When trade secrets are used overseas: jurisdiction, securing evidence, and export controls

1. Checking use overseas and the locations of the other party, evidence, and assets

The first questions are who is doing what, and where. Whether the information is being used by a locally incorporated company or a business partner, and whether a former employee is involved, affect both the party against whom a claim is brought and the measures that can be effective.

Four locations are also identified separately: where the information was managed, where it is currently being used, the countries in which the evidence is located, and the countries in which the other party's assets are located. It is not unusual for these to differ. Where, for example, the evidence is in a third country, or use is taking place overseas but the other party's assets are in Japan, the combination of procedures to be used will differ.

The next step is to decide which requires urgent attention: stopping the use, securing evidence, or recovering loss. Where there is a risk that evidence may be deleted or transferred, preservation measures in the relevant country and consultations on criminal matters are considered in parallel, even before the prospects of a claim have become clear.

It is not appropriate to assess risk by the nationalities of those involved rather than by the nature of the information and its recipients. What is checked is the content of the information, who could access it, to whom it was provided, and what acts of transfer took place.

2. Considering claims under Japanese law and proceedings in Japanese courts

Japanese law may apply to conduct outside Japan

Article 19-3 of the Unfair Competition Prevention Act provides that the Act also applies where an act of unfair competition listed in Article 2, paragraph (1), item (iv), (v), (vii), or (viii) of the Act is committed outside Japan in relation to a trade secret that is managed in Japan and held by a trade secret holder conducting business in Japan. It provides, however, that this does not apply where the trade secret is used exclusively for business outside Japan.

The provisions covered are those of Chapter I (general provisions), Chapter II (claims for injunctive relief, damages, and related matters), and Chapter IV (miscellaneous provisions), in which Article 19-3 appears. They therefore include the provisions on claims for injunctive relief, damages, and presumptions of the amount of loss.

This provision applies where four conditions are met. First, the holder conducts business in Japan. Second, the trade secret is managed in Japan. Third, the conduct constitutes unfair competition listed in Article 2, paragraph (1), item (iv), (v), (vii), or (viii). Fourth, the trade secret is not used exclusively for business outside Japan. Article 2, paragraph (1), items (vi), (ix), and (x) are not covered, so it is not accurate to understand the provision as meaning that "Japanese law applies to any misuse overseas as long as it concerns a Japanese company's trade secret".

On the other hand, where this provision does not apply, it does not follow that all relief under Japanese law is unavailable. In that case, the law applicable under the Act on General Rules for Application of Laws and other relevant rules is examined according to the nature of the claim. For claims based on a confidentiality agreement or another contract, the contract's governing law clause is also checked separately. A contractual governing law clause does not automatically determine the law governing a claim against a competitor that is not a party to the contract.

Even where Article 19-3 applies, the requirements of the respective provisions on claims for injunctive relief and damages must still be met separately.

Whether proceedings can be brought in a Japanese court is checked separately

Three points are checked.

The first is whether the special rule in Article 19-2, paragraph (1) of the Unfair Competition Prevention Act can be used. That paragraph provides that, under the same conditions described above, an action against the person who engaged in the unfair competition may be filed with a Japanese court.

The second is whether, even if this special rule cannot be used, an action can be filed in Japan under the general jurisdiction rules based on matters such as the defendant's domicile or principal office or the place where the tort occurred, or under an agreement on jurisdiction between the parties. Where a contract contains an agreement on jurisdiction or an arbitration agreement, the checks concern not only its validity, but also whether it covers the other party and the dispute in question.

The third is that, even where a Japanese court has jurisdiction, the action may be dismissed if special circumstances are found in light of the nature of the case, the degree of burden on the defendant in responding to the action, the location of the evidence, and other circumstances (Article 3-9 of the Code of Civil Procedure). This point is also examined in cases where the evidence and the people concerned are predominantly overseas. However, an action filed on the basis of an agreement that permits proceedings to be brought only in Japanese courts is excluded from this provision. An agreement designating a foreign court raises a separate question.

Checking the time limits for claims

The prescription period for a claim for injunctive relief may run even while use overseas continues. Under the Unfair Competition Prevention Act, the right to claim injunctive relief against acts of using a trade secret is extinguished by prescription in two situations: where the person engaging in the conduct continues it and the holder whose business interests have been infringed, or are at risk of infringement, does not exercise the right for three years from the time it becomes aware of that fact and of the person engaging in the conduct; and where twenty years have passed from the time the conduct began. The three-year provision is subject to the condition that the conduct is continuing. Also, because this provision concerns the right to claim injunctive relief against acts of use, claims against disclosure or other conduct cannot all be included in the same explanation.

