Intellectual Property Law

United States Discovery Rules v. Foreign Data Protection Laws

By Martha L. Arias

Under the United States (U.S.) Federal Rules of Civil Procedure (FRCP) a federal court, and states courts, may compel discovery of certain documents.  Hence, may a court order discovery of documents found in a foreign country and protected under foreign data protection laws?  It may, first, be said that this would be an extraterritorial application of U.S. law.  However, in real life and complex litigation involving companies whose headquarters may be located anywhere in the world, the issue turns intricate.  This article presents a Texas case in which a federal court compelled discovery of a company?s documents found in Germany and protected under Germany data protection laws. 

In the case of Volkswagen v. Valdez, 909 S.W.2d 900 (1995), the Supreme Court of Texas vacated a trial court order that compelled defendant to produce the company?s phone book without considering that this phone book was protected under Germany data protection laws.  The parties to this case are Volkswagen of America and its Germany parent company (Volkswagen AG) ?defendants, and plaintiffs who filed a product liability lawsuit for personal injuries resulting from an automobile accident involving a Volkswagen model. Plaintiff sought production of Volkswagen AG?s corporate telephone book so they could identify persons who might have had relevant information regarding defects in the automobile?s door latches. Volkswagen AG rejected this discovery arguing that the telephone books contained private information subject to the German Federal Data Protection Act and, therefore, they could not produce this evidence. Volkswagen AG claimed that Germany data protection law prohibited dissemination of this information without the individual?s consent. The book contained the names, job title, home and work numbers of the company?s employees and persons performing managerial functions.

The trial court compelled production of this book despite Volkswagen objection. Volkswagen filed a mandamus action before the Supreme Court of Texas (court).  To solve this case, the court resorted to the Restatement (Third) of Foreign Relations Law § 442 (1987).  Section 442(1)(a) states that a court or U.S. agency may, when authorized by statute or court rule, to order a person to produce documents, objects, or other information relevant to an action or investigation, even if the information or person in possession of that information is outside the U.S. Yet, the same reinstatement establishes that when the foreign country laws protect relevant information from discovery, the interests of the domestic court or agency must be balanced with those of the foreign country.  Some of the factors to be balanced are (1) the importance of the investigation and the documents sought; (2) the degree of specificity of the request; (3) whether the information was originate in the U.S. (4) alternative means to secure the information; and (5) the extent to which not compliance with the order to compel would undermine the interests of the U.S., or compliance with the request would undermine the interests protected by the foreign country where the information is located.  Section 442(1)(c) says that after balancing these factors, the U.S. court may compel production of documents protected under foreign law.

When applying these factors, the court held that it was undisputed that the information in the book was generated in Germany, that there were other means to obtain information about Volkswagen AG?s employees and managers, and that the information requested was specific.  Yet, the court held that production of the book would undermine Germany?s law; however, not- compliance would not undermine the interests of the U.S. Also, as to the first factor, the court held that the book had little relevance to the litigation.

Therefore, the court held that the trial court abused its discretion and erred in not considering Germany law when rendering its decision. The court, further said that the book should not have be produced in violation of German law.

This is a very interesting case where the Supreme Court of Texas was to balance the interest of the U.S. and the litigation in its courts versus the interest of a foreign country and the compliance of its laws; particularly, privacy laws.  It may be expected that U.S. courts will be applying these Restatement (Third) of Foreign Relations Law § 442 (1987) prongs more frequently as e-commerce and international trade expands and we enter into a globalized economy.

Full post as published by IBLS Internet Law Blog on August 18, 2009 (boomark / email).