China has long been accused of stealing trade secrets from U.S. companies. To help deter Chinese economic espionage, the Department of Justice (DOJ) recently announced a China Initiative. “This Initiative will identify priority Chinese trade theft cases, ensure that we have enough resources dedicated to them, and make sure that we bring them to an appropriate conclusion quickly and effectively,” then-Attorney General Jeff Sessions said in a press statement.
Trade Secret Charges
When valuable intellectual property is stolen, the federal government can be a powerful ally. In addition to the civil remedies available to businesses, the federal government can also criminally prosecute employees or other third parties who misappropriate proprietary information.
The Economic Espionage Act of 1996 (EEA) contains two sections, each addressing a different type of trade secret misappropriation. Section 1831 addresses foreign economic espionage and requires that the theft of a trade secret be done to benefit a foreign government, instrumentality, or agent. Meanwhile, Section 1832 criminalizes trade secret theft “related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner." The EEA also allows the federal government to prosecute the knowing possession, receipt, or purchase of misappropriated trade secrets. Penalties under the statute include monetary fines, imprisonment, and disgorgement of any profits derived from the stolen trade secret.
In connection with the new initiative, the DOJ announced an indictment alleging that a Chinese state-owned company, a Taiwan company, and three Taiwan individuals stole trade secrets from Micron, a U.S. semi-conductor company. As highlighted by the DOJ, Micron controls about 20 to 25 percent of the dynamic random access memory (DRAM) industry, which China recently entered in large part due to alleged trade secret theft.
According to the unsealed indictment, Chen Zhengkun, also known as Stephen Chen, served as president of a company acquired by Micron in 2013. He left the company in 2015 and went to work for Taiwan’s United Microelectronics, from where he allegedly orchestrated the theft of trade secrets from Micron worth up to $8.75 billion. United Microelectronics then entered into an agreement with Chinese state-owned Fujian Jinhua Integrated Circuit Co., which allowed China to illegally obtain the DRAM technology and then use it to compete against U.S. companies like Micron.
If convicted, the defendants face up to 15 years in prison and $5 million in fines. The companies could face forfeiture and fines worth more than $20 billion. In addition to the criminal charges, the Commerce Department also recently added the Chinese company to the Entity List to prevent it from buying goods and services in the United States.
DOJ’s China Initiative
Assistant Attorney General John Demers, who currently leads the DOJ’s National Security Division, will lead the new initiative. It will also include several U.S. Attorneys and members of the Federal Bureau of Investigation.
“If China acquires an American company's most important technology – the very technology that makes it the leader in a field – that company will suffer severe losses, and our national security could even be impacted,” said FBI Director Christopher Wray. “We are committed to continuing to work closely with our federal, state, local, and private sector partners to counter this threat from China."
As detailed in a DOJ fact sheet, the initiative seeks to accomplish the following:
- Identify priority trade secret theft cases, ensure that investigations are adequately resourced; and work to bring them to fruition in a timely manner and according to the facts and applicable law;
- Develop an enforcement strategy concerning non-traditional collectors (e.g., researchers in labs, universities, and the defense industrial base) that are being coopted into transferring technology contrary to U.S. interests;
- Educate colleges and universities about potential threats to academic freedom and open discourse from influence efforts on campus;
- Apply the Foreign Agents Registration Act to unregistered agents seeking to advance China’s political agenda, bringing enforcement actions when appropriate;
- Equip the nation’s U.S. Attorneys with intelligence and materials they can use to raise awareness of these threats within their Districts and support their outreach efforts;
- Implement the Foreign Investment Risk Review Modernization Act (FIRRMA) for DOJ (including by working with Treasury to develop regulations under the statute and prepare for increased workflow);
- Identify opportunities to better address supply chain threats, especially ones impacting the telecommunications sector, prior to the transition to 5G networks;
- Identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses;
- Increase efforts to improve Chinese responses to requests under the Mutual Legal Assistance Agreement (MLAA) with the United States; and
- Evaluate whether additional legislative and administrative authorities are required to protect our national assets from foreign economic aggression.
Key Takeaway for NY and NJ Businesses
U.S. companies that conduct business in China or with Chinese companies must be aware of the potential for trade secret theft. The most effective intellectual property protection strategies still start with your business, including tight internal controls and employee training. Should your business still fall victim to trade secret misappropriation, there are civil remedies available, including an infringement suit under the Defend Trade Secrets Act. In some cases, the federal government may also elect to pursue criminal sanctions.
If you have any questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.