The Act further provides that damages cannot be claimed under it for loss caused by the use of the trade secret after this right to claim injunctive relief has been extinguished by prescription. For a claim for damages in respect of conduct before that extinguishment, prescription under the Civil Code is examined separately.

The twenty-year period starts when the wrongful use that is the subject of the claim began, which does not automatically coincide with the time when the information was acquired or taken. The three-year period starts when the holder became aware of the infringement and of the person engaging in the conduct. These facts may become known on the day the leak is discovered, but those two times do not always coincide.

In overseas matters, attention is also needed to the possibility of multiple time limits. The time limits for claims to be used in the relevant country are checked separately from those for claims under Japanese law. Keep a record of when use began and when the facts and the person engaging in the conduct became known. A general explanation of prescription is provided in the separate guide "Responding to the misuse of trade secrets by a competitor".

3. Considering how to secure evidence, stop use, and enforce judgments overseas

The measures are considered in parallel, according to the locations of the other party, evidence, and assets, and the urgency of the matter.

Measure and relevant body	Main purpose	Reach of the measure	Further checks and procedures needed
Civil claims in Japan / Japanese courts	Stopping use and recovering damages	Claims may also be considered in relation to use outside Japan where the requirements are met	The application of Japanese law and jurisdiction are checked separately. Compulsory enforcement abroad also requires local procedures
Obtaining evidence overseas / Japanese courts, the company itself, local courts, and others	Preserving and obtaining documents, logs, and testimony	Requests by a court, collection under the company's own investigative authority, and local evidence procedures are separate mechanisms	The locations of the evidence and those who control it, protection of secrets, data transfer restrictions, and the conditions for using each procedure are checked
Local civil proceedings / local courts	Stopping use, obtaining preservation measures, and recovering damages locally	Injunctive relief, interim measures, and other relief are sought under local law and jurisdiction	The measures available are checked for each country, together with the requirements for protection, urgency, security, and other matters. Trade secret status under Japanese law does not by itself determine the position
Local recognition and enforcement of a Japanese judgment / courts and other bodies where enforcement is sought	Recovery from assets outside Japan and related purposes	The judgment is given effect to the extent that local recognition and enforcement are permitted	Enforcement is not automatic. The treatment of money judgments and judgments granting injunctive relief, service, and other matters are checked
Consultations on criminal matters and criminal complaints / investigative authorities in Japan and the relevant country	Investigation and punishment of criminal offenses	Investigation and other action are requested in accordance with each country's requirements for criminal liability and provisions on offenses committed abroad	Investigations overseas are subject to constraints involving international cooperation and other matters. They do not replace civil injunctive relief or damages

Where stopping use locally is urgent

Where stopping use locally is urgent, the question is whether an application can be made for injunctive relief or interim measures under local law without waiting for a judgment in Japan. The scope of information protected and conduct subject to relief, the evidence required, the requirements as to urgency, whether security is required, and whether the other party must receive prior notice differ by country and procedure. Preservation of evidence and assets and the time limits for claims under local law are also checked. The mechanisms for protecting confidential information submitted to courts and other bodies also differ by country.

Three ways of obtaining evidence are considered separately

The first is a Japanese court's examination of evidence in a foreign country. Article 184, paragraph (1) of the Code of Civil Procedure provides that an examination of evidence to be conducted abroad must be carried out by requesting the competent government agency of that country, or the Japanese ambassador, minister, or consul stationed there, to examine the evidence. As Japan is not a party to the 1970 Hague Evidence Convention, the route provided by that Convention cannot be used. Japan is, however, a party to the 1954 Convention on Civil Procedure, which includes provisions on requests for the examination of evidence. The parties to that Convention differ from those to the 1970 Convention and do not include the United States or South Korea. The treaties and arrangements that can be used need to be checked for each country.

The second is the collection of materials by a company under its own investigative authority. The third is obtaining and preserving evidence through procedures in local courts. Their requirements and procedures differ, so they cannot be treated as the same thing.

Even where materials are held by an overseas subsidiary, the Japanese headquarters does not automatically have the right to inspect them freely or transfer them abroad. Investigative authority, local labor and personal information protection rules, and restrictions on providing information outside the country are checked. A parent-subsidiary relationship alone does not necessarily satisfy these conditions. Even if the materials cannot be transferred to Japan immediately, consideration is given to preserving them lawfully in the relevant country and then reviewing a limited set of materials. In some countries, remote access from abroad also needs to be examined.

