Cases from Economic Espionage Act

United States v. Liew et al.
United States District Court for the Northern District of California
Federal prosecutors indict a state-owned Chinese company and its executive on charges of conspiracy to steal DuPont’s trade secrets

On February 7, 2012, in a rare action, federal prosecutors indicted Pangang Group Limited Company (“Pangang”), a state-owned steel manufacturer in China, and a Pangang executive on charges of conspiracy to steal DuPont’s trade secrets about titanium dioxide technology in violation of the Economic Espionage Act (EEA), 18 U.S.C. §1831 et seq. This indictment supercedes a 2011 indictment in which federal prosecutors originally charged Californians Walter and Christina Liew with witness tampering and making false statements in a federal criminal investigation into the alleged trade secrets theft. DuPont is the world’s largest manufacturer of chloride-route titanium dioxide, a white pigment used in paint, plastics and paper, and defendants allegedly made a “long-running effort” to obtain DuPont’s trade secrets about the process to benefit Chinese companies. Arraignment is scheduled for March 1, 2012.

United States v. Liew
United States District Court for the Northern District of California
Man sentenced for theft of Trade Secrets from DuPont

Walter Liew was sentenced to 15 years in prison, and fined $28 million following his conviction under the Economic Espionage Act. The conviction arose from the theft of trade secrets from DuPont, particularly information and documents pertaining to the production process of a white pigment, titanium dioxide (TiO2). The pigment is what DuPont uses to achieve its whitest whites in everything from cars to paper.

Judge White, writing in the Northern District of California on a post-conviction motion for acquittal, explained that the evidence demonstrating the intent to injure Dupont, and intent to benefit a foreign government was sufficient for a rational juror to find Liew guilty. It was also noted that the money was tracked to various accounts in Singapore and China, but could not be recovered.

Trust Company of the West vs. DoubleLine Funds Trust et al.
Superior Court of California
TCW and Gundlach settle their dispute over allegedly stolen trade secrets

TCW Group Inc. and Jeffrey Gundlach, its former chief investment officer, announced on Thursday, December 29, 2011, that they had settled a lawsuit over Gundlach’s firing in 2009 and allegations he stole trade secrets to set up his own firm. The terms of the settlement agreement were said to be confidential and the parties would not discuss them. Litigation and damages assessments had not concluded at the time of the settlement, but a jury had previously made preliminary findings.

On August 20, 2011, after seven weeks of trial and two days of deliberation, the California jury in the case between TCW and Jeffrey Gundlach, a former employee, concluded that Mr. Gundlach did technically misappropriate trade secrets and breach his fiduciary duty to the company. But the jury awarded his former employer nothing in damages, finding that Mr. Gundlach’s breach of duty had caused no harm to his former employer. The jury also found that Mr. Gundlach had intentionally interfered with contracts, but that TCW had not been harmed; they awarded no damages on that issue, either.

However, the jury determined TCW had withheld wages from Mr. Gundlach in violation of the state labor code, and found TCW liable to Gundlach for nearly $67 million in back-pay.

TCW may yet recover damages on the trade secrets count; damages for the jury’s finding of misappropriation will be determined by Judge West. TCW is seeking about $89 million for the trade secrets theft. However, the jury’s determination that the theft had not been willful and malicious ruled out an award of punitive damages.

TCW had filed an amended complaint for misappropriation of trade secrets, conspiracy and aiding and abetting in the theft of trade secrets, and common law unfair competition, among other claims, on February 09, 2011. The amended complaint followed a January rejection by Judge West of TCW's claims that the DoubleLine Fund Trust and its trustees had stolen trade secrets and engaged in unfair competition, saying the firm had failed to state a factual basis to support the allegations in its complaint.

TCW's first complaint in this action came nearly a year after the company originally sued Gundlach for breach of fiduciary duty, unfair competition, misappropriation of trade secrets and civil conspiracy, among other claims. Gundlach was TCW's former investment chief who launched DoubleLine Capital LP after being fired from TCW in December 2009.

The second lawsuit targeted a trust associated with Gundlach's investment firm. Like the previous suit, the second complaint claimed that Gundlach worked to steal TCW's data, including contact and holdings data for clients. If printed out, the allegedly stolen information would amount to roughly 9 million pages, according to TCW's suit. The trustees are also named in the second suit based on allegations that they knew that Gundlach and his co-conspirators had stolen confidential, proprietary information from TCW and that DoubleLine would use that material to manage the trust's mutual funds. The complaint included allegations of misappropriation of trade secrets, unfair competition, conspiracy to steal trade secrets, unjust enrichment and other related state law claims.

