United States: Can The GDPR Tip The Scales In U.S. Discovery – Finjan v. Zscaler

Last Updated: September 29 2019
Article by Natascha Gerlach and Natalie Farmer

While the EU General Data Protection Regulation 2016/679 (the "GDPR") has grabbed headlines due to its extraterritorial reach and administrative fining regime (which permits fines for non-compliance up to the higher of €20 million or 4% of global, annual turnover),1 a recent decision in the Northern District of California – Finjan v. Zscaler ("Finjan")2 – suggests that U.S. Courts won't view the EU data protection legislation as an absolute obstacle to domestic discovery.  Finjan, as the first post-GDPR ruling of its kind, suggests that it will be business as usual navigating between U.S. civil discovery and EU law, at least from the U.S. courts' perspective.

The Aerospatiale Factors

In its landmark decision regarding the tension between French data protection law and U.S. civil discovery orders, Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Ct. for S. Dist. of Iowa ("Aerospatiale"), the U.S. Supreme Court affirmed the general rule that foreign laws precluding the disclosure of evidence "do not deprive an American court of the power to order a party subject to its jurisdiction to produce evidence even though the act of production may violate that [foreign] statute." 3  Essentially, when a U.S. court has jurisdiction, the Federal Rules of Civil Procedure  will apply and it will not be necessary in all cases to resort to, for instance, procedures under the Hague Convention when data is located abroad.

However, the Supreme Court also recognized that some discovery requests are more intrusive than others. Aerospatiale accordingly requires trial courts to conduct a careful comity analysis where civil discovery may arguably conflict with foreign law.  To determine whether an international treaty must be complied with, the Aerospatiale Court set out five factors for consideration:  (1) the importance to the litigation of the documents or other information requested; (2) the degree of specificity of the request; (3) whether the information originated in the United States; (4) the availability of alternative means of securing the information; and (5) the extent to which noncompliance with the request would undermine important interests of the United States, or compliance with the request would undermine the important interests of the state where the information is located.4  Many courts, such as the Ninth Circuit in Richmark5   also considered the hardship that the producing party will face (including the likelihood that enforcement action will be taken as a result of non-compliance with the foreign law). 6

In applying Aerospatiale before adoption of the GDPR, U.S. courts have overwhelmingly held in favor of disclosure when litigants sought to withhold discovery covered by foreign data protection laws.

Finjan v. Zscaler

The first post-GDPR ruling out of the Northern District of California appears to follow this same (pre-GDPR) path.  In a recent patent infringement suit, Finjan, Inc. v. ZSCALER, Inc., the plaintiff sought discovery of emails from one of the defendant's employees who had previously worked for the plaintiff in the United Kingdom.  The defendant refused to produce the emails, citing the application of the GDPR as justification for withholding information that included personal data.  The court ultimately compelled disclosure of the emails, having found that taking all factors together the GDPR would not preclude the production of unredacted data.

Applying the five factor test, the Finjan court identified the following arguments in favor of disclosure:  the requested data was directly relevant to the infringement issue, it was narrowly identified, it was marked "highly confidential" and it would be produced pursuant to a protective order.  Additionally, the defendant's proposal that all personal data be redacted from the emails should not be considered an "alternative means of securing the information," since the information the plaintiff required included the personal data.

The court found that the key fifth element of the test (the balance of national interests) weighed heavily in favor of disclosure.  Under this factor, the court must "assess the interests of each nation in requiring or prohibiting disclosure, and determine whether disclosure would affect important substantive policies or interests...".7  Conducting this analysis, the Finjan court found that the United States had a strong interest in protecting U.S. patents, while noting the U.K.'s interest in protecting the privacy of its citizens.  But, based on the defendant's admission that "the GDPR permits 'the discovery of personal data to that which is objectively relevant to the issues being litigated,'" it expressed doubt that the U.K.'s interest was even implicated by the discovery request or that the production of the emails would violate the GDPR.8  Further, the court noted that the weight of the foreign privacy interest to be considered is "diminished where the court has entered a protective order preventing disclosure of the secret information."9

Finally, the court found that the defendant had failed to produce evidence that disclosure of the emails would lead to hardship or an enforcement action from an EU data protection supervisory authority for breach of the GDPR.

GDPR vs. U.S. Discovery?

Finjan indicates that the GDPR may not change U.S. courts' approach vis-a-vis conflicting disclosure requirements.  Moreover, where the GDPR is perceived as a barrier to disclosure, Finjan highlights the need for detailed advocacy to demonstrate the harm that would result from any non-compliance with the GDPR.

Does the GDPR preclude U.S. discovery?

