On May 16, Hao Zhang, a Chinese university professor, was arrested upon entering the U.S. as one of six defendants charged with participating in a conspiracy to steal trade secrets and commit economic espionage against the United States. Their alleged goal was to set up a factory in the People’s Republic of China (PRC) that would develop and manufacture a series of high technology products that would have both civilian and military applications.

The 32-count indictment alleges that, with the financial support of the PRC and the PRC’s Tianjin University, in eastern China, the six conspirators established a shell corporation in the Cayman Islands, Novana, and a plant that could produce products from the information stolen from the U.S. entities. The conspirators had filed for patents in both the U.S. and PRC.

The two American companies at the center of their scheme were Avago Technologies (Avago), a California-based company, and Skyworks Solutions, Inc., based in Massachuetts. Avago is a leading designer, developer and supplier of a range of analog, digital and mixed signal products used in, e.g., cellular phones and tablets. The intellectual property allegedly stolen from Avago involved its patented Film Bulk Acoustic Resonators, known as FBAR.

FBARs filter incoming and outgoing wireless signals for a variety of wireless devices and advances in FBARS have played a key role in creating smaller, more efficient wireless devices.

Skyworks Solutions is a leader in high performance analog semiconductors which eliminate interference and improve wireless devices by filtering out incoming and outgoing wireless signals. Together, Avago and Skyworks have invested, according to the complaint, $50,000,000 in research and development in FBAR technology over the past 20 years.

Hao Zhang, a Chinese national who came to the US to attend graduate school at the University of Southern California in 2003, met a second conspirator in the scheme, Wei Pang, while at USC. The two did research and development on thin-film bulk acoustic resonator (FBAR) technology with funding from U.S. Defense Advanced Research Projects Agency (DARPA).

In 2005, Pang accepted employment as an FBAR engineer with Avago Technologies (Avago) in their Colorado offices and Zhang accepted employment as an FBAR engineer with Skyworks Solutions Inc. (Skyworks) in Massachusetts.  The stolen trade secrets alleged in the indictment belong to Avago or Skyworks.

They and their co-conspirators allegedly stole recipes, source code, specifications, presentations, design layouts and other documents marked as confidential and proprietary from the two companies and then proceeded to share the information with one another and with individuals working for Tianjin University.

The stolen trade secrets enabled Tianjin University to construct and equip an FBAR fabrication facility, to open ROFS Microsystems, and to obtain contracts for providing FBARs to commercial and military entities.

For American companies, the case highlights the critical importance of taking the necessary precautions to protect their trade secrets and confidential information.  Accordingly to the indictment, the conspirators were employed at Avago and Skyworks for four years working on technology with military application while at the same time working with Tianjin University and PRC officials pursuant to a business plan to steal data and replicate that technology in China. The indictment does not say what if any security measures were in place to try to prevent those activities or why the conspirators’ collaboration with Chinese authorities was not identified during their employment or for years after.  There are unanswered questions as well regarding why the conspirators were permitted to study that technology, under funding from a U.S. defense agency, at a prominent American University prior to employment at Avago and Skyworks.  One wonders what if any background checks or active monitoring of high risk employees was done.

Crowell & Moring’s experienced trade secrets attorneys and Public Policy Group are available to answer questions any questions you might have.