United States v. Qin et al.
United States District Court for the Eastern District of Michigan, Southern Division
Couple indicted in Michigan District Court faces trial for theft of General Motors trade secrets

Over the last several years, the United States government has increased its criminal enforcement efforts to protect American trade secrets from foreign nations. In a prime example, a July 2010 Grand Jury in the US District Court for the Eastern District Michigan handed down an indictment against a Michigan couple Yu Qin (Chin) and Shanshan (Shannon) Du for Unlawful Possession of Trade Secrets in violation of the Economic Espionage Act (EEA) [18 U.S.C. §1832(a)(3), (a)(5)]. In this matter, the federal government accused the defendant couple of theft and conspiracy to gain economically from the theft of thousands of General Motors electronic documents pertaining to proprietary electric engine components.

The 2010 indictment outlines a detailed and calculated business tactic wherein former GM employee Shannon Du allegedly requested at one time to be repositioned to work within the hybrid motor control systems division of GM, gaining access to secret GM documents and information. Simultaneously, Du’s husband and co-defendant Yu Chin worked for an electrical power equipment manufacturing company, while also establishing several international and domestic joint ventures, including “Millenium Technology International, Inc. (MTI) that aimed to engage in the business of power electronics. Yu Chin allegedly utilized information gained from thousands of proprietary and trade secret GM documents stolen by his wife and co-defendant Du on portable electronic storage device, in order to “seek employment in the hybrid vehicle area promote himself by referencing capabilities directly related to the GM trade secret information.” (Complaint).

Importantly, the text of 18 U.S.C. §1832 makes criminal any attempt or conspiracy to knowingly engage in the theft of trade secrets. Furthermore, this section of the EEA is underscored by its economic justifications, requiring that any misappropriated trade secret be produced for or placed in interstate commerce to garner protection. The July 2010 indictment indicates that Yu Chin utilized an electronic storage devices and email to upload and transfer particular GM confidential documents, including a “ GM trade secret computerized model that simulates and assesses hybrid motor control.” The co-conspiracy is highlighted in the alleged venture between the co-defendants MTI business in a new venture to provide hybrid vehicle technology to “Chery Automobile,” a Chinese automotive company and GM competitor.

Also outlined in the July 2012 Indictment were claims against both defendants under 18 U.S.C. §1512(c)(1) for obstruction of justice, for allegedly unloaded large garbage bags full of shredded proprietary GM documents into a dumpster behind a grocery store, after preliminary investigative interviews by the FBI.

In September 2011 both parties entered into a stipulated protective order pursuant to 18 U.S.C. §1835 (orders to preserve confidentiality), outlining a particularized format for viewing confidential GM materials during discovery. This is a common and important practice utilized by government in EEA prosecutions, aligning the US government's socioeconomic policy concerns with GM's objectives in protecting proprietary GM information at the heart of their stake in the international automobile industry.

After the exchange of several pretrial motions and replies, the trial of co-defendants Qin and Du commenced on October 30 under Honorable Marianne O. Battani, and is expected to last for several weeks.

In its most recent motion, the prosecution on Nov. 1 requested an order precluding the defense from cross-examining Robert Gragg, a US Attorney’s Office computer forensic examiner. This request comes after the defense informed the prosecution via email of their knowledge of Gragg’s purported destroying of computer evidence in a separate civil matter involving GM. While not uncommon and likely granted, if said application is denied, cross-examination of Gragg could potentially call into question some digital evidence relied upon by the United States here.

United States v. Huang
United States District Court for the Southern District of Indiana
Canadian national residing in US pleads guilty to trade secret theft and transfer to China and Germany; Sentenced to 87 months in prison

Defendant Kexue Huang pled guilty at an October plea hearing in a high-profile criminal trade secrets misappropriation case in the United States District Court for the Southern District of Indiana. Huang, a Canadian national permanently living in the United States, was charged with illegally exporting $300 million worth of trade secrets to China and Germany through an intermediary. Huang was sentenced to 7 years and 3 months in prison on December 21, 2011.

The case was particularly interesting because it dealt explicitly with the prong of the Economic Espionage Act that criminalizes stealing trade secrets for the benefit of a foreign government. This provision has been very seldom used since the law was passed in 1996, but its use in prosecutions is on the rise.

18 U.S.C. §1831(a) provides that individuals or organizations that, while “intending or knowing that the offense will benefit any foreign government,” steal, copy, or otherwise appropriate any trade secret or attempt to do so may be fined for up to $500,000, imprisoned for up to 15 years, or both.

The charges concerned trade secrets related to a commercial insecticide developed by Dow Chemical Co. in Indiana, where Huang worked from 2003 to 2008 until he was fired. In addition, some related to trade secrets owned by grain distributor Cargill, Inc., where Huang went to work as a biotechnologist in 2008. At the plea hearing, Huang admitted he stole a key component of a new Cargill food product and gave it to a student at Hunan Normal University in China.

Huang, while charged with 12 counts of economic espionage to benefit a foreign government or instrumentality and 5 counts of interstate or foreign transportation of stolen property, only pled guilty to one count of stealing trade secrets from Cargill and one count of engaging in economic espionage at Dow.

