DOJ, 1 Sep 2010: A former chemist for a northwest suburban paint manufacturing company pleaded guilty today to theft of trade secrets, admitting that he stole numerous formulas and other proprietary information valued up to $20 million as he prepared to go to work for an overseas competitor.
David Yen Lee, formerly a technical director in Valspar Corp.’s architectural coatings group since 2006, admitted using his access to Valspar’s secure internal computer network to enter databases containing trade secrets and to download approximately 160 original batch tickets, or secret formulas, for paints and coatings. He also obtained raw materials information, chemical formulas and calculations, sales and cost data, and other internal memoranda, product research, marketing data, and other materials from Valspar’s offices in Wheeling.
Lee, 54, formerly of Arlington Heights and currently of Jersey City, N.J., pleaded guilty to one count of theft of trade secrets after being charged in early 2009. U.S. District Judge Robert Gettleman set sentencing for Nov. 23. He faces a maximum penalty of 10 years in prison and a $250,000 fine, or twice the gross gain or gross loss resulting from the offense. A written plea agreement contemplates an advisory federal sentencing guideline range of 57 to 71 months in prison. The court also must order mandatory restitution.
According to the plea agreement, between September 2008 and February 2009, Lee negotiated employment with Nippon Paint, located in Shanghai, China. On Feb. 27, 2009, Lee accepted employment with Nippon as vice president of technology and administrator of research and development beginning on April 1, 2009, in Shanghai. Lee purchased a ticket to fly from Chicago to Shanghai on March 27, 2009. He did not inform Valspar that he had accepted a job at Nippon until he resigned on March 16, 2009.
At Valspar, Lee’s duties included scouting new paint technologies, coordinating with other paint laboratories, coordinating staffing and projects with Huarun Limited, a Valspar subsidiary located in China, and overseeing Valspar’s technical service group, which conducted experiments for paint coloring.
Between November 2008 and March 2009, Lee downloaded technical documents and materials belonging to Valspar, including the paint formula batch tickets. He further copied certain downloaded files to external thumb drives to store the data, knowing that he intended to use the confidential information belong to Valspar for his own benefit. The total value of the trade secret information Lee took is estimated at between $7 million and $20 million, the plea agreement states.
The guilty plea was announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of Federal Bureau of Investigation. The government is being represented by Assistant U.S. Attorney Jessica Romero.
AP, 1 Sep 2010: A New Jersey man who was a chemist for a suburban Chicago-based paint company has pleaded guilty to stealing trade secrets. Federal prosecutors say 54-year-old David Yen Lee of Jersey City, N.J., pleaded guilty Wednesday. They say he admits to stealing formulas and information that was valued at up to $20 million. He formerly was a technical director at Valspar Corp. Prosecutors say Lee stole the information from Valspar as he was preparing to work for a competitor in China. Lee formerly lived in Arlington Heights. Federal officials say he stole secret formulas for paints and coatings from Valspar’s offices in Wheeling.
Jersey City man admits stealing paint formulas and trade secrets worth up to $20 million (NJ Star-Ledger, 2 Sep 2010)
A Jersey City man who was a chemist for a suburban Chicago paint company has pleaded guilty to stealing trade secrets valued at up to $20 million. Federal prosecutors say 54-year-old David Yen Lee pleaded guilty Wednesday to stealing formulas and information from Valspar Corp., where he formerly worked as a technical director. Prosecutors say Lee stole the information from Valspar as he was preparing to work for a competitor in China. . .
Ex-Valspar Worker Admits to Stealing Trade Secrets From U.S. Paint Maker (Bloomberg, 1 Sep 2010)
. . . . According to court papers, Lee, who holds a doctorate in chemistry, worked as a technical director at the Wheeling, Illinois, facility of Minneapolis-based Valspar from 2006 to 2009, when he left to take a job in Shanghai with Osaka, Japan- based Nippon Paint Co. Nippon Paint wasn’t a defendant in the case. When he was arrested in March 2009, Lee had a pocket-size computer “thumb drive” containing Valspar data in his possession, federal agents said. The information he took is worth $7 million to $20 million, Assistant U.S. Attorney Jessica Romero told Gettleman today. . . . .
Chemist pleads guilty to stealing secret paint formulas (ABC7, 1 Sep 2010)
. . . . David Yen Lee, who served as technical director for Valspar Corporation’s architectural coatings group since 2006, admitted using his access to a secure internal computer network to enter databases containing trade secrets. He then downloaded about 160 secret formulas for paints and coatings, according to a release from the U.S. Attorney’s office. Lee also took raw materials information, chemical formulas and calculations, sales and cost data, product research, marketing data and other materials from Valspar’s offices in Wheeling, the release said. . . .
