Richardson has never represented the subsidiary, according to the board.”

“Fake law firm boss disqualified for a second time” —

• “The director of a bogus law firm which falsely claimed to be registered with the Solicitors Regulation Authority has been banned from running a company for 10 years.”
• “French Fox Limited was incorporated in 2016 and promoted itself as a solicitors’ firm, claiming on its website it had experience in several sectors and could provide a number of services.”
• “But in reality the outfit was not registered with the SRA and did not have permission to display the Legal500 logo. Following complaints, French Fox was wound up in the High Court last year after a petition was submitted by the Insolvency Service.”

(Part of the joy in this blog are the surprising little details…  and people ask me the story behind my LLC name…)

“L’Oreal Seeks DQ Of Lerner David In Cosmetics IP Row” —

• “L’Oreal USA Creative Inc. urged the Western District of Texas to disqualify Lerner David Littenberg Krumholz & Mentlik LLP from representing Drunk Elephant LLC in the case involving a patent that covers cosmetic compositions, as the firm represented parent company L’Oreal USA Inc. from 2003 to 2016 in numerous patent matters, gathering confidential information along the way, according to Tuesday’s motion to disqualify.”
• “Lerner David is still listed as the attorney of record with the U.S. Patent and Trademark Office for at least 72 L’Oreal patents; it worked on patents directly related to the patent in question, U.S. Patent No. 7,179,841; and it gathered numerous bits of confidential information about the cosmetic giant that could be used in the present litigation, according to a memorandum accompanying L’Oreal’s motion to disqualify. That meets the criteria for disqualification under the Texas Rules of Professional Conduct, according to the memorandum.”

“Water-Sewer Lawsuit Against City Has New Attorney, Carlos Moore” —

• “Earlier this week, attorney Carlos Moore of the Cochran Firm stepped in to represent Jackson residents who are suing both Siemens Inc. and the City of Jackson. Moore, who has offices in Ridgeland and Grenada, entered the case following a judge’s order last month to dismiss former City Attorney Pieter Teeuwissen due to a conflict of interest.”
• “The lawsuit represents six plaintiffs whose water service was cut off after they could not pay exorbitantly high and inaccurate water bills. One of the plaintiffs had a water bill for $34,000. The lawsuit alleges that the City knew that the water-sewer billing system was faulty but did not alert account holders. Some were making payments when their service was cut.”
• “Judge Tiffany Grove disqualified Teeuwissen, who filed the lawsuit along with his co-counsel, because of his past role as city attorney, a position he held from July 1, 2009, to Sept. 30, 2013. He is currently counsel for the Hinds County Board of Supervisors.”

But then: “City of Jackson wants two more attorneys disqualified from water billing lawsuit” —

• “In the court filing, the city argues Carlos Moore and James Bryant, both members of the Cochran Law Firm, should not be allowed to represent three plaintiffs in a lawsuit against Jackson.”
• “According to the documents the City is represented by another member of the Cochran firm in the Siemens lawsuit. The filing also states Moore, Bryant and plaintiffs intentionally violated the Mississippi Rules of Professional conduct and the order of the court which was an explicit warning not only to attorneys but also to Plaintiffs in the case.”

“Judge Denies Motion to Disqualify Former Major Leaguer’s Law Firm” —

• “On the eve of trial of former Major League Baseball All-Star outfielder Lenny Dykstra’s malpractice suit against a law firm he hired after he was allegedly beaten by deputes in the Men’s Central Jail in 2012, a judge Friday denied that firm’s motion to disqualify the current group of lawyers from representing him.”
• “Los Angeles Superior Court Judge Patricia Nieto stated in a written ruling that although the action of an attorney for Dykstra’s current firm, Pierce, Bainbridge, Beck, Price & Hecht LLP, regarding an email communication was ‘improper and potentially warrants punishment,’ disqualification was not the proper remedy.
  The suit alleges Boucher LLP lawyers did not conduct meaningful trial preparation and discovery during a 14-month period, actions amounting to ‘attorney misconduct and client abandonment.'”
• “Dykstra is suing the firm Boucher LLP. On Sept. 29, Pierce Bainbridge lawyer Thomas D. Warren sent an email — a copy of which is contained in Pierce Bainbridge’s court papers — to attorneys representing the Boucher LLP firm stating that he would like to speak to the head of the firm, Raymond Boucher, about potentially resolving the case ‘unless you have any objection.’ A copy of the email was sent to Boucher, according to the Pierce Bainbridge court papers. In their court papers, the Boucher attorneys called the email a ‘calculated move to help Dykstra extract money from defendants by getting between them and their attorneys.'”
• “Lawyers for Boucher LLP state in their court papers that Dykstra repeatedly lied to the Boucher attorneys and that they eventually realized they had little or no chance of winning his case. When the Boucher attorneys met with Dykstra in September 2016 to tell them they were withdrawing their representation, he fired them shortly after the meeting began, according to the Boucher attorneys’ court papers.”

