Economic Espionage Case Updates
In conjunction with the publication of STICKY FINGERS: Managing the Global Risk of Economic Espionage, this website will endeavor to publish timely updates of current Economic Espionage cases covered in the book. Other notable Economic Espionage cases that come along may be included here, too, even if they weren't covered in the book.
Also, due to the space limitations of book publishing, some of the abbreviated case studies highlighted in the chapter, "Do You Want Fries With That Secret?" are published in their entirety here.
But first, one global update concerning the Justice Department's stringent oversight provision dealing with the Economic Espionage Act that prevented U.S. Attorneys from filing any Section 1831 (international) or Section 1832 (domestic) economic espionage charges against defendants without first obtaining approval from the Attorney General and other select powers-that-be in the DOJ. Originally, the oversight provision was to last five years, scheduled to end in October 2001, which it did. However, without offering any explanation, on March 1, 2002, Attorney General John Ashcroft extended the oversight for Section 1831 charges only. A copy of that memorandum may be viewed by clicking http://www.cybercrime.gov/eea1996.htm.
"Do You Want Fries With That Secret?" Case Studies
Update on the Avery Dennison/Four Pillars Criminal Case:
Four Pillars and the Yangs:
As the old saying goes, "Justice delayed is justice denied."
On July 25, 2003 -- more than six years after the defendants were found guilty of economic espionage -- the trial judge finally re-sentenced the convicted felons to prison terms commensurate with their crimes and the jury verdicts. But it's unlikely that the sentences will ever be served.
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Following a bungled trial by lightweight Justice Department prosecutors and a bizarre initial sentencing by the trial judge that was tantamount to slaps on the wrist and small fines, the two defendants simply packed their bags and went home to Taiwan, where they remain safely ensconced. Despite being sentenced to prison terms (see below) they will probably never see the inside of a prison as long as they stay outside of the U.S.
A brief recap of this landmark case -- the first to go to trial after the passage of the Economic Espionage Act of 1996 -- follows:
P.Y. Yang, Hwei Chin (Sally) Yang and Four Pillars Enterprises Ltd., of Taipei, Taiwan, were convicted of two counts each of Economic Espionage in Federal Court in Youngstown, Ohio, in April 1997.
As explained in Sticky Fingers, Federal Judge Peter C. Economous initially (in 1997) imposed the maximum statutory fine of $5 million against the Four Pillars company. However, in what appeared to be an attempt to punish the victim (Avery Dennison), the judge departed downward fourteen levels from the Federal Sentencing Guidelines when he sentenced the Yangs to essentially short probation, after which, of course, they were free to leave the country. This was a confused and contradictory sentence that satisfied no one, least of all the interests of justice.
In June 2001, Four Pillars and the U.S. government both argued appeals before the Sixth Circuit Circuit Court of Appeals -- Four Pillars appealing the maximum fine, and the government appealing the incongruity of the extraordinarily light sentences imposed on the Yangs.
At sentencing, in an unconvincing attempt to justify his baffled thinking, Economous had taken Avery Dennison to task when he said, "In my experience no victim has played a more direct role than Avery in prosecuting a criminal case." However, it is unclear what "in my experience" actually meant since -- as careful readers of Sticky Fingers will recall -- Economous had virtually no relevant experience going into the trial. Then, he said "the criminal case has become a tool for Avery to seek vengeance instead of a pursuit of justice." But, there was never any evidence offered to suggest Avery had manipulated the government.
Economous was clearly wrong, and unfortunately at the expense of Avery Dennison.
The Sixth Circuit agreed and said Avery Dennison had done nothing improper, adding simply and logically that any cooperation Avery provided to the government did nothing to lessen "the Defendants' culpability or the seriousness of their crime." Then, in a sharp rebuke of Economous, the Appeals Court said it was "at a loss to understand" the muddle-headed sentencing, and went on to say that the "court abused its discretion in departing downward fourteen levels for each defendant."
Accordingly, in its February 2002 opinion, the Sixth Circuit upheld all the convictions but threw out the sentences against each defendant. The case was remanded back to the District Court for "resentencing consistent with this opinion."
Finally, after an 18-month delay, on July 25, 2003, Judge Economous sentenced P.Y. Yang to 51 months in prison and his daughter, Sally, to 24 months. (Both sentences are to be followed by three years of supervised release.)
But even though bench warrants were issued for the Yangs' arrest, it is unlikely that they will be carried out. P.Y. and Sally are in Taiwan and the Justice Department has made no move toward extradition, which would certainly be fought by the Yangs. It is also unlikely that Taiwan would ever agree to extradition for a crime that that does not exist in that country. Lacking reciprocal laws on the books, extradition usually fails.