United States v. Aleynikov
Southern District of New York
Conviction of former Goldman Sachs programmer for trade secrets theft is reversed by the Second Circuit

In 2011, Sergey Aleynikov was sentenced to more than eight years in prison for the theft of trade secrets under the Economic Espionage Act and transportation of stolen property in interstate commerce under the National Stolen Property Act (NSPA). This case marked the first instance of federal prosecutors using the Economic Espionage Act (EEA) to police the misuse of source code related to high frequency trading. The trade secrets at issue are segments of computer source code from Goldman Sachs & Co. (Goldman) that are used in its high frequency trading platform.

In February 2012, the court reversed Aleynikov's conviction of trade secrets theft in a one-page order. In an opinion published April 11, 2012, the Second Circuit held that Sergey Aleynikov was wrongly charged with theft of property because the code did not qualify as a physical object under a federal theft statute. The court held that "because Aleynikov did not ‘assume physical control’ over anything when he took the source code, and because he did not thereby ‘deprive [Goldman] of its use,’ Aleynikov did not violate the [National Stolen Property Act]." It also ruled that Aleynikov was wrongly charged with espionage, since the code was not a product designed for interstate or foreign commerce. The decision called into question the government's ability to prosecute theft of internal trading systems or other internal financial instruments under the Economic Espionage Act.

USA v. Jin
U.S. District Court for the Northern District of Illinois.
Court Imposes Four-Year Prison Sentence on Ex-Motorola Employee Caught with Trade Secrets and a One-Way Ticket to China

In 2008, Jin was indicted on charges relating to the alleged theft of Motorola’s Trade Secrets. She was recently found guilty, and on August 29, 2012, sentenced to four-years imprisonment.

Jin began working as a software engineer at Motorola beginning in 1998. In February 2006, Jin took medical leave, during which time she accepted employment with Chinese competitor Sun Kaisens. After accepting employment, Jin allegedly returned to work to Motorola under false pretenses: She planned to take her former employer’s technical documents and other confidential, proprietary information on a one-way ticket to her new employer in China. However, Jin was searched at the airport and arrested before she could board her flight. Police recovered over 1,000 electronic and paper documents for her person.

Although U.S. District Judge Ruben Castillo acquitted Jin on espionage charges, she was found guilty of stealing Motorola’s Trade Secrets pursuant to the EEA. Jin’s lawyers argued in favor of a probationary sentence; however, prosecutors recommended a sentence of 70 to 96 months, arguing that Jin’s conduct justified a substantial sentence of imprisonment report. This was actually below the 121-151 month sentencing range set forth in the Pre-Sentence Investigative Report, as it accounted for Jin’s allegedly failing health. The four-year prison sentence -- although less than the government’s recommendation – nonetheless evidences courts’ increasing awareness of the importance of trade secrets to modern companies, and the devastating consequences of their theft.

USA v. Huang
United States District Court for the Western District of North Carolina
Huang Pleads Guilty to Theft of Trade Secrets

On October 1, 2015, Chinese businessman, Xiwen Huang, pled guilty to theft of trade secrets under 18 U.S.C. 1835(a)(2). According to the Bill of Information, between September 2006 and May 2015, Huang "schemed and stole trade secrets from companies within the United States and intellectual property from the United States government...to further his aspirations of forming and operating his own company in the People's Republic of China." Huang received his Bachelor's of Science and Masters Degrees in chemical engineering from Tianjian University in China, and then came to the United States to obtain a doctorate in chemical engineering from Auburn University. According to the Bill of Information, while an undergraduate student, Huang wrote that he "'had a dream of learning more advanced technology to serve [his] homeland' China and decided that to 'fulfill [his] wish' he needed to go abroad and then 'return to China with [his] newly acquired methodology and research skills to teach in China.'"

In 2009, Huang became a naturalized citizen of the United States. Huang worked for numerous companies in the United States as well as a research facility operated by the United States government. Beginning in 2012, Huang incorporated a company in North Carolina and began negotiating with various Chinese companies to bring the technology he learned back to China. Huang engaged in a joint venture arrangement with a Chinese company where Huang was responsible for providing the technology, including the stolen United States intellectual property, and the Chinese company was responsible for supplying the necessary capital. In April of 2014 Huang moved back to China to work for the newly created company, taking stolen confidential and proprietary information with him. Upon attaining his previously stated goals, Huang wrote a document titled, "Trip of Dream Realization" in which he described his "scheming" and "planning" to steal United States Intellectual Property. Huang also stated that "As the main thrust during [China's] development, it is necessary and obligatory for our generation to fulfill our share of responsibility in contributing towards the societal progress of China." Huang was arrested in May of 2015 when he returned to the United States.

The stolen trade secrets are valued between $65 million and $150 million. During the plea agreement hearing, "prosecutors revealed that Huang has also agreed to now help the U.S. government," though Huang's attorneys would not comment on how Huang will help.