In an indictment unsealed last week, the U.S. Department of Justice charged two companies – one based in China and the other in Taiwan – as well as three individuals, with trade secret theft, conspiracy to commit trade secret theft, economic espionage, and other related crimes. These charges are the latest in a recent string of similar prosecutions, as U.S. officials have sought to combat the threat of Chinese economic espionage against American technology companies, defense contractors, and other entities.

The indictment claims that defendants stole trade secrets from U.S.-based Micron Technologies, Inc., relating to the research and development of dynamic random-access memory (DRAM), a technology used to store data in electronic devices. DRAM had been identified by the Department of Commerce as an “essential component of U.S. military systems.” According to the indictment, the People’s Republic of China (PRC) has “publicly identified the development of DRAM technology as a national economic priority because PRC companies had not been able to develop technologically advanced DRAM production capabilities, and PRC electronics manufacturers relied on producers outside the PRC to supply DRAM.”

The indictment claims that United Microelectronics Corporation (UMC) (a semiconductor company headquartered in Taiwan) and Fujian Jinhua Integrated Circuit, Co., Ltd. (a PRC-funded company dedicated to the development and manufacture of DRAM) entered into a technology cooperation agreement to develop DRAM for a product described as “32nm and 32Snm DRAM.” The companies subsequently recruited three former Micron employees, including the former head and two former employees of Micron’s Taiwan subsidiary responsible for making DRAM, all of whom left Micron to work for UMC in 2015 and/or 2016. The indictment further claims that prior to leaving Micron, the former employees downloaded and took Micron information pertaining to at least eight different trade secrets, totaling nearly 1,000 files.

According to the indictment, the defendants used the numerous Micron trade secrets to “advance the development of UMC’s F32 DRAM technology,” including filing five patents and a patent application concerning DRAM technology that “contained information that was the same or very similar to technology described in Micron’s trade secrets.”

The indictment follows the recent addition of Jinhua to the Department of Commerce’s “Entity List,” which the Secretary of Commerce stated will limit Jinhua’s “ability to threaten the supply chain for essential components in our military systems.” Notably, the DOJ also filed a civil action seeking an injunction preventing UMC and Jinhua from exporting, selling, or importing to the U.S. any product containing DRAM manufactured by either Jinhua or UMC.

The indictment is the fourth case brought by the DOJ relating to Chinese economic espionage in the last three months. The three other cases are the following:

  • Charges against ten defendants working for the Jiangsu Ministry of State Security (JSSD), alleging conspiracy to steal information from U.S. and European defense contractors relating to aerospace technology (Oct. 30, 2018);
  • Charges against Ji Chaoqun, a Chicago resident, for allegedly assisting JSSD to recruit U.S. engineers and scientists, including U.S. defense contractors (Sept. 25, 2018); and
  • Charges against Xiaoqing Zheng, a GE engineer residing in New York, alleging theft of GE trade secrets relating to turbine technology (Aug. 1, 2018).

In noting that Chinese economic espionage against the U.S. is “increasing rapidly,” Attorney General Sessions has announced a new initiative dedicated to curtailing Chinese theft of U.S. trade secrets. A video of the DOJ’s announcement of the indictment is available here. The flurry of recent activity clearly demonstrates that the DOJ is continuing to increase its policing efforts.

In July 2018, U.S. District Judge James Patterson imposed a $59 million penalty against China’s largest wind-turbine firm, Sinovel Wind Group LLC (“Sinovel”), for stealing trade secrets from a Massachusetts-based technology company, American Superconductor Inc. (“AMSC”). This fine was imposed as restitution to the American company, AMSC, after Sinovel was found guilty of stealing trade secrets in federal criminal court in January 2018. At trial, the court found that AMSC’s losses from the theft exceeded $550 million. The ordeal left AMSC in perilous financial shape. The U.S. Department of Justice said that the company lost more than $1 billion in shareholder equity and 700 jobs. Because of the severity behind Sinovel’s theft, the court ordered Sinovel to pay $1.5 million in fines and $57.5 million in restitution, and the company was put on probation for one year. The parties reached a settlement with Sinovel, which it agreed to pay the $57.5 million in restitution.

Acting Assistant Attorney General Cronan stated, “[a]s demonstrated by this prosecution, intellectual property theft poses a serious threat to American companies, and the Department of Justice is committed to aggressively investigating and prosecuting individuals and corporations who undermine American competitiveness by stealing what they did not themselves create.” This case further affirms the United States’ commitment to prosecuting the theft of intellectual property through criminal and civil penalties.