It is obvious that had Judge Economous imposed more appropriate sentences -- meaning prison terms -- in the first place, or even just confiscated their passports, the defendants might have been free on bail or their own recognizance but still have been forced to remain in the U.S. during the lengthy appeal process, and therefore on hand to serve their prison sentences now. The Judge also reduced the Four Pillars fine from $5 million to $2 million.
The Justice Department -- none too pleased with this hollow victory -- refused to comment about this debacle.
This is clearly another instance of justice delayed being justice denied.
Dr. Tenhong "Victor" Lee:
Despite his detailed confession and courtroom testimony detailing eight years of providing some of Avery Dennison's most important trade secrets to Four Pillars, Victor Lee pled guilty to a single count of wire fraud in exchange for immunity on all other possible criminal counts. He served six months in a federal halfway house in Youngstown, Ohio. He then was placed under house arrest for another six months, followed by three years' probation, and full restitution to Avery Dennison of the money he had received from Four Pillars.
(Updated August 2003)
Update on the MasterCard Case:
On November 15, 2001, Fausto Estrada was sentenced in Manhattan federal court to one year in prison for stealing trade secrets from MasterCard and offering to sell them to MasterCard's competitor, Visa. He had pleaded guilty on July 11, 2001, to a single count of trade secret theft under the Economic Espionage Act.
He sentence was served.
(Updated June 2006)
Update on the Kodak Case:
After completing his prison sentence of a little more than one year, Harold Worden continued to cooperate with his former employer, Kodak, in resolving any outstanding issues and in helping the company learn where in the world any of its valuable trade secrets may have ended up.
Kodak has now settled or disposed of all litigation it initiated against many of Worden's former associates.
Also, according to Kodak attorney Brian O'Connor, the company has settled the litigation it initiated in 1997 against its competitor, 3M, and 3M's Italian subsidiary, Imaton Corp. Terms of the settlement were not disclosed.
Kodak at last considers the Worden matter closed.
(Updated January 2002)
Update on the Lucent Technologies Case:
There have been several recent, interesting and, ultimately, disappointing developments.
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In the Spring of 2002, a Superseding Indictment raised the ante considerably. The three defendants from ComTriad – Hai Lin, Kai Xu, and Yong-Qing Cheng – were then awaiting trial on 15 counts each of Economic Espionage – conspiracy to steal and possess trade secrets belonging to Lucent's PathStar software program and providing it to Datang Telecom Technology Co. of Beijing in a failed joint venture. Also, nine counts of wire fraud have been tacked on.
It turns out that by stealing the PathStar technology, not only were trade secrets from Lucent stolen, but so were trade secrets from Telenetworks, a business unit of Next Level Communications; NetPlane Systems, Inc., a wholly-owned subsidiary of Mindspeed Technologies; Hughes Software Systems; Livingston, another wholly-owned subsidiary of Lucent; and ZiaTech Corporation, a wholly-owned subsidiary of Intel Corporation.
In September 2001, the U.S. Attorney used official diplomatic channels to ask the cooperation of the Chinese government in obtaining documents relating to Datang’s relationship with ComTriad and the joint venture established in China. Also, the U.S. Attorney requested permission from the Chinese government to take the depositions of 11 Datang employees in China. Surprisingly, more than a year later, the Chinese government agreed. Consequently, in early 2003, for the first time in history, U.S. government prosecutors were going to be permitted to take depositions in China in a case that was to have been prosecuted on U.S. soil, according to Assistant U.S. Attorney and lead prosecutor Scott Christie.
But Christie was overly optimistic, and in 2004 the much heralded case completely fizzled out.
In that year, all charges against Xu and Cheng were dropped. Lin jumped bail and slipped through the government's fingers, presumably to return to China.
Yet one more example of why potential trade secret thieves view the Economic Espionage Act as a law with no teeth, and why American businesses more than ever need to implement their own trade secret protection programs rather than rely on the government to protect them or even help them if a theft occurs. Simply put, businesses need to remove temptation.
(Updated June 2006)
Update on the Cleveland Clinic Foundation Case:
Another disappointing setback occurred in the government's all-but-dead Cleveland Clinic case at the end of March, 2004: The Japanese High Court refused to extradite the last standing defendant, thereby effectively sending this once promising case to the rubbish pile. This was to have been the government's first ever trial on international economic espionage (Section 1831 of the Economic Espionage Act).
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Initially there were two defendants accused of stealing DNA used in potentially groundbreaking Alzheimer's research from the famed Cleveland Clinic. However, in a surprise announcement in May 2002, federal prosecutors dropped all economic espionage charges against defendant Hiroaki Serizawa, in exchange for a guilty plea to one count of making false statements to the government.
Appearing in Federal Court in Cleveland on May 28, 2003, Serizawa was sentenced to a meager three years' probation, a $500 fine and 150 hours of community service. He could have been sentenced to a maximum penalty of five years in prison and a $250,000 fine. Who says crime doesn't pay?
