US strikes at corporate spies

NZ Herald ^

[maui_hawaii]

When Congress passed the Economic Espionage Act of 1996, corporate security watchers hoped for a crackdown on foreign intelligence agents conspiring to steal corporate America's crown jewels.

Seven years later, they're still waiting.

To date, US prosecutors have only twice in more than 40 alleged trade-secret cases gone after foreign government involvement. Such charges, a primary goal of the law, carry steeper penalties.

Whether the US Government has been overly cautious with a diplomatically sensitive issue or prudent with a powerful law enforcement tool is a topic that experts in the corporate security arena still debate.

But next summer, the Justice Department will prosecute a Silicon Valley case that some observers see as the first sign of a tougher approach by the Bush Administration.

This month, a federal judge in California set a June trial date in a trade-secret theft case against Fei Ye and Ming Zhong, who were arrested in November 2001 while trying to board a flight to China.

Prosecutors said the men stole microchip blueprints and other secrets from former employers Transmeta Corp, Sun Microsystems and other companies in connection with a plan to help develop China's budding chip industry.

That plan was funded by the Chinese city of Hangzhou, and the men were seeking additional support from China's Ministry of Science and Technology, prosecutors allege.

Lawyers for Ye, a Chinese-born US citizen, and Zhong, a Chinese national with permanent US residency, say the documents were not trade secrets. The men were released on bail.

Michael O'Leary, deputy chief of the Justice Department's computer crime and intellectual property section, said the department has been "judicious" in prosecuting economic espionage.

"It's more difficult to prove the nexus with a foreign government, and that's kind of a prosecutor's reality," O'Leary said. Still, he said, "If we get the right facts and the right evidence, we won't hesitate to use this."

When Congress was considering the Economic Espionage Act, Louis Freeh, then director of the FBI, testified that foreign governments "actively target US persons, firms, industries and the US Government itself" to steal trade secrets, endangering the economy and national security.

He said the FBI was investigating allegations of such spying by "individuals or organisations" from 23 countries. Analysts have estimated that such trade theft costs the US tens of billions of dollars a year.

But several factors have limited the number of cases the Government has been able to bring, say security experts.

First, a court trial, due to its public nature, can upset relations with allies.

Moreover, since the attacks of September 11, 2001, trade-secret theft may have taken a back seat to other national security concerns.

Also, proving trade-secret theft to a jury is often a challenge in itself, even without the complications of showing a link to a foreign government.

Prosecutors apparently believe they can overcome this hurdle in the case of Ye and Zhong, says said David Simon, a partner at the law firm of Foley & Lardner who has worked as an adviser adviser to businesses on the issue of trade-secret theft.

By choosing to prosecute Ye and Zhong, the US Government is clearly showing its frustration with China, and with trade-secret theft overall, says James Chandler, president of the National Intellectual Property Law Institute.

"I am certain that rushing to court is not the preferred means."

Representatives of China's embassy in Washington and consulate in San Francisco did not return telephone messages.

The case may also demonstrate a shift to bolder prosecution of trade-secret crimes under President George W. Bush and Attorney-General John Ashcroft, given their "better appreciation of the nature of the threat environment now" after the attacks of September 11, says John Nolan, a former US intelligence official who is chairman of Huntsville, Alabama-based Phoenix Consulting Group.

"What this will probably represent is kind of a sea change," Nolan said. "The Justice Department will be a lot less sensitive to international diplomatic niceties [now]."