Theft of Trade Secrets—China

Yet another story about China’s alleged “effort[s] to acquire secrets from Silicon Valley’s high-tech industry” is making the news.^[1] Lan Lee and Yuefei Ge have been arrested in California on a federal indictment accusing them of conspiracy and theft of trade secrets.^[2] According to the indictment, “the two men allegedly conspired to steal technical descriptions of a chip in development by their employer, Net-Logic Microsystems, [and of] chip design software from the Taiwan Semi-Conductor Manufacturing Company.”^[3]

The two men allegedly set up a company, SICO Microsystems, “to obtain venture capital based on stolen secrets about 130-nanometer microchips.”^[4] The national security implications come into play because “Mr. Lee’s home computer [allegedly] contained a contract under which SICO would get capital from a company based in mainland China, Beijing Electronic Development Company Limited.”^[5] It seems, however, that the two men will not be charged under the harsher provisions of the Economic Espionage Act, the one that criminalizes behavior that benefits a foreign government, foreign instrumentality, or foreign agent; “the State Department has discouraged use of that provision … perhaps for fear of causing diplomatic upset.”^[6]

To be clear, there are two different statutes being discussed here: 18 U.S.C. §§ 1831 & 1832. Mssrs Lee and Ge have been charged under 18 U.S.C. § 1832 (theft of trade secrets), which makes it a crime to steal or misappropriate trade secrets for the “benefit of anyone other than the owner” of the trade secret. The thief must also have the intent or knowledge that the conversion will injure the owner of the trade secret. The punishment for a violation of section 1832 is a fine, imprisonment for up to 10 years, or both. If an organization commits the theft, the fine can be as high as $5,000,000.

Section 1831 (economic espionage) is largely the same crime, except the thief must intend to benefit “any foreign government, foreign instrumentality, or foreign agent.” The punishment for a violation of this statute is a fine of up to $500,000 ($10,000,000 if done by a corporation), imprisonment for up to 15 years, or both.

As we have mentioned a number of times, the United States is wary about the possibility of Chinese espionage, going so far as to demand that Lenovo-brand computers be taken off secure State Department networks.

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[1] Josh Gerstein, Spy Charges in High-Stakes Microchip Race, NY Sun, Jun. 19, 2006.
[2] Id.
[3] Id.
[4] Id.
[5] Id. at 2.
[6] Id. at 3.