  • There are no absolutes. The GDPR is not a blocking statute and was never intended to be used as such; its primary function is to protect the fundamental rights of EU data subjects.  As discovery of protected data falls within the GDPR's scope, the requested disclosure's effect on those rights will need to be assessed on a case-by-case basis.  While U.S. courts may be more likely to recognize the legitimacy of foreign legal requirements as bars to disclosure when it can be shown that the disclosing party would be penalized under applicable domestic law, they may still choose not to defer to foreign laws when the  disclosing party is facing penalties or criminal sanctions.
  • Consistent with Aerospatiale, the Sedona Conference for example advocates that "in a U.S. legal proceeding, courts and parties should demonstrate due respect to the Data Protection Laws of any foreign sovereign and the interests of any person who is subject to or benefits from such laws."10 Arguably, the GDPR's enhanced sanctions regime, emphasis on data subjects' rights, and restatement of the value placed upon data privacy across the EU, should be given due consideration by U.S. courts as part of their analysis.  It is evident that the GDPR, with penalties of up to €20 million or 4% of global, annual turnover, was also intended to demonstrate how seriously the EU is taking the protection of personal data. U.S. courts, however, may not give this general statutory standard weight absent a particularized showing of adverse consequences to the party seeking to avoid disclosure.

What does it take to demonstrate that the GDPR would be breached?

  • In order to make a GDPR-compliant disclosure in U.S. litigation, a party must establish a legal ground for the processing (set out in Articles 6 and 9 of the GDPR) and a means by which the transfer to the U.S. could be lawfully made.11 The GDPR may also impose additional obligations to ensure that data subjects are notified of the disclosure and to ensure that the disclosure is not incompatible with the purposes for which the data was originally collected.
  • In Finjan, the court suggested that the GDPR would not necessarily be violated if the disclosure "is objectively relevant to the issues being litigated." However, while such a finding is relevant to the five factor test, it does not render the disclosure automatically compliant with the GDPR.  Importantly, the European Data Protection Board ("EDPB")12 has confirmed that an order of a U.S. court is not itself a legal basis for a transfer to the U.S.13
  • Even if a transfer to the U.S. seems possible through reliance on the derogation under Article 49 of the GDPR that such transfer is "necessary for the establishment, exercise or defense of legal claims," the litigant would still need to pass the necessity test.14 Establishing necessity is a high bar under the GDPR, which in the context of litigation requires the finding of a "close and substantial connection between the data in question and the specific establishment, exercise or defense of the legal position."15  Furthermore, the establishment of a derogation under Article 49 does not absolve the data controller of its other obligations under the GDPR (which may be numerous).
  • An inability to comply with any or a combination of these requirements would allow the party to establish that the disclosure could not be made in compliance with the GDPR. Ultimately, it will be incumbent on the data controller to detail the various instances of noncompliance associated with the disclosure.

The likelihood of enforcement.

  • The more prolific and substantial the enforcement actions are, the more likely U.S. courts are to take note. The rate of enforcement actions by European data protection supervisory authorities will likely increase as authorities complete their processing of instances of noncompliance under the previous legislation.  Thus far, enforcement has not been focused on violations in the litigation context, but that does not mean that issues like those presented in Finjan are not equally important to European authorities.
  • Indeed, the increasing number of blockbuster fines issued or pending issuance by European data protection supervisory authorities certainly show a willingness to take advantage of the full force of the new administrative powers under the GDPR.16 Additionally, there are multiple investigations pending across the EU member states and data subjects are increasingly active in enforcing their rights.  Parties to U.S. litigation will do well to make sure that they follow the law and available guidance given the real possibility that European data protection supervisory authorities may take action against unlawful disclosures of personal data in connection with the discovery process.

Even absent eDiscovery-focused GDPR enforcement, the legislation has promoted the fundamental importance of data privacy to the EU, which should be kept in mind in an  Aerospatiale analysis of the "balance of national interests." Ultimately, however, litigants in U.S. courts must demonstrate the likelihood of enforcement action against them to win relief from discovery and US courts should take the reality of the demands placed on the parties by third country privacy regimes to be a serious burden.

Working Group 6 of The Sedona Conference,17 a nonprofit research and educational institute dedicated to the advanced study of law and policy in the areas of antitrust, intellectual property, and complex litigation, recognized the difficulty of navigating this tension between U.S. discovery obligations and foreign data protection laws early on and aims to provide a compass with its iconic International Principles on Discovery, Disclosure & Data Protection in Civil Litigation.18  The European data protection agencies took note of the Principles in their 2009 working Paper 158 on pre-trial discovery for cross border civil litigation,19 and US litigants have cited to it as persuasive authority,20 including the defendant in Finjan.21


1 For further analysis of the GDPR, see The General Data Protection Regulation: Key Changes and Implications, Cleary Gottlieb Alert Memorandum (May 13, 2016), https://www.clearygottlieb.com/-/media/organize-archive/cgsh/files/publication-pdfs/alert-memos/alert-memo-pdf-version-201650.pdf; GDPR Compliance: Tips for What Comes After May 25, Cleary Cybersecurity and Privacy Watch Blog Post (May 24, 2018), https://www.clearycyberwatch.com/2018/05/gdpr-compliance-tips-comes-may-25/.