. . . . According to the plea agreement, between September 2008 and February 2009, Lee negotiated employment with Nippon Paint in Shanghai and on Feb. 27, 2009, accepted a job as vice president of technology and administrator of research and development. He purchased a ticket to fly from Chicago to Shanghai on March 27, 2009, but did not inform Valspar of his new job until he resigned on March 16.
Between November 2008 and March 2009, he downloaded technical documents and materials belonging to Valspar and copied them to external thumb drives, the release said. The total value of the information is estimated at between $7 million and $20 million, the agreement states.
FORMER PAINT MANUFACTURING CHEMIST PLEADS GUILTY TO STEALING TRADE SECRETS VALUED UP TO $20 MILLION (DOJ press release, 1 Sep 2010)
Indy Star, 31 Aug 2010: A federal magistrate judge today ordered that a former Carmel man who worked for Dow AgroSciences be detained while he awaits trial on espionage charges. Ke-xue Huang lived outside Boston at the time of his arrest last month and has Canadian citizenship. He is accused of making plans with researchers at China’s Hunan Normal University to use his insider knowledge from five years at the Indianapolis-based Dow Chemical unit as well as the company’s trade secrets to produce an organic insecticide.
Dow’s Chinese patent is set to expire in 2012, and a federal prosecutor said during today’s detention hearing that Huang and his associates were gearing up to produce the same insecticide. Assistant U.S. attorney Cynthia Ridgeway noted that Huang was making plans to acquire and develop manufacturing facilities in China and already possessed bacterial strains needed for the insecticide. “He now has the full recipe,” she said, and urged Magistrate Kennard P. Foster to order Huang detained until his trial.
A federal indictment handed down by a grand jury in Indianapolis last month was unsealed at today’s hearing. Federal Marshalls transported Huang from a detention facility in Rhode Island to Indianapolis in recent days. Federal public defender Michael Donahoe urged Foster to allow Huang’s release with restrictions, as did his wife, Jie Sun. Sun testified that she would be willing to put up the family’s recently-purchased $300,000 home to secure his release. She and the couple’s two children are living just outside Boston.
Dow fired Huang in 2008. He worked briefly for Cargill, a Minneapolis-based food producer and marketer, before resigning and taking a job with Qteros in the Boston area. An FBI special agent testified today that the Minneapolis FBI office has opened an investigation into Huang’s activities concerning his work at Cargill. . . . .
Chinese researcher charged with stealing US trade secrets (AFP, 31 Aug 2010)
A Chinese researcher has been arrested and charged with stealing trade secrets about insecticides from US biotech company Dow and passing them on to China, court documents showed Tuesday. Huang Kexue, 45, was a researcher at Dow AgroSciences, a subsidiary of Dow Chemical, the largest US agrochemical and biotechnology company, between January 2003 and February 2008 in the central US state of Indiana.
Huang, who was arrested by the FBI on July 13, appeared for the first time Tuesday at a district court in Indiana. An indictment was unsealed alleging 17 separate counts against him, and a not guilty plea was entered on his behalf.
Huang, a legal permanent resident in the United States, where he was known by colleagues as John, was a lead researcher on the genetic engineering of spinosyns — products that attack the central nervous systems of insects. Dow had been pouring money into genetic engineering since 1989 to produce a new class of organic insect control and management products, the justice department said.
Despite signing a confidentiality agreement, Huang allegedly passed on vital information to Chinese institutions and won grants for further studies based on trade secrets belonging to Dow. Huang was the alleged co-author of an article in December 2008 entitled “Recent advances in the biochemistry of spinosyns,” which was published without Dow’s permission at a university in China’s Hunan province. From 2007, Huang also directed research at Hunan Normal University on trade secrets he had stolen from Dow, the charge sheet said.
Three weeks after the termination of his contract with Dow, Huang allegedly received a grant for insecticide work from the National Natural Science Foundation of China (NSFC), a foreign-based institution funded by Beijing. He went on to receive further grants from the NSFC in 2008 and 2009 for more genetic engineering work on insecticide, the indictment said. . . . .
Indiana scientist accused of stealing trade secrets (AP, 31 Aug 2010)
A former Indiana scientist accused of illegally sending trade secrets worth $300 million to China and Germany was ordered detained Tuesday on rare charges of economic espionage. A federal indictment unsealed in Indianapolis alleges that 45-year-old Kexue Huang, who was born in China, passed on proprietary information about the development of organic pesticides to Hunan Normal University while he worked as a researcher for Dow AgroSciences in Indiana from 2003 to 2008. Dow Agrosciences is a subsidiary of Midland, Mich.,-based Dow Chemical Co.
