U.S. Trade-Secret Theft Prosecutions Target China and Are on the Rise

A lot can change in three years. Back in 2015, President Barack Obama and Chinese President Xi Jinping stood in the Rose Garden and announced to the world that they had reached an agreement to end state-sponsored cyberattacks to steal trade secrets.

“The question now is, 'Are words followed by actions?'” Obama said at the time.

That handshake between world economic powerhouses hasn't aged well. The U.S. and China are in the midst of an escalating trade war and the U.S. Department of Justice (DOJ) has been prosecuting trade misappropriation cases against China with notable vigor as of late.

“I wouldn't say the agreement has gone out the window, but this is a sign that the DOJ is going to take matters into its own hands more, rather than try to get cooperation from the Chinese authorities,” says Dana Finberg, a partner at Arent Fox in San Francisco who specializes in trade secret and patent litigation.

In the past several weeks, the DOJ has pursued charges against Chinese hackers and intelligence officers for allegedly swiping jet engine manufacturing trade secrets. The agency secured indictments accusing three former Genentech employees of stealing trade secrets from the biotech company and handing the info to a Taiwanese competitor planning a Hong Kong IPO. Then it charged a Chinese company with stealing trade secrets from semiconductor company Micron Technology Inc.

China has called the accusations baseless, while the DOJ has announced its “China Initiative” as part of a “strategic priority of countering Chinese national security threats” and to bolster President Donald Trump's “overall national security strategy.”

“It's the first time you have an initiative within the DOJ focused on a particular country,” Finberg notes.

Now-former U.S. Attorney General Jeff Sessions said in a prepared statement prior to his forced resignation on Nov. 7 that “Chinese economic espionage against the United States has been increasing — and it has been increasing rapidly. Enough is enough. We're not going to take it anymore.”

Sessions' departure isn't expected to alter the DOJ's aggressive pursuit of intellectual property thieves, says Ryan Fayhee, partner and leader of the sanctions, export controls and anti-money laundering practice group at Hughes Hubbard & Reed in Washington, DC. Before going into private practice, he spent 11 years prosecuting trade secret theft and espionage cases for the DOJ.

“They may, if anything, be increased,” he says, referring to DOJ trade theft prosecutions. “There's no question at all that there is this really intense focus on China intellectual property theft. You also have the CFIUS law that Congress has passed. It's all related. It's all about China.”

To Prosecute or Not?

Historically, tension has existed within the DOJ between deciding whether to call out trade theft through criminal prosecution or stay quiet and work behind the scenes to exploit the situation and collect counterintelligence by, for instance, flipping the foreign spy to work as a double agent, according to another former DOJ prosecutor, Jonathan Poling, a partner in Akin Gump Strauss Hauer & Feld's international trade practice in Washington, DC.

But that tension seems to be dissipating, which could explain the recent trade theft prosecution actions — and these cases don't come together overnight. The aforementioned jet engine case stretches back to 2010, for example.

“I imagine that some of these cases have been worked on for years now and there was a policy judgment in the Trump administration that we would start prosecuting these cases,” Poling says.

“I think the sense is on these cases that there's really not much to be learned or gained from an intelligence perspective,” he adds, “and the need for deterrence outweighs whatever value there is to learn from the intelligence efforts that are occurring through the Chinese to acquire U.S. trade secrets.”

While Fayhee believed the DOJ's recent trade theft prosecutions were an instrument of foreign policy, he stressed that DOJ investigators and prosecutors are motivated by the facts of a case, not politics.

“What's happening though is there are enforcement priorities,” he says. “They have, over the past years, focused on China and I think you're seeing increased resources being devoted to those cases. And that's consistent with U.S. national and foreign policy goals.” Finberg, the partner at Arent Fox, echoes Fayhee, saying he believed the DOJ's recent actions on alleged Chinese trade theft were “part and parcel of the Trump administration getting tough on China.”

“It's not as if all the sudden the DOJ has started prosecuting trade secret misappropriation,” he adds. “But there is no doubt that the amount of publicity these cases are getting and the amount of resources being dedicated to these cases has increased significantly.”

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Phillip Bantz is a reporter for Corporate Counsel, an ALM sibling of The Intellectual Property Strategist. Follow him on Twitter @PhillipBantz.