NEW YORK (
) -- As intellectual property becomes an ever-sharper point of contention in U.S.-Chinese relations, federal authorities are ramping up their efforts to combat economic espionage and trade-secret theft by Chinese nationals.
, dozens of U.S. companies have become embroiled in cases where employees have allegedy purloined top-secret business data -- either by insiders or cyber-attack -- and provided it to Chinese competitors.
Perhaps more than other Western nations, the U.S. has aggressively prosecuted cases of Chinese industrial espionage. In recent years, athorities here have been intensifying their efforts. "There's been a lot of pressure from business and from the defense communities, both in the government and at contractors, that this is a problem," says Sean Noonan, an analyst at Stratfor, a firm that provides research and analysis on geopolitical issues.
U.S. attorneys have filed at least eight trade-secret or industrial espionage cases related to China since 2008, more than the previous seven years combined. Those cases include both charges against individuals for intellectual property theft, as well as the more serious "economic espionage," which the law describes as industrial spying for the "benefit of a foreign government."
According to a report released by the Obama administration Monday, don't expect the flurry of investigations to slow down.
, which detailed the federal government's intellectual property enforcement efforts in 2010, China loomed large.
"Over the last six months, we have heard repeated concerns about enforcement of patents and trade secrets, particularly in China," the report read. "This year, DOJ and the Federal Bureau of Investigation (FBI) have increased their investigations and prosecutions of corporate and state-sponsored trade secret theft."
Prepared by President Obama's "intellectual-property czar," a post he created just after he took office, the report said that the FBI will send a specialist agent to China later this year, charged with smoking out the illicit appropriation of intellectual property. Since September, the Department of Homeland Security's investigative arm has had a designated agent stationed in Guangzhou working on trade-secret issues. And, in October, Attorney General Eric Holder made his visit to Beijing, specifically to hammer home U.S. worries about misappropriated intellectual property.
When trade-secret spying crosses over from the purely corporate -- one company stealing from another -- to the level of state-sponsored intelligence, that's when it becomes "economic espionage." Just seven of those cases have been filed since the statute -- known as 18 USC 1831 -- went on the books in 1997. Four of those investigations resulted in cases filed since 2008.
Chinese government agencies are known to take an active role in organizing the theft of trade secrets from foreign corporations with coveted technologies, the
reported in a story on industrial espionage earlier this month. A high-profile case of technology theft in France, at the carmaker
, is thought by some to be of Chinese doing. To be fair, Russia, Israel and France have similar programs, according to the
, but China's state-sponsored system is more sophisticated.
Sometimes it's hard to see how the theft of certain trade secrets would benefit the Chinese government, and thus fall into the category of economic espionage. But some of the cases involve intellectual property passed to state-controlled corporations.
"Half of their directives come from the Communist Party, half from business or economic principles," says Stratfor's Noonan, who has
on the subject of Chinese espionage. "And they're getting pressure from the government to develop these technologies. Does the government know the company is doing this, or is it just the company? I don't think anyone has figured this out, even the FBI."
Perhaps the most audacious plot to emerge, and one that overlaps between the worlds of corporate and national spycraft, probably came in 2008, when a former Boeing engineer and Chinese national was charged with economic espionage. He was eventually convicted of stealing space shuttle data in an effort to help China's rocket program, and acting as an agent of the People's Republic.
The latest action from the Department of Justice came on Tuesday, when a former scientist at Dow Chemical who helped perfect the zipper in Ziploc bags (according to testimony during the trial) was convicted in a Baton Rouge, La., federal court, of stealing proprietary manufacturing technology from his former employer and attempting to sell it in China.
Dow is far from the only blue-chip company to raise hackles over alleged espionage by Chinese insiders. In other recent cases, a Ford engineer pleaded guilty in November to stealing engine designs and bringing them to his new employer, the state-controlled
Beijing Automotive Company
. In October, a former DuPont chemist was sentenced to more than a year in prison for pilfering next-generation LED technology. And in July 2010, a husband-and-wife team was indicted for allegedly stealing hybrid-vehicle know-how from General Motors, and putting it in the hands of the Chinese carmaker,
In addition to the trade-secret-theft case, Dow Chemical is the alleged victim of an act of economic espionage. In July, a former research scientist in the company's agricultural division was arrested after he allegedly filched a recipe for an organic insecticide that he'd helped develop. After he took a job at a university in China, he allegedly shared the Dow research with colleagues in an attempt to commercialize products based on those trade secrets.
The tale of Wen Chyu Liu, the Ziplog-bag innovator convicted on Monday, demonstrates the complexity involved in these cases -- and their many shades of gray.
The case dates back to 1999, when Dow filed a civil lawsuit against Liu, who also goes by David, and three partners. Liu, now 74 years old, had worked at Dow for 27 years, starting in 1965. Born in China to a former general in Chiang-Kai-Shek's army, Liu fled with his family to Taiwan as a boy and came to the U.S. to study on a National Science Foundation scholarship, according to his Baton Rouge-based attorney, C. Frank Holthaus. Liu holds dual citizenship in Taiwan and the U.S.
After retiring from Dow in 1992, Liu decided to strike out on his own with the help of three partners, two Americans and one German, each a former Dow scientist. Their idea was to sell to Chinese companies a recipe and a manufacturing process for chlorinated polyethylene, or CPE, a substance used in a host of products, from roofing shingles to electrical insulation. Holthaus says that Liu even had the technologies patented in China.
"This CPE is not super fancy stuff," Holthaus said. "It's like if you're a chef, and you got a recipe for a gumbo, you can find another recipe for a gumbo real easy."
In the middle 1990s, on a series of trips through China, Liu contracted with just one manufacturer on a deal, according to Holthaus. Then, in 1999, Dow came calling.
The company alleged that Liu and his partners stole the proprietary CPE research in a bid to start their own business in China.
For years, the Midland, Michigan, giant pursued the lawsuit vigorously. According to Holthaus, the company eventually turned to the U.S. attorney's office in Baton Rouge -- where Liu had received his final posting while still a Dow employee, and where he still lived -- handing its findings over to federal authorities "on a silver platter." His partners pleaded guilty and testified against him.
Liu's defense, according to Holthaus and the argument he presented at trial, was that his partners were the ones who stole the Dow secrets. "David wasn't aware of it any more than Dow was," Holthaus says. The jury didn't agree, and Liu must now face sentencing and decide whether to appeal.
"Dow supports the conviction of Wen Chyu 'David' Liu by a federal jury in Baton Rouge," the company said in a statement Tuesday. "Dow is committed to protecting its intellectual property to the full extent of the law, and we are grateful to the U.S. Department of Justice for vigorously prosecuting this case."
-- Written by Scott Eden in New York
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