The other defendant, Takashi Okamoto – the researcher who worked at the Cleveland Clinic and who fled the U.S. after the alleged theft – is still securely entrenched in Japan with no apparent plans to return to the United States voluntarily to face criminal charges. Attempts to extradite him from Japan were being handled by the U.S. Attorney General’s office in Washington, D.C.
It was that extradition effort that just failed.
There was never much chance of success since Japan does not have a reciprocal economic espionage law on its books that would have facilitated extradition. Most foreign nations do not extradite individuals from their countries to face charges in another country if the crime for which the person is being sought is not considered a crime in the country from which the extradition would occur. Since economic espionage is not a crime in Japan, the Japanese government was unlikely to extradite one of its citizens to face those charges in the U.S.
Meanwhile, the valuable Cleveland Clinic Alzheimer's research material has never been recovered. And, due to a highly questionable deal cutting by U.S. prosecutors, now no one will ever stand trial for the theft of truly valuable trade secrets. That is because the government cut a premature plea bargain with Serizawa before Okamoto was in custody. Now that Okamoto will not be extradited, the hapless U.S. prosecutors have no options left.
Thus, the government's first case of international economic espionage has dramatically and tragically collapsed. More than seven years after the EEA was signed into law -- on the heels of Congressional testimony from then-FBI Director Louis Freeh that 23 nations were actively engaged in acts of economic espionage against U.S. businesses -- the government still has failed to secure even one conviction on international economic espionage (Sec. 1831). This is hardly surprising since only two such cases have ever been filed since 1996.
The false statements Serizawa made to the FBI included understating the number of Cleveland Clinic Foundation vials that Okamoto had stashed at Serizawa's lab at the Kansas University Medical Center in Kansas City, Kansas; denying that he had had any recent contact with Okamoto when in fact he had; and initially denying that he knew that Okamoto had taken a research position with RIKEN in Japan.
To read the local perspective and what frightening signals this case sends to would-be trade secret thieves the world over, read Japanese Judge Scuttles Clinic Spy Case from the Cleveland Plain Dealer.
To read about the failed extradition in an Associated Press story out of Tokyo, click on Tokyo Rejects Extradition of Alleged Spy.
To read the Cleveland Plain Dealer story on the sentencing of Serizawa, click on Scientist Gets Probation in Clinic Espionage Case.
To read the government's weak attempt to "spin" the Serizawa story, click on the Justice Department's news release Scientist Pleads Guilty to Providing False Statements.
The disappointed and understandably embarrassed Justice Department officials are not saying much about the failed extradition of Takashi Okamoto.
(Updated March 2004)
Update on the Pittsburgh Plate Glass/Owens-Corning Case:
Patrick Worthing pleaded guilty to the actual theft of trade secrets and received a 15-month prison sentence and three years probation. His brother, Daniel, pleaded guilty to conspiring to possess and deliver trade secrets, and was sentenced to five years’ probation and six months of home confinement. There have been no new developments since the writing of this book, and none are expected.
(Updated January 2002)
Update on the Bristol-Meyers Squibb/Taxol Case:
Even though Kai-Lo ("James") Hsu initially was charged with attempted theft of trade secrets, conspiracy to steal trade secrets, wire fraud, conspiracy and interstate and foreign travel to commit commercial bribery -- crimes worthy of a prison sentence, to be sure, if convicted -- the government allowed him to plead guilty to a single count of conspiring to commit trade secret theft, for which he was sentenced to two years probation and a $10,000 fine. The government dropped all other charges.
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Chester S. Ho was charged only with aiding and abetting. But, on March 31, 1999, when Hsu changed his plea to guilty, the government dropped all charges against Ho and he went free.
Taiwan refused to extradite Jessica Chou at the request of the U.S. government at the time the case was active. Subsequently, however, the U.S. government dropped all charges against Chou, claiming "it was no longer in the interest of justice to pursue her," according to Assistant U.S. Attorney Louis Lappen, who prosecuted the case.
Curiously, though, YFP -- the Yen (or Yuen) Foong Paper Company in Taiwan -- in a related civil case, paid the U.S. a $300,000 settlement for money laundering in connection with the economic espionage activities that were charged in the underlying criminal indictment, even though the paper company was never charged in the criminal complaint.
Whether there is a cause and effect connection between the $300,000 civil payment made by YFP and the dismissal of criminal charges against its employee, Jessica Chou, is certainly open to speculation.
(Updated January 2002)
Update on the Gillette Case:
After he pled guilty, Stephen L. Davis was sentenced in 1998 to 27 months in prison, three years supervised release, and ordered to pay Gillette $1.2 million in restitution.
He completed his prison sentence and was released from Federal Prison Camp in Montgomery, Alabama, in May 2000.
He continues to make monthly payments to Gillette.
(Updated January 2002)