Foreign judgments and Japanese judgments

Article 118 of the Code of Civil Procedure sets out the requirements for a final and binding judgment of a foreign court to have effect in Japan. This provision concerns recognition of a foreign judgment in Japan. Whether a Japanese judgment can be enforced abroad is determined by the system in the place where enforcement is sought. Care is needed not to confuse the two directions.

In practice, even a favorable judgment in Japan does not mean that use at a factory overseas will stop immediately. The intended outcome and where it is to be achieved are decided first, and Japanese and local procedures are then combined.

4. Considering criminal measures and export control issues in parallel

Criminal measures are discussed last, but this does not mean that action should be postponed. Where there are concerns about the loss of evidence or continued misuse, they are considered in parallel, even before the prospects of civil claims have become clear.

Criminal and civil matters require separate assessments

The Unfair Competition Prevention Act contains penal provisions, including provisions concerning conduct outside Japan. However, the conditions examined for the special civil rules cannot simply be applied as the requirements for criminal liability. It is not appropriate to import into the requirements for criminal penalties the civil limitations that the trade secret must be managed in Japan and must not be used exclusively for business outside Japan.

Nor does the fact that information was used overseas by itself establish a criminal offense. The conduct constituting each offense, who can commit it, the purpose, and the other requirements are examined. Whether the penal provisions apply and whether evidence can be obtained or a person taken into custody overseas are also separate questions. Filing a criminal complaint does not mean that use overseas will stop.

Export control checks

The provision of technical information may require checks under the Foreign Exchange and Foreign Trade Act. Article 25 of the Act requires permission from the Minister of Economy, Trade and Industry for transactions intended to provide certain technology in a foreign country and other specified transactions. It also provides that an obligation to obtain permission may be imposed on exports of recording media and similar items, and on the transmission of information by telecommunications.

The following three points are useful for readers.

First, the checks concern not only provision outside Japan, but also provision to non-residents within Japan. Resident status is determined under the Foreign Exchange and Foreign Trade Act, rather than by nationality itself.

Second, the theft of information and the holder company's own provision of it without permission are separate matters. There may be additional matters that the company, as the victim, needs to check.

Third, sending technical materials to lawyers or experts located overseas may also require export control checks. The fact that the materials are "for litigation" or that "a confidentiality agreement is in place" does not by itself mean that permission is unnecessary.

Transactions that do not require permission are listed by ministerial ordinance. They include the provision of publicly known technology, the provision of technology in research activities in the field of basic science, and the provision of the minimum technology necessary for an application for or registration of industrial property rights. The scope of the technology covered, the recipients and manner of provision, and the circumstances in which permission is not required need to be checked against Cabinet Orders, ministerial ordinances, and how the competent authorities apply them. How to address any problems concerning the past provision of technology is also examined.

Effects on the business and business partners

The effects on the company's sales and supply while use overseas continues are set out. The effectiveness of local injunctive relief, the effects on the supply chain, and what to explain to business partners and when are assessed together with the choice of procedures.

How we assist

• We set out how the information is being used, the countries involved, and the locations of evidence and assets, and examine which measures require urgent attention
• We examine separately whether claims can be brought under Japanese law and whether proceedings can be brought in Japanese courts
• We check the time limits for claims and examine how to address prescription
• Where necessary, we organize the matters to be checked with local lawyers and the materials to be provided, and coordinate the approach in Japan and abroad (representation in litigation under local law is handled by lawyers who hold the qualifications and authority required in that country)
• We prepare notices, conduct negotiations, and handle provisional disposition proceedings and litigation in Japan
• We examine whether and when criminal measures are needed, and set out the matters to be checked for export control purposes

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Intellectual property, IT and data: overview

Individual guides, according to the situation, on disputes over rights, the removal of trade secrets, and system development and the management of data.

Responding to the misuse of trade secrets by a competitor

Where a company's trade secrets are suspected of being used at a competitor: how use can be checked, against whom a claim is brought, injunctive relief and damages, provisional disposition proceedings and litigation, and the position where criminal proceedings run in parallel.

Intellectual property, IT and data (practice areas)

Our practice areas covering the acquisition and use of intellectual property rights and responding to infringement, contracts relating to IT and systems, and the handling of data.

This article is provided for general informational purposes only and does not constitute legal advice on any specific matter. Please consult us regarding your specific situation. The content is based on the laws and regulations in effect as of the date of the last update.