Competition from Chinese companies shows no signs of slowing. Likewise, allegations of trade secret theft against Chinese companies are increasingly common. In this case, the U.S. Department of Justice linked allegations of trade secret theft with wire transfers from a Chinese company in order to freeze bank accounts and real property held by several defendants charged with conspiracy to steal trade secrets.
On May 23, 2017, the U.S. Attorney’s Office for the District of Columbia filed criminal complaints against seven defendants, alleging conspiracy to steal trade secrets. The trade secrets at issue relate to the development of a product called “syntactic foam,” a strong, lightweight material with various commercial and military applications. According to the DOJ, the alleged conspirators aimed to steal these trade secrets belonging to a global engineering firm with a subsidiary located in Houston, referred to in the complaint as “Company A.”
The DOJ alleges that Defendant Shan Shi incorporated a company in Houston on behalf of a Chinese manufacturer, for the purpose of enticing employees from Company A to divulge trade secrets. The DOJ further alleges that Defendants Shan Shi and Kui Bo began offering cash incentives and high paying positions to employees of Company A who had experience producing syntactic foam. And by 2015, Shi and Bo had allegedly hired two former Company A employees, Defendants Gang Liu and Sam Ogoe.
The DOJ further alleges that after extracting trade secrets from Liu and Ogoe (and a couple other Company A employees), Shi and Bo allegedly sent these trade secrets to Defendant Huang Hui—an employee of the Chinese manufacturer. Thereafter, the Chinese manufacturer allegedly began selling syntactic foam at unusually competitive prices.
On July 6, 2017, the U.S. District Court for the District of Columbia granted the government’s motion for a restraining order as to Defendants Shi and Bo. Judge Christopher R. Cooper ordered $3,100,000 held in three bank accounts frozen and prohibited the sale or transfer of two parcels land in Houston. The DOJ alleges that one of these bank accounts received approximately 35 wire transfers totaling $3,100,000 from an account at the Bank of China belonging to the Chinese manufacturer. And one of the parcels of land appears to be owned by the Chinese manufacturer’s Houston subsidiary.
Whether or not the government’s allegations are true, this case serves as a reminder that engineers with access to highly valuable trade secrets are often vulnerable to lavish offers by competing companies. And while conspiracy to commit theft of trade secrets carries the potential for up to 10 years in prison and severe financial penalties, the chance to gain a competitive market advantage will occasionally outweigh those risks. Thus, companies should consider the strategic use of non-compete and non-disclosure agreements, and disclose trade secrets only to those parties to whom disclosure is essential. Although these measure will not suffice to dissuade all employees from divulging corporate trade secrets, at the very least they provide an avenue to seek injunctions and/or monetary damages.