Trial and Error Under the China Initiative

If you have seen any of our prior articles concerning the China Initiative, you know the U.S. Department of Justice (“DOJ”) is still focused on actively investigating individuals with ties to China who are suspected of trade secrets theft.  However, the failure of recent China Initiative prosecutions raises an issue as to which companies involved in academic and scientific research may be targeted going forward.

Based on a suspicion that China uses research and academic projects in the United States as part of intellectual property theft schemes, a major goal of the DOJ’s China Initiative is to “[d]evelop an enforcement strategy concerning non-traditional collectors (e.g., researchers in labs, universities and the defense industrial base) that are being coopted into transferring technology contrary to U.S. interests,” i.e. to investigate professors and researchers with ties to China at American universities.

Some of these investigations have led to indictments and even imprisonment.  For example, on December 21, 2021, Charles Lieber, the former chair of Harvard’s department of chemistry and chemical biology, was convicted for knowingly hiding his involvement in and income from China’s Thousand Talents Plan—a program designed to recruit people with knowledge of foreign technology and intellectual property to China—and publishing articles, organizing international conferences, and applying for patents on behalf of the Wuhan University, while receiving over $15,000 in grant funding from both the National Institutes of Health (“NIH”) and Department of Defense (“DOD”).

But the DOJ has also seen multiple failed prosecutions.  For example, in July 2021, the DOJ dismissed five cases against researchers at Stanford University, University of California, Davis, University of California San Francisco, University of California Los Angeles, and Indiana University, each accused of concealing ties to the Chinese military, based on lack of evidence to support the accusations.   Further, the only non-espionage case under the China Initiative brought against a professor at an American university to have actually gone through to trial, USA v. Hu, resulted in an abrupt acquittal.

The DOJ brought the case against Hu—including three counts of wire fraud and three counts of making false statements—based only on his alleged failure to disclose his affiliation with the Beijing University of Technology (BJUT) to the University of Tennessee, Knoxville (UTK).  The prosecution alleged that Hu’s concealment of his BJUT affiliation allowed him to participate in several National Aeronautics and Space Administration (“NASA”)-funded projects with UTK, where NASA provided him with U.S. trade secrets.

In September 2021, U.S. District Judge Varlan issued a 52-page memorandum along with an order acquitting Hu of all federal charges.  The decision underscored the DOJ’s deficient case against Hu.  There was insufficient evidence to show that Hu had any intent to defraud the government or knew that his affiliation with BJUT violated NASA’s China Funding Restriction, a restriction from using funds appropriated on or after April 25, 2011 to enter into or fund any grant, cooperative agreement or contract of any kind to participate, collaborate, or coordinate bilaterally in any way with China or any Chinese-owned company.  There was also no evidence that Hu ever collaborated with a Chinese institution in connection with his NASA-funded work.  On the other hand, there was evidence that Hu disclosed, for instance, a long-term collaborative relationship with a professor from the National Synchroton Radiation Laboratory in Hefei, China.  This fact helped undermine the government’s contention that Hu concealed his affiliations with Chinese institutions.  In addition, UTK’s response to Hu’s disclosure, informing him that NASA required assurance that defendant would comply with the Chinese Funding Restrictions and stating that “UTK always includes a special copy stating that, as we understand it, this restriction does not apply to faculty, staff, and students,” explicitly suggested that the Chinese Funding Restriction did not apply to Hu as a UTK faculty member.

Importantly, the Hu case shows that an individual’s affiliations with Chinese institutions, even absent evidence of trade secret theft or economic espionage, can potentially set off a DOJ pursuit.  Because the China Initiative drives DOJ’s targeting strategy, the DOJ’s targeting of Hu has raised concerns—rightfully—that company employees may face unwarranted prosecution based only on their affiliation with Chinese institutions.  While the DOJ may ultimately decide to better focus its resources on cases with a more direct link to intellectual property theft, for any company involved in academic or scientific research involving trade secrets, a potential precautionary measure would be to educate its employees on the disclosures required regarding affiliations with China and maintain evidence of these disclosures in case these employees are targeted by the DOJ under the China Initiative.