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Service Complicates DuPont’s Trade Secrets Beef Against Chinese Companies

A Ninth Circuit panel indicated Wednesday that it may block the federal government from serving criminal summonses on a group of Chinese iron and steel companies through their U.S. lawyers, for trying to pilfer trade secrets from DuPont.

SAN FRANCISCO (CN) — A Ninth Circuit panel indicated Wednesday that it may block the federal government from serving criminal summonses on a group of Chinese iron and steel companies through their U.S. lawyers, for trying to pilfer trade secrets from DuPont.

Ninth Circuit Judge Sandra Segal Ikuta agreed with the government’s position that it was proper to serve the Pangang Group Company and its subsidiaries through their attorneys at Quinn Emanuel Urquhart & Sullivan, which had made court appearances to contest service.

But Ninth Circuit Judge Richard Paez suggested that ruling for the government might dissuade attorneys from making special appearances.

Visiting Tenth Circuit Senior Judge Michael Murphy appeared to side with Paez, suggesting the court may issue a split decision in Pangan’s favor.

“If a lawyer comes in to court and says, ‘I move to quash; I'm only making a special appearance,’ boom, you got them,” Paez said at the hearing.

Federal prosecutors charged Pangang and two DuPont employees, three times between 2012 and 2017 with attempt and conspiracy to steal trade secrets for manufacture of chloride-route titanium oxide, the most widely used white pigment in paint, and in other products such as paper and plastics.

DuPont invented the chloride-route process for making titanium oxide in the late 1940s and since then has invested heavily in research and development to improve the production process. The global titanium dioxide market was valued at $13.2 billion in 2016, and DuPont has the largest share of the market.

At issue is whether the amended version of Federal Rule of Criminal Procedure 4 permits service of a criminal summons on a defendant’s attorney who specially appeared in earlier proceedings for the sole purpose of contesting service.

Pangang, partially owned by the People's Republic of China, sought under Rule 4 to quash service of the summonses, including the ones delivered to its lawyers at Quinn Emanuel.

The Department of Justice tried to serve Pangang through Quinn Emmanuel after U.S. District Judge Jeffrey White in Oakland, California granted Pangang's first motion to quash, and partly granted a second motion. White had found that the department served the wrong defendants and failed to satisfy Rule 4's mailing requirement.

Prompted by White’s rulings, prosecutors proposed amendments to Rule 4 to serve Quinn Emanuel. The amendments included removing the mailing requirement and providing a means of serving firms outside the United States, to “ensure organizations that are committing domestic offenses are not able to avoid liability through the simple expedient of declining to maintain an agent, place of business and mailing address within the United States.”

The amendments took effect in 2016, and a year later White denied Pangang's third motion to quash the summonses delivered to Quinn Emanuel. White found that Pangang had received notice of the summonses from the firm even if it did not receive the actual documents, rendering service proper.

Pangang appealed to the Ninth Circuit, seeking writ of mandamus directing White to vacate his ruling. The Ninth Circuit dismissed for lack of jurisdiction in November 2017 but allowed the petition to proceed.

On Wednesday, Quinn Emanuel attorney Kathleen Sullivan conceded that her firm’s special appearance constituted actual notice. But she insisted that actual notice was not sufficient under the new Rule 4 to provide proper service on Pangang.

Sullivan said that means of service must match or at least resemble the list of permissible means enumerated in Rule 4, such as delivery through an authorized agent or a request submitted under an international treaty.

She said service through Quinn Emanuel did not resemble anything on the list.

Judge Ikuta, however, said the language of the rule states that service may be made “by any other means that gives notice,” throwing Sullivan’s argument into question.

Sullivan then argued that refusing to grant her client’s petition will “destroy” special appearances.

“No attorney will ever come in and make a special appearance again at the risk he will be weaponized as evidence against his own client by the very fact of making a special appearance,” she said.

She accused prosecutors of running a “bait-and-switch,” and that Quinn Emanuel attorneys should be granted immunity because they made their first special appearance on Pangang’s behalf in 2012, before the rule was amended.

Department of Justice attorney Merry Jean Chan countered that Quinn Emanuel filed its third motion after the amendments took effect, and knew that making a special appearance in 2017 could result in an attempt at service.

“They didn't have to file a third motion,” Chan told the panel. “They did this with full knowledge of the consequences of Rule 4.”

The panel did not indicate when it will rule.

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