“Judge Won’t DQ Foley & Lardner Attys Yet In Family Biz Fight” —

• “A Wisconsin federal judge has refused to disqualify two Foley & Lardner LLP attorneys in a yearslong shareholders dispute between extended family members but is making the pair submit to a deposition, warning that they may have to step down as trial counsel if their testimony is required during that proceeding.”
• “U.S. District Judge J.P. Stadtmueller on Wednesday referred to the dispute over whether or not the attorneys could be deposed and should be disqualified as ‘tangled’ and arguments on both sides ‘precarious,’ writing in his order that there was currently not enough basis to disqualify Foley attorneys Bryan House and Thomas Shriner Jr.”
• “However, he said House and Shriner had made themselves potential fact witnesses by supplying information personally in support of a motion filed by their clients in August, and the pair should, therefore, be deposed.”
• “House and Shriner, who represent the Bechthold contingent, each submitted a declaration in support of the motion for summary judgment in August, though the court noted they could have had other parties supply the same information. Not long after, the Deweys filed a motion to disqualify the pair, saying House and Shriner were involved in the conduct at the heart of their suit, including efforts to allegedly hide real estate assets from the Deweys and holding conversations about a vote for a 2014 bylaw amendment that places certain restrictions on selling shares in the companies.”
• “‘Attorneys who inject themselves as fact witnesses in the proceedings cannot claim harassment and undue burden when the opposing party seeks discovery from them,’ Judge Stadtmueller wrote.”

“Attys Disqualified From Wyndham’s Timeshare Exit Suit” —

• “Magistrate Judge Jeffery S. Frensley on Monday granted Wyndham’s motion to disqualify Aubrey Givens and Kristin Fecteau Mosher from representing Mortgage Wellness Solutions LLC, which does business as Legal Timeshare Aid, and its owner, Charles Simerka. The case accuses Legal Timeshare and Simerka of running a scheme in which they falsely claimed they could help Wyndham timeshare owners terminate their purchase contracts.”
• “A Tennessee magistrate judge has disqualified two attorneys representing a timeshare exit company in a false advertising suit brought by Wyndham Vacation Ownership Inc., saying both are necessary witnesses in the suit and must be available to testify.”
• “‘Both Mr. Givens and Ms. Mosher are likely to be called as witnesses; indeed, plaintiffs have stated that they will be,’ Judge Frensley wrote in his 27-page order detailing evidence showing why both lawyers need to testify. ‘The Simerka defendants have pointed to no authority, and the court has found none, that supports the contention that a lawyer who is a necessary witness may nevertheless continue as an advocate in the proceeding because another lawyer who is also a necessary witness will testify.'”

“Boies Schiller Attorneys Disqualified in Dershowitz Defamation Case” —

• “A Jeffrey Epstein accuser who said she was forced to have sex with Alan Dershowitz may proceed with a defamation suit against the famed law professor, but she would have to do so without the representation of her longtime attorneys, a Manhattan federal judge ruled on Wednesday.”
• “U.S. District Judge Loretta A. Preska of the Southern District of New York said Boies Schiller’s disqualification was “clearly required” under the witness-advocate rule, which bars attorneys from participating in cases where other lawyers in their firm might be called as witnesses.”
• “Dershowitz’s attorneys said last month that he possessed a recording of name partner David Boies supposedly disparaging Giuffre’s account of her interactions with Dershowitz as untrue and said he intended to call Boies and other attorneys from the firm to testify at trial.”
• “Preska said that position likely set up a situation in which the firm’s other partners and associates may be forced to offer testimony discrediting their boss’ allegedly prejudicial statements and raised the possibility that they would lack the independence to do so.”
• “The ruling did, however, reject Dershowitz’ motion to dismiss the case on the grounds that it was time-barred under New York defamation law.”