Assistant U.S. Attorney Cynthia Ridgeway said Huang, a Canadian citizen with permanent U.S. resident status, used a “patient and calculated” plan to “drain” the Indianapolis-based company of technology that took 20 years to develop. . . . . FBI Special Agent Karen Medernach testified that e-mails showed Huang was developing an operation to market the pesticides in China, where he stood to make millions of dollars. She said the agency believed that Huang stole samples of the bacterial strain used in the pesticides and smuggled them to China in his son’s suitcase.
The indictment also included a vague reference suggesting Huang also transported stolen material to Germany but the document didn’t go into detail. . . . .
Government witnesses countered that Huang had made eight trips to China in recent years and stood to make millions of dollars from marketing the stolen pesticides. Foster ordered that Huang remain in jail, saying he was a serious flight risk and that the alleged scheme posed a “clear economic danger.”
Daniel Kittle, Dow’s global vice president for research and development, testified that developing the organic pesticides called spinosyns had cost the company at least $300 million over 20 years. He said facing a new competitor in China would pose a threat to the company’s business.
Ridgeway said the FBI also is investigating allegations that Huang was involved in a similar scheme while he worked for Cargill Inc. in Minneapolis after he was fired from Dow. Most recently he had lived in Massachusetts and worked at a biofuels company called Qteros, witnesses said.
Ridgeway said the Department of Justice has only filed economic espionage charges seven times. Two cases last year resulted in trials, with one ending in a conviction and the other with a deadlocked jury.
The Economic Espionage Act was passed in 1996 after the U.S. realized China and other countries were targeting private businesses as part of their spy strategies. . . . .
US v Kexue Huang aka John (indictment)
♦ CI CENTRE COURSE: 170–Economic Espionage and Theft of Technology
♦ CI CENTRE COURSE: 207–An Introduction to the People’s Republic of China’s (PRC) Intelligence and Counterintelligence Methodologies
DOJ, 31 Aug 2010: Kexue Huang, aka John, 45, has been arrested and charged in a 17-count indictment with economic espionage intended to benefit a foreign government and instrumentalities, and interstate and foreign transportation of stolen property, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney Timothy M. Morrison for the Southern District of Indiana.
Huang was arrested on July 13, 2010, in Westborough, Massachusetts by FBI agents, and today made his initial appearance in U.S. District Court for the Southern District of Indiana. According to the indictment, Huang is a Chinese national who was granted legal permanent resident status in the United States. The indictment alleges that Huang, formerly of Carmel, Indiana, misappropriated and transported trade secrets and property to the People’s Republic of China (PRC) while working as a research scientist at Dow AgroSciences LLC (Dow). While he was employed at Dow, he then directed university researchers in the PRC to further develop the Dow trade secrets. He also allegedly applied for and obtained grant funding that was used to develop the stolen trade secrets.
“Economic espionage robs our businesses and inventors of hard-earned, protected research, and is particularly harmful when the theft of these ideas is meant to benefit a foreign government,” said Assistant Attorney General Lanny A. Breuer of the Criminal Division. “The protection of trade secrets and all intellectual property is vital to the economic success of our country, and our leadership in innovation. We will continue to bring charges under the Economic Espionage Act wherever supported by the evidence.”
“Complex cases like this one, where the challenge of highly technical evidence is compounded by geography, require extraordinary cooperation and flexibility between all components of the investigation,” said U.S. Attorney Timothy M. Morrison. “We had that here.”
According to the indictment, Dow is a leading agricultural company that provides agrochemical and biotechnology products. Since approximately 1989, Dow has made substantial investments in research and development to produce a class of organic insect control and management products. A proprietary fermentation process has been used to develop these organic insecticides.
According to the indictment, Huang was employed as a Dow research scientist from early 2003 until Feb. 29, 2008. As a Dow employee, Huang signed an agreement that outlined his obligations in handling confidential information, including trade secrets, and prohibited him from disclosing any confidential information without Dow’s consent. Dow employed several layers of security to preserve and maintain confidentiality and to prevent unauthorized use or disclosure of its trade secrets.