2 Finjan, Inc. v. Zscaler, Inc., 2019 WL 618554, at *1 (N.D. Cal. Feb. 14, 2019).

3 Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Ct. for S. Dist. of Iowa, 482 U.S. 522, 539-40, 544 n.29 (1987).

4Aerospatiale, 482 U.S. at 544 (quoting the Restatement of Foreign Relations Law (Revised)).

5 Richmark Corp. v. Timber Falling Consultants, 959 F.2d 1468, 1475 (9th Cir. 1992) (citing Aerospatiale, 482 U.S. at 543-44. n.28).

6 See e.g., In re Xarelto (Rivaroxaban) Prod. Liab. Litig., 2016 WL 2855221 (E.D. La. May 16, 2016) (applying Aerospatiale's five step test); Grupo Petrotemex, S.A. De C.V. v. Polymetrix AG, 2019 WL 2241862 (D. Minn. May 24, 2019) (same); Henry Zoch II v. Daimler, A.G., 2017 WL 5177959, at *6 (E.D. Tex. Nov. 8, 2017) (same).

7 Finjan, 2019 WL 618554 at *3 (quoting Richmark., 959 F.2d at 1476).  The Third Restatement of Foreign Relations Law also highlights the importance of considering how disclosure would impact the interests of both governments.  Richmark, 959 F.2d at 1476 (citing Restatement (Third) of Foreign Relations Law § 442 comment c).

8 See infra note 15.

9 Id.

10 See Principle 1 of the Sedona Conference International Principles on Discovery, Disclosure & Data Protection in Civil Litigation, December 2011 (as amended in 2017).

11 In compliance with chapter 5 of the GDPR, which regulates transfers of personal data outside of the European Economic Area.

12 The EDPB is an independent body established by the GDPR composed of representatives of the national data protection authorities and the European Data Protection Supervisor, which can adopt general guidance on the GDPR and is also empowered to make binding decisions to ensure a consistent application of the GDPR.

13 See page 5 of the EDPB Guidelines 2/2018 on derogations of Article 49 under Regulation 2016/679, adopted on 25 May 2018.

14 See page 11 of the EDPB Guidelines 2/2018 on derogations of Article 49 under Regulation 2016/679, adopted on 25 May 2018.

15Id. at 12.

16 For example, the French Commission Nationale De L'Informatique et des Libertes (CNIL) handed down a €50 million fine against Google in January 2019 for failing to comply with the GDPR.  The UK's ICO issued notices of intention to impose fines on British Airways and the Marriott hotel chain of GBP 99.2 million and 183.4 million for data breaches.

17 https://thesedonaconference.org/

18 The Sedona Conference International Principles on Discovery, Disclosure & Data Protection in Civil Litigation (Transitional Edition), January 2017.

19 Working Document 1/2009 on pre-trial discovery for cross border civil litigation, p.6

20 See e.g. Knight Capital Partners Corp. v. Henkel AG & Co. KGaA, No. 2:16-cv-12022, 2017 WL 11373562 (E.D. Mich. July 7, 2017) (Plaintiff's Motion to Compel Defendant Henkel Ag & Co. KGaA's Full and Complete Responses to Plaintiff's First Set of Written Discovery Requests); 2017 WL 11373561 (E.D. Mich. Aug. 3, 2017) (Defendant Henkel AG & CO. KGaA's Amended Motion for a Protective Order); 2017 WL 11373564 (E.D. Mich. Aug. 17, 2017) (Defendant Plaintiff Knight Capital Partners' Response to Defendant Henkel Ag & Co. KGaA's Amended Motion for a Protective Order); In re: Automotive Parts Antitrust Litigation, Nos. 15-cv-12068, 12-md-02311, 2018 WL 3154060 (E.D. Mich. June 15, 2018) (Europe Ltd.'s Opposition to Direct Purchaser Plaintiffs' Motion to Compel Production of Unredacted Documents).

21 Finjan, Inc. v. Zscaler, Inc., No. 3:17-cv-06946, 2019 WL 665964 (N.D. Cal. Jan. 23, 2019) (Joint Letter Brief Regarding Finjan's Requests for Email Production from Zscaler)

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