Monday, April 13, 2009, 4/13/2009 09:12:00 AM

FBI Investigator Calls Trade Secret Theft Involving Chinese National "An Act of Economic Violence"

By Todd

The rhetoric is heating up in the U.S. v. China battle over the protection of trade secrets and other intellectual property.

A Chinese national living in the United States has been accused of stealing a software program from his former U.S. employer and selling a modified version to the Chinese government after being fired.

Yan Zhu, 31, a resident of Lodi, was arrested Thursday for stealing programming-source code needed to modify the encrypted program as well as internal sales materials from the company, the FBI said. Authorities would not name the company or identify its corporate headquarters, saying only that it is located in Mercer County, New Jersey.

He and two conspirators sold the program to environmental protection agencies in China's Hebei and Shanxi provinces for about 10 percent of its $1.5 million value, according to the FBI.

The incident is the latest episode in the ongoing battle over intellectual property rights between the two countries. Weysan Dun, special agent in charge of the FBI's Newark field office, estimates that the number of federal investigations into Chinese economic espionage has increased 10 percent since 2001.

"This is an act of economic violence," Dun said Friday of Zhu's alleged theft. "A significant percentage of the FBI's economic espionage investigations are linked to Chinese government agencies, research institutes or businesses."

Zhu has been charged with eight counts of fraud and one count each of conspiracy and theft of trade secrets. He faces 20 years in prison on each fraud count and 10 years in prison for the theft and conspiracy charges.

Zhu, who is in the U.S. on a work visa, was a senior environmental engineer for the company from April 2006 to July 2008. The FBI said he played a key role in its efforts to sell the program, which allows users to manage air emissions and water quality, in China.

The FBI said he was fired after his employer learned he had sent source-code and promotional materials to his personal e-mail address and was attending business meetings in China with his two suspected conspirators, who were not named. Court filings indicate Zhu, a Columbia University graduate, said he needed the documents to work from home.

The Shanxi agency signed a contract with the company to purchase the program in July 2007, but switched to Zhu's modified version after paying only about $300,000 of the $1.5 million it owed. The Hebei agency contacted the company about the same product in November of 2007, but wound up purchasing Zhu's version 11 months later.

Zhu is being held in federal custody pending a detention hearing in Trenton on Monday, when a decision on bond may be made.

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