“Brief Introductory Call with a Law Firm is Not Enough to Disqualify It From Representing Another Party in the Lawsuit” —

• “Lawyers often get phone calls from prospective clients seeking guidance on various issues – general legal inquiries, asking a variety of general questions about laws, codes, regulations, and statutes, or questions concerning a pending or anticipated litigation. But a brief introductory conversation with a prospective client regarding an issue cannot disqualify the attorney from representing another party in that litigation. Or can it? Stay tuned to see how Justice Andrea Masley recently ruled on this very issue.”
• “Plaintiff moved pursuant to 22 NYCRR § 1200.00, Rules of Professional Conduct 1.18 to disqualify defendant’s counsel, Herrick Feinstein LLP (“Herrick”) based upon the fact that plaintiff had an initial consultation with Herrick, which consisted of two brief telephone calls and the exchange of documents, all of which were provided to the defendant by plaintiff . Rule 1.18, entitled “duties to prospective clients” governs this initial interview process. New York law requires disqualification for disclosure of information that “embrace[s] substantive issues related to the” action and that was “made in confidence” to facilitate the provision of legal services, as the Court of Appeals long held in Seeley v. Seeley.”
• “Following the brief introductory call, plaintiff sent the Herrick partner a follow up email containing information pertaining to the project and providing a list of potentially adverse parties so Herrick can run a conflict check. Plaintiff also attached a three page document, which consisted of a letter from plaintiff to defendant, enclosing surveys of the structure.”
• “In her Decision and Order, Justice Masley determined that plaintiff “has a heavy burden of showing that disqualification is warranted.” Justice Masley determined that the documentary evidence corroborates the Court’s conclusion that plaintiff’s evidence was insufficient to warrant Herrick’s disqualification due to conflict. The Court held that plaintiff failed to establish that Herrick received any confidential information from plaintiff that could be significantly harmful to plaintiff in the pending litigation. In fact, the Court reasoned that the alleged documents that were provided to Herrick were not confidential because they were intended for and sent to Fortis by plaintiff.”

“Kane Kessler Scolded By Judge For DQ Bid Against Storch” —

• “A New York federal judge on Monday slapped Kane Kessler PC and its counsel for a bid ‘clearly devoid of merit’ to disqualify its opposing counsel in litigation where a New Jersey-based nonprofit organization accuses the firm of engaging in attorney misconduct.”
• “U.S. District Judge Paul A. Engelmayer wrote Monday that Kane Kessler’s disqualification bid against Storch Amini PC is ‘transparently strategically motivated,’ as Kane Kessler and its counsel, Furman Kornfield & Brennan LLP, fail to establish that the lawyers for Oorah Inc. would need to be disqualified because they may need to testify over their knowledge of the underlying matter to an extent that would implicate their ability to serve as advocates for their client.”
  The judge also wrote that he was ‘constrained to admonish’ Furman Kornfield, holding that he expects the firm to ‘aspire to rigorous accuracy and a high level of professionalism and care.'”
• “‘At various points, the court found statements of fact in defendants’ briefs inexact and incomplete, if not misleading,’ Judge Engelmayer wrote. ‘Particularly in a litigation in which the defendant is a law firm accused of making false and misleading statements to a court and opposing counsel, defense counsel’s factual imprecision ill behooves its client’s interests.'”

“Edelson: Disqualify wife’s divorce lawyers, because might aid Johnson & Bell disparagement case vs Edelson” —

• “Chicago class action lawyer Jay Edelson, who is mired in divorce proceedings, wants his wife’s attorneys kicked off the case, because he alleges they could feed sensitive information from the divorce to the Chicago firm Johnson & Bell, which is suing Edelson on grounds he wrongfully disparaged their practice.”
• “‘In light of the unrestrainably antagonistic nature of the relationship between Johnson & Bell on one hand and Edelson PC and Jay, on the other, this honorable court should presume that Johnson & Bell will exploit any advantage available to it in its pursuit of retribution against Edelson PC and Jay,’ Edelson said in a recently filed motion.”
• “Johnson & Bell specializes in defending corporations against lawsuits, like those brought by Edelson and other plaintiffs’ law firms. Johnson & Bell sued Edelson in 2017 in Cook County Circuit Court, alleging Edelson disseminated “lies” about the firm’s allegedly inadequate data security to the Wall Street Journal and the professional publication American Lawyer.”
• “In addition, Johnson & Bell alleged Edelson and his firm have violated ethical duties, abused court processes and ‘engaged in a self-serving publicity tour spreading their lies and defamatory statements.’ Johnson & Bell also alleged Edelson preys on businesses with nuisance suits to extort settlements.”

