United States: Conviction For Economic Espionage, Sale Of Trade Secrets To China

The US Court of Appeals for the Ninth Circuit upheld the first federal jury criminal conviction for economic espionage and theft of trade secrets under the Economic Espionage Act of 1996 (EEA), even though the owner of the trade secrets sold a facility allegedly embodying the trade secrets. United States v. Liew, et al., Case No. 14-10367 (9th Cir. May, 5, 2017) (Owens, J).   

This case involves the ability to build a titanium dioxide (TiO2) chloride facility. TiO2 is a "commercially valuable" white pigment extracted from ore, and DuPont has been and continues to be the industry leader in the technology. In the 1990s, China wanted to develop TiO2 production capabilities to replace its molten-salt process and elicited the help of Walter Liew, a US citizen. 

Liew hired two retired DuPont employees, Robert Maegerle and Tim Spitler, as consultants for his company, Performance Group, and later, USA Performance Technology, Inc. (USAPTI). Both former DuPont employees had experience at DuPont's TiO2 facilities, and both had certified, upon their retirement from DuPont, that they had returned all "secret or confidential" materials and agreed "not to use or divulge" such information without DuPont's permission. By 2005, Maegerle was serving as Liew's "in-house expert" in multimillion-dollar contracts with Pangang, a Chinese company, to upgrade Chinese molten-salt plants into chloride process facilities.

In August 2010, DuPont received an anonymous letter stating that Liew and others had "embezzled DuPont technology and sold it to China." DuPont and the Federal Bureau of Investigation began investigating. DuPont later sued for trade secret misappropriation, and federal prosecutors indicted and charged Liew and USAPTI with conspiracy, as well as economic espionage and trade secret theft under the EEA. 

The EEA punishes economic espionage that involves (1) trade secret misappropriation intended to benefit any foreign government, and (2) theft of trade secrets where the trade secret "is related to a product or service used in or intended for use in interstate or foreign commerce" and knowingly converted to the economic benefit of anyone other than the owner. 

In March 2014, a federal jury convicted Liew and USAPTI of violating the EEA. Defendants appealed, challenging the district court's jury instruction, the court's refusal to give jury instructions regarding the meaning of "trade secrets," and the sufficiency of trade secret evidence.

On appeal, defendants argued for the first time that the compilation instruction was erroneous because it omitted a principle that "a compilation cannot constitute a trade secret if 'one skilled in the art could view the nonsecret elements and replicate the combination without undue difficulty.'" However, the Ninth Circuit ruled that defendants failed to show that the given instruction was incorrect, misleading or inadequate. 

The Ninth Circuit also found that the district court correctly rejected defendants' proposed instructions on "public disclosure," "reverse engineering" and "general knowledge." The public disclosure instruction was superfluous because the given instructions informed the jury that generally known/readily ascertainable information could not qualify as trade secret material. The proposed instruction stating that disclosure to a single recipient who is not legally bound to maintain the secrecy destroys trade secret protection was also properly rejected because it was unsupported by the EEA's then-definition of trade secrets. The Court concluded that defendants' proposed instructions on reverse engineering and fair-use of "general knowledge" were unnecessary since the jury had already been instructed that individuals can independently develop technology through proper means, and that former employees are free to use non-trade secret information and skills gained through employment.     

Finally, the Ninth Circuit noted that the government was not required to prove that DuPont's technology had been disclosed when DuPont sold one of its TiO2 facilities; it only had to show that DuPont took reasonable measures to guard it—which it had. As such, the sale of DuPont's Antioch/Ashtabula factory and DuPont's increased use of contractors had no bearing on whether that material remained protected because the technology used at that factory was different from the relevant trade secret material used at other plants, and the EEA's then-requirement was that trade secrets not be generally known to "the public," which is consistent with DuPont's employment of "secure eyes contractors." Thus, the Court found that ample evidence supported the conviction. 

Conviction For Economic Espionage, Sale Of Trade Secrets To China

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