In December 2008, Huang allegedly published an article without Dow’s authorization through Hunan Normal University (HNU) in the PRC, which contained Dow trade secrets. The article allegedly was based on work supported by grants from the National Natural Science Foundation of China (NSFC), a foreign instrumentality of the PRC. Huang also allegedly directed individuals associated with HNU to conduct research at their laboratories on Dow trade secrets. The indictment also alleges that beginning in March 2008, after leaving Dow, Huang applied for and ultimately received grants from NSFC which he used to develop Dow trade secrets.
The indictment also alleges that beginning as early as September 2007, Huang directed research in the PRC on Dow confidential information, including trade secrets, which he was assigned to research in the course of his Dow employment. In addition, the indictment alleges that Huang sought information about manufacturing facilities in the PRC that would allow him and others to compete in the same market as Dow.
Huang faces a maximum of 15 years in prison and a $500,000 fine on each of the 12 counts of economic espionage. He faces 10 years in prison and a $250,000 fine on each of the five counts of transportation of stolen property.
The case is being prosecuted by Assistant U.S. Attorney Cynthia J. Ridgeway of the U.S. Attorney’s Office for the Southern District of Indiana as well as Assistant U.S. Attorney Mark L. Krotoski and Trial Attorney Evan C. Williams of the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS). The National Security Division provided assistance in this matter. The investigation is being conducted by the FBI. Significant assistance in the case has also been provided by the CCIPS Cybercrime Lab.
US v Kexue Huang aka John (indictment)
New York Times, 19 Aug 2010: A shopkeeper in Italy placed an order with a Chinese sneaker factory in Putian for 3,000 pairs of white Nike Tiempo indoor soccer shoes. It was early February, and the shopkeeper wanted the Tiempos pronto. Neither he nor Lin, the factory manager, were authorized to make Nikes. They would have no blueprints or instructions to follow. But Lin didn’t mind. He was used to working from scratch.
A week later, Lin, who asked that I only use his first name, received a pair of authentic Tiempos, took them apart, studied their stitching and molding, drew up his own design and oversaw the production of 3,000 Nike clones. A month later, he shipped the shoes to Italy. “He’ll order more when there’s none left,” Lin told me recently, with confidence.
Lin has spent most of his adult life making sneakers, though he only entered the counterfeit business about five years ago. “What we make depends on the order,” Lin said. “But if someone wants Nikes, we’ll make them Nikes.” Putian, a “nest” for counterfeit-sneaker manufacturing, as one China-based intellectual-property lawyer put it, is in the southeastern Chinese province of Fujian, just across the strait from Taiwan.
In the late 1980s, multinational companies from all industries started outsourcing production to factories in the coastal provinces of Fujian, Guangdong and Zhejiang. Industries tended to cluster in specific cities and subregions. For Putian, it was sneakers.
By the mid-1990s, a new brand of factory, specializing in fakes, began copying authentic Nike, Adidas, Puma and Reebok shoes. Counterfeiters played a low-budget game of industrial espionage, bribing employees at the licensed factories to lift samples or copy blueprints. Shoes were even chucked over a factory wall, according to a worker at one of Nike’s Putian factories. It wasn’t unusual for counterfeit models to show up in stores before the real ones did.
“There’s no way to get inside anymore,” Lin told me, describing the enhanced security measures at the licensed factories: guards, cameras and secondary outer walls. “Now we just go to a shop that sells the real shoes, buy a pair from the store and duplicate them.” . . . .
————————————————-
Recommended book about this issue:
Description: International scandal, undercover private investigators, shredded evidence, intimidation, and theft: all in a day’s work for Brett Kingstone, author of “The Real War Against America.” Kingstone tells the true story of the company he founded, Super Vision International, and its desperate struggle against Chinese counterfeiters who stole designs, equipment and profits.
When Kingstone learned that the market had been flooded with counterfeit Super Vision products, he started to fight back immediately, protecting the business he started as a 19-year-old Stanford student. With little or no help from the local police, the F.B.I. or the U.S. justice department, Super Vision gathered enough evidence to take the criminals to court with the help of private investigators posing as rich Arab sheiks. But the defendants, their lawyers and their bankers went to extremes to cover up their crimes.
In 2002, Super Vision won a $33 million verdict against the intellectual-property thieves, but Kingstone has yet to see a dime. As one expert testified in court, the defendants wired $28.5 million out of the United States before the trial “using methods consistent with money laundering.”
For six years and counting, Brett Kingstone has fought against criminals who many would have simply let get away with what they had done. Kingstone stood up for himself, his company and his country. “The Real War Against America” is a riveting story and an urgent call to arms for every American citizen to fight against terrorists who do not need bullets or bombs to destroy the American dream.