Those who perpetrated the thefts live abroad. One has been successfully prosecuted in Austria. U.S. charges are still pending against him, as well as two others who live in China.

On June 14, 2018, six former and current Fitbit employees were indicted in the Northern District of California for alleged federal trade secrets offenses. The individuals are accused of either stealing market research regarding fitness tracker opportunities from Jawbone, or stealing internal studies – including a comparison study of consumer behavior in which consumers wore both Jawbone and Fitbit devices. The employees are charged with felony Possession of Stolen Trade Secrets (18 USC §1832(a)(3)), for which the maximum sentence is 10 years in prison.

This indictment is interesting because in 2015 Jawbone sued Fitbit, including these same individuals, for “systematically plundering” trade secrets, including over 300,000 confidential files. After a nine-day trial, the International Trade Commission (ITC) ruled in favor of Fitbit and the individuals. The federal administrative law judge determined on the merits that no Jawbone trade secrets were misappropriated or used in any Fitbit product. Nevertheless, U.S. federal prosecutors decided to move forward with a criminal prosecution. The indictment states that the defendants received confidential documents “knowing them to have been stolen and appropriated, obtained, and converted without authorization…for the economic benefit of someone other than Jawbone.”

This criminal case is worth following to see how it unfolds in light of the findings in the ITC proceeding.

On January 18, 2018, a former software developer for IBM Corp. was sentenced to five years in prison after he had pleaded guilty of theft of a trade secret and economic espionage.  As part of his work for IBM, Xu Jiaquiang had access to proprietary source code which facilitates faster computer performance by coordinating work among multiple servers.  Despite IBM’s precautions in place to protect the secrecy of the code, including a firewall and express authorization required for any employee to obtain access, Xu stole and used portions of the code as part of an attempt to sell the code to undercover FBI agents.

Xu pleaded guilty to the charges on May 19, 2017.  The Department of Justice’s press release from that same day provides further details regarding the circumstances of the FBI’s investigation and the allegations against Xu.  That press release is publicly available here.

“Ex-DuPont Worker Wins Discovery Stay In Trade Secrets Suit,” an article published earlier today by Law360, cites Crowell & Moring Partner, Mike Songer, as DuPont’s counsel in E.I. du Pont de Nemours and Co. v. Anchi Hou et al., 1:17-cv-00224 (D. Del). The case involves both a civil proceeding and a related criminal case, and the different strategies available in discovery in these situations. Click here to read more about this trade secrets case, involving alleged theft of the company’s printing plate technology.

In a press release last week, the U.S. Justice Department announced charges against a group of international conspirators for allegedly stealing trade secrets from an unidentified Houston company. Those charged include four U.S. citizens, two Chinese nationals, and a Canadian national. The beneficiary of the alleged theft appears to be a China-based company with funding from the Chinese government.

The trade secrets at issue concern a product known as “syntactic foam” – a material used in underwater military equipment (e.g. submarines) and other under water vehicles.  Sources report that the syntactic foam is rare, with only a handful of companies worldwide manufacturing the material.  Those same sources report high barriers to market entry: new market entrants need significant resources to develop the intellectual capital and technology to produce the foam. Here, the plot’s conspirators figured it easier to just steal the trade secrets. Continue Reading U.S. Justice Department Announces Charges Against International Conspirators For Stealing Trade Secrets to Benefit China-based Company

Fig cookiesThe Criminal Court of Mechelen (Belgium) ruled in favor of Bofin Biscuits against a former production assistant accused of having stolen the assistant director of the cookie baker’s laptop. The laptop allegedly contained the secret recipes of all the cookies produced by Bofin Biscuits. This case is interesting because of the nature of the secrets and also when compared to that of the “fig spread”-case discussed here two weeks ago. It also confirms that trade secret misappropriation cases do not necessary only involve complex matters on state of the art technology owned by large multinationals.

The facts of the case are rather straight-forward. On November 12, 2013 the assistant-director of Bofin Biscuits noticed that his laptop had gone missing during his absence from November 6 to November 11. Images from the surveillance video system of Bofin Biscuits showed that the actual taking of the laptop had not been filmed. The camera hanging outside the assistant-director’s office did show a production assistant walking down the hallway where the office was located, entering it and leaving with something clearly hidden under his coat. During the trial the production-assistant did not contradict that he was the person that had been filmed, but he denied that he had taken the laptop. When asked what he then was hiding under his coat, he claimed not to recall anything.