BRB: That firm’s name rang a bell… Indeed, we noted the related story concerning their information security practices and news back in April.)

via Bill Frievogel: Patrolmen’s Benevolent Ass’n v. New York State Employment Relations Bd., 2019 WL 4491669 (N.Y. App. Div. Sept. 19, 2019) —

• “This is a complaint by Union against Board for declaratory judgment seeking the disqualification of an arbitrator. The current arbitration arises out of the failure of Union and City to agree on a contract in 2017. The arbitration panel comprises three members, two of them selected by the parties, and the third (“neutral”) agreed upon by the parties.”
• “The City selected the arbitrator subject to this suit, Lawyer Linn. Union seeks Linn’s disqualification. The problem is that Linn had performed consulting services for Union over a period of years, until 2003, on issues similar to those in the current arbitration. In 2014 the city appointed Linn as its arbitrator in a Union matter similar to this one.”
• “Union sought Linn’s disqualification at the outset of the 2014 arbitration. The State Employment Board advised it had no authority to disqualify Linn. The parties proceeded to arbitration, and Union took no further action regarding disqualification, nor sought review of the award.”
• “On to this case: The trial court denied disqualification. In this opinion the appellate court affirmed, holding, among other things, that Union’s failure to follow through on its objection to Linn in the 2014 arbitration amounted to a waiver of Linn’s conflict in the current arbitration. Given the identical parties and similarity of the issues to those in the 2014 arbitration, the failure to pursue disqualification then should count as a waiver for purposes of the current arbitration.”

“Quinn Emanuel Attorney Can Stay as Counsel In U.S. Soccer Spat” —

• “An attorney with Quinn Emanuel Urquhart & Sullivan can stay on as counsel for the U.S. Soccer Federation Foundation in its trademark dispute with U.S. soccer’s governing body, a federal judge ruled Sept. 25.”
• “Robert Raskopf isn’t conflicted due to prior work on trademarks for the U.S. Soccer Federation because the matters aren’t the same, Judge Timothy J. Kelly wrote for the U.S. District Court for the District of Columbia.”
  Raskopf had worked for a law firm in the 1980s that registered two trademarks for the federation, ‘neither of which is at issue in this case,’ the court noted.”
• “He later moved to White & Case, which maintained the trademarks at issue in this case for the foundation, it said. Raskopf and another attorney at White & Case who “mainly handled” those trademarks later joined Quinn Emanuel, taking the work with them. In 2011, however, the foundation transferred the trademark work to another firm. Raskopf and Quinn Emanuel are now representing the foundation in a trademark ownership dispute, the court said.”

And via Bill Freivogel, commentary on: Glencairn IP Holdings Ltd. v. Product Specialties Inc (Final Touch), 2019 EWHC 1733 (IPEC) (High Ct. Eng. & Wales May 7, 2019) —

• “In this case Glencairn is suing Final Touch and others for infringement of its registered design and of an EU trade mark dealing with the shape of a whiskey [sic] glass. Final Touch hired the law firm, Virtuoso, for defense.”
• “The problem is that Virtuoso just last year defended another defendant, Dartington, in a very similar case brought by Glencairn. Glencairn moved to disqualify Virtuoso in this case, claiming that Virtuoso would have learned confidences during a mediation of the earlier claim that would prejudice Glencairn in this case.”
• “Bottom line: In this opinion the court denied the motion. The court decided that the possibility that Glencairn would be harmed was remote. Among other things, the opinion contains interesting discussions about whether a screen would work in a small firm and whether Bolkiah principles can be applied to confidences held by non-clients.”

(And now I’m reading up on this whisky glass…)

I’ve been accumulating a growing list of stories about when things go sour in terms of lateral risk, lawyer departures, firm fights and breakups — and then things go really sour. Kicking off this week with some of the more interesting and relevant examples on my list.

“Kennedys Beats Appeal In Client Poaching Suit” —

• “An attorney failed to establish that a Kennedys lawyer poached his clients in a freight business dispute, as he didn’t back up his ‘bald assertions’ that his former clients were fed lies, a New Jersey state appellate court held Monday.”
• “Horowitz alleged that after he encouraged his clients GMG Transportation Inc. and GMG Transwest Corp. to hire Furman as local counsel, Furman suggested to the companies that if they didn’t fire Horowitz, they would lose the case. Furman worked at the time with Carroll McNulty Kull LLC, which later merged with Kennedys.”]
• “But other than disputed telephone conversations, Horowitz failed to introduce specific evidence in his amended complaint that substantiated his assertions, according to the appellate court, which declined to allow discovery so the lawyer could attempt to find more information.”

