Rare Criminal Prosecution Under Economic Espionage Act Proceeds - Case Will Examine Issue of Chinese Government's Sponsorship of Technology Theft

We first blogged about this Economic Espionage Act case here: http://wombletradesecrets.blogspot.com/2007_09_01_archive.html.

You'll recall that the Sec. 1831 of the federal Economic Espionage Act of 1996 provides as follows:

"Sec. 1831. Economic espionage
(a) IN GENERAL- Whoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, knowingly--
(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains a trade secret;
(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret;
(3) receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;
(4) attempts to commit any offense described in any of paragraphs (1) through (3); or
(5) conspires with one or more other persons to commit any offense described in any of paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy, shall, except as provided in subsection (b), be fined not more than $500,000 or imprisoned not more than 15 years, or both."

You'll also recall that the Act contains a separate section, Sec. 1832, that does not require that the misappropriation of the trade secret was done to benefit a foreign government or instrumentality. Most FBI and prosecutorial activity in EEA cases regards Sec. 1832 cases, not Sec. 1831 cases. But - we are now watching a Sec. 1831 case unfold in trial.

The Silicon Valley Mercury News is reporting that Lan Lee and Yuefei Ge have pleaded not guilty to the charges that include theft of trade secrets and violations of the espionage law. If convicted, they face 10 years or more in prison, although most convicted on economic espionage charges in recent years have received much lower sentences. Ed Swanson, Ge's lawyer, declined to comment. Tom Nolan, Lee's attorney, did not return calls seeking comment.

In court papers, defense lawyers suggested Lee and Ge had no intention of doing anything to illegally benefit China. Lee, a U.S. citizen, and Ge, a Chinese national, allegedly stole the blueprints for a superfast computer chip from their employer, NetLogic Microsystems of Mountain View, and another company, Taiwan Semiconductor, for a Chinese-backed program.

The defense does plan to call witnesses with expertise on the technology involved and China's relationship with technology companies, as well as witnesses who will testify about the engineers' character, including wives, co-workers and friends, according to court papers.

Assistant U.S. Attorney Matthew Parrella, who is prosecuting the case, declined to comment.
In court papers, prosecutors allege Lee and Ge conspired to steal secrets from NetLogic to establish their own startup company with funding from a Chinese venture capital arm called the "863 program" — which the U.S. says is intertwined with the Chinese government. Court papers show the two men were first uncovered by anonymous e-mail tips to the FBI traced to Ge's wife.

Prosecutors have already been dealt one blow when U.S. District Judge James Ware refused to allow them to use the testimony of two other former valley executives who pleaded guilty last year to economic espionage charges. They were supposed to testify about China's "863" program.

But prosecutors have other witnesses and material seized from the engineers' home computers, including references to the allegedly stolen data and negotiations with China, court documents show. There are no direct allegations of China's role, except that the technology could be used for the Chinese military and tech businesses.

China has repeatedly denied any involvement with defendants charged in U.S. courts with stealing trade secrets.

Meanwhile, experts say that while the San Jose trial will be an intriguing glimpse into the loss of valley secrets overseas, it also is a reminder that the economic espionage laws are seldom used and most companies wind up protecting themselves. Experts estimate U.S. companies lose more than $40 billion a year from stolen trade secrets.

"So, it's two or three (trials) in 13 years," said Steven Fink, president of Los Angeles-based Lexicon Communications, which advises companies on espionage. "Wake me when some real action is going on. The real story is what took so long and why there aren't more of these."

We'll report on the trial as it continues.