For the public prosecutor this was a clear cut case and he requested the court to sentence the former production assistant to a six month effective prison sentence and a 4.800 EUR fine. Bofin Biscuits, who had joined the proceedings by suing its now ex-employee for civil injury, requested 1.500 EUR for the still missing laptop, 2.500 EUR for the time spent on recovering the information stored on the laptop, 500 EUR moral damages and a provisional damages amount of 25.000 EUR for having stolen the secret cookie recipes.

Continue Reading Employee Who Stole the Cookie Recipe From the Cookie Jar Fined €1 (Yes, that’s one single Euro)

On July 5, 2016, the Ninth Circuit affirmed the conviction of David Nosal, an ex-employee of Korn/Ferry, an executive search firm, who left to start a competing firm. With Nosal’s knowledge and encouragement, two other former employees of Korn/Ferry used a current employee’s credentials to gain access to the Korn/Ferry database and take confidential information. U.S. v. Nosal, No. 14-10037, 2016 WL 3608752 at 6 (9th Cir. July 5, 2016).

The prosecutors charged Nosal with violating section 1030 (a)(4) of the Computer Fraud and Abuse Act (“CFAA”), which criminalizes “knowingly and with intent to defraud, access[ing] a protected computer without authorization, or exceed[ing]authorized access, and by means of such conduct further[ing] the intended fraud and obtain[ing] anything of value.”1 Having failed to state an offense that Nosal “exceeded authorized access” by violating the company’s internal use restrictions (decided in Nosal I), the government filed a superseding indictment alleging Nosal violated the “without authorization” prong of the CFAA after his login credentials were revoked through his co-conspirators’ use of his former executive assistant’s login information to access Korn/Ferry’s database.

The jury convicted Nosal on all counts. On appeal, the Ninth Circuit analyzed the meaning of the words “without authorization.” The Court held that the phrase was unambiguous and its plain meaning encompassed the situation in this case where the employer rescinded permission to access a computer and the defendant accessed the computer anyway.

Continue Reading United States v. Nosal: Keep Your Friends Close, but Your Passwords Even Closer

Companies sometimes discover warning signs or clear activity of trade secret theft but do not know how to deal with the issue right away.  Whether it is a current employee who remotely accesses company trade secret information while on vacation, or a departing employee who conveniently failed to return a company laptop, that company may be heading toward eventual trade secret litigation. But the immediate path forward seems unclear and presents so many options of what to do. Because the hours and days after discovery of a potential trade secret theft are extremely important, we suggest a simple set of best practices for responding to that potential trade secret theft: 1) understand the issue, 2) contain the issue, 3) exhaust the issue, and 4) consider bringing the issue to court.

Continue Reading Best Practices for Responding to Potential Trade Secret Theft

Late last month, the U.S. Attorney’s Office for the Eastern District of Pennsylvania announced the indictments of GlaxoSmithKline (GSK) scientists Yu Xue and Lucy Xi, as well as three of their associates for trade secrets theft, wire fraud, and conspiracies to commit both crimes. The indictment accuses the scientists of transmitting proprietary GSK data to their associates and co-conspirators at a Chinese startup called Renopharma, a firm that focuses on providing products and services to support drug discovery programs.

The allegedly misappropriated data relates to research into monoclonal antibody treatment for cancer which, if brought to market, “should represent [a] ‘bio-better and bio-superior’ system in comparison to existing competitors,” according to GSK documents cited in the indictment. The government alleges that Ms. Xue, Ms. Xi, and their associates hoped to profit from the data by virtue of their ownership interests in Renopharma. Ms. Xue is quoted in the indictment via email, stating that she “ha[s] absolute control of [the] company” with ownership of “the highest stock share which is 30%.”

The charges against Ms. Xue and Ms. Xi come on the heels of an earlier high profile case investigated by the same FBI agent and brought by the same Philadelphia U.S. Attorney’s Office against a Chinese naturalized American. In that case, the U.S. Attorney charged Dr. Xi Xiaoxing Continue Reading Chinese Scientists Accused of Trade Secret Theft in Recent DOJ Indictment