“Bitter Divorce: When Law Firm Breakups Go Sour” —

• “Partner departures from a firm are often civil, if not amicable, and pass without public incident. But the defection of a partner from one firm to another can be the catalyst for a fraught dispute over fees, returned capital or the circumstances of their exit.”
• “Provisions in a partnership agreement designed to dissuade defections can form the basis of a post-departure lawsuit. This was the case when a former Roetzel & Andress LPA shareholder sued the firm in October 2015, accusing it of trying to enforce an allegedly unlawful noncompete clause in his contract after he left the firm for FisherBroyles LLP.”
• “‘The shareholders’ agreement brazenly attempts to impose an unlawful noncompete restraint on the practice of law by an attorney by purporting to financially punish a departing shareholder who attempt[s] to continue practicing law in any geographic area where Roetzel maintains an office,’ Menzies said. The parties settled quickly and the matter was resolved in December 2015, a few months after Menzies filed his complaint.”

“NJ Atty Ducks Cost Of Removing Name From Ex-Firm’s Videos” —

• “Begelman & Orlow PC must reimburse a former name partner for half the cost of removing references to him from its marketing videos but the law firm can continue using a video showing the back of his head, a New Jersey state appeals court said Tuesday.”
• “That portion of the ruling was at odds with an earlier consent order in the case, which required the defendants to ‘remove from their website any reference to the plaintiff … and remove [his] images as well,” and which stated that the defendants ‘shall cease using plaintiff’s name in any way whatsoever,’ according to the two-judge panel.”

“Recruiter Sues Windels Marx, Seeking $3 Million for IP Group Placement” —

• “A headhunting firm has sued the tri-state law firm of Windels, Marx, Lane & Mittendorf for $3 million, claiming the law firm failed to pay a placement fee for an IP group move from Budd Larner.”
• “‘Austin & Devon did everything it promised to do—it introduced Windels Marx to a group of talented attorneys that the firm liked enough to hire,’ the complaint said. ‘But despite reaping the rewards of Austin & Devon’s work, Windels Marx will not honor its promises.'”
• “The recruiting firm said it signed a contract with Windels Marx in 2013 that put a 12-month time limit on any obligation to pay Austin & Devon in the case of associates who were referred to the firm, according to the complaint. But because partner and group moves typically entail lengthy negotiations, no such limit applied, Austin & Devon claims.”

What happens to international law firms practicing in China on January 1, 2020? Can that even be a thing anymore? Will new appointees be “inserted” at firms? Will client outside counsel guidelines take note and evolve?

Read why many are concerned about new security rules taking effect: “China’s new cybersecurity rules ban foreign companies from using VPNs to phone home” —

• “The latest move is the long-threatened extension of Chinese spying powers over foreign companies, whose employees are to be prohibited from using working VPNs to communicate with their non-Chinese offices. These employees will now be left to use the same censored internet as Chinese citizens, and every trade secret and confidential communique they transmit to their home offices will be open to capture, inspection and use by Chinese authorities and the state industries they have long supported by funneling proprietary foreign corporate data to domestic competitors.”
• “The Chinese ‘Cybersecurity Law’ enables Chinese authorities to access any data on any server or personal computer, even those used by foreign firms.”
• “Moreover, a new Foreign Investment Law that takes effect in 2020 will eliminate any special dispensations currently enjoyed by foreign firms (for example, foreign firms are presently exempt from rules that allow the Chinese state to insert political appointees within the executive ranks of companies to monitor their operations — this will no longer be the case as of Jan 1).”
• “As Steve Dickinson points out on the China Law Blog, the ability of Chinese firms to spy on all communications between Chinese and offshore offices of US firms compromises US companies’ ability to comply with US laws restricting the export of “sensitive technologies” — the fact that the Chinese state can simply plunder these technologies from US companies’ servers means that whether or not the US companies turn their trade secrets over, they can still be presumed to be in the hands of the Chinese state and military and the Chinese companies that are closely aligned with them:
  • “Under the new Chinese system, trade secrets are not permitted. This means that U.S. and EU companies operating in China will now need to assume any “secret” they seek to maintain on a server or network in China will automatically become available to the Chinese government and then to all of their Chinese government controlled competitors in China, including the Chinese military. This includes phone calls, emails, WeChat messages and any other form of electronic communication. Since no company can reasonably assume its trade secrets will remain secret once transmitted into China over a Chinese controlled network, they are at great risk of having their trade secret protections outside China evaporating as well.”
  • “The U.S. or EU company may have an enforceable agreement with the Chinese recipient of its confidential information. So trade secrecy is protected with respect to that authorized recipient. But if the secret is easily available to the Chinese government, there is no real trade secret protection.”
  • “By giving the Chinese government and its cronies full access to its data, the U.S. or EU company may very well be deemed to have illegally exported technology to China and it could face millions of dollars in fines and even prison sentences for some of its officers and directors. There is an inherent conflict between foreign laws mandating a company not transfer its technology and China’s laws which effectively mandate that transfer.”