FBI: Former DuPont Employee Sentenced In Foreign Conspiracy To Steal Trade Secrets

The FBI website released the above photo and a report on an industrial espionage case:

A second former DuPont employee—Edward Schulz—was recently sentenced for his role in a conspiracy led by a South Korean company to steal trade secrets related to Kevlar, a trademarked product developed and sold by DuPont.

Kevlar, an incredibly strong synthetic fiber developed by the U.S.-based DuPont 50 years ago, is used around the world in body armor, fiber optic cables, automotive and industrial products, and a variety of other applications. Soon after its development, DuPont trademarked Kevlar, mass-produced it, and put it on the market. But none of this was easy—the company had expended untold resources on Kevlar’s research and development, ground-breaking manufacturing processes, and innovative business plans (collectively known as “trade secrets”) before the product became a success.

DuPont’s hard work and ingenuity paid off. But there are companies who believe that their road to success can be paved with someone else’s hard work and ingenuity. That was the case with executives from a South Korean company called Kolon Industries who, interested in developing their own Kevlar-like product to compete with DuPont, put a plan in motion to steal proprietary information related to Kevlar—primarily by going after former DuPont employees who might be in a position to have such information.

Stealing another company’s trade secrets is a federal crime, and, after an FBI investigation by our Richmond Field Office (DuPont has a large plant within FBI Richmond’s jurisdiction), Kolon Industries and five of its executives were indicted on theft of trade secrets charges. The company pled guilty to the charges in April of this year and was ordered to pay $85 million in criminal fines and $275 million in restitution. And we made extradition requests for the five indicted executives, who no longer work for Kolon.

Edward Schulz—who worked for DuPont for just over 30 years before he left around 2000—was responsible for technical research and development relating to Kevlar. Despite a signed agreement barring him from disclosing DuPont’s secret or confidential information during or after employment, he held on to numerous DuPont documents when he left the company. So when Kolon came calling and Schulz accepted their offer of a consulting job, they soon began questioning him about Kevlar, and he willingly turned over some of the proprietary information he had in his possession.

Another long-time former DuPont employee—engineer and salesman Michael David Mitchell—was also caught up in the conspiracy and was charged with and pled guilty to theft of trade secrets several years ago. Mitchell, fired by DuPont for performance reasons in 2007, had signed the same non-disclosure agreement as Schulz, but he also held on to some proprietary information when he left. While looking for another job, he met with Kolon representatives and eventually was hired by them as a consultant.

Mitchell shared with Kolon some of the proprietary information he had, but when Kolon representatives began asking him extremely technical questions on Kevlar, he reached out to former and current DuPont employees for answers. Word of his activities, however, got back to DuPont management, who reached out to the FBI with their concerns.

Eventually, Mitchell agreed to cooperate with law enforcement and made numerous recorded phone calls and exchanged e-mails with Kolon representatives. He also hosted a face-to-face meeting with representatives in a Richmond hotel, which was audiotaped and videotaped by the Bureau.

This case would have been nearly impossible to make without the assistance of DuPont. In addition to the company coming to us initially about the attempts to steal their trade secrets, DuPont worked with us to understand and organize more than a million pages of Kevlar-related documents and hundreds of hours of audio recordings, which enabled the case to move forward quickly. And the FBI and the Department of Justice worked to ensure that DuPont’s proprietary information—much of which was used as evidence—wasn’t disclosed publicly.

As a result of its experience, DuPont enhanced efforts to protect its proprietary information. Other American companies, if they haven’t already done so, need to follow suit—the desire to steal U.S. business trade secrets continues unabated.

Former Dow Scientist Convicted Of Stealing Trade Secrets And Selling Them To Communist China

The U.S. Justice Department reported yesterday that a federal jury in Baton Rouge, La., convicted a former research scientist of stealing trade secrets from Dow Chemical Company and selling them to companies in the People’s Republic of China, as well as committing perjury.

After a three-week trial, the jury found Wen Chyu Liu, aka David W. Liou, 74, of Houston, guilty of one count of conspiracy to commit trade secret theft and one count of perjury.

According to the evidence presented in court, Liou came to the United States from China for graduate work. He began working for Dow in 1965 and retired in 1992. Dow is a leading producer of the elastomeric polymer, chlorinated polyethylene (CPE). Dow’s Tyrin CPE is used in a number of applications worldwide, such as automotive and industrial hoses, electrical cable jackets and vinyl siding.

While employed at Dow, Liou worked as a research scientist at the company’s Plaquemine, La., facility on various aspects of the development and manufacture of Dow elastomers, including Tyrin CPE. Liou had access to trade secrets and confidential and proprietary information pertaining to Dow’s Tyrin CPE process and product technology.

The evidence at trial established that Liou conspired with at least four current and former employees of Dow’s facilities in Plaquemine and Stade, Germany, who had worked in Tyrin CPE production, to misappropriate those trade secrets in an effort to develop and market CPE process design packages to various Chinese companies.

Liou traveled extensively throughout China to market the stolen information, and evidence introduced at trial showed that he paid current and former Dow employees for Dow’s CPE-related material and information. In one instance, Liou bribed a then-employee at the Plaquemine facility with $50,000 in cash to provide Dow’s process manual and other CPE-related information.

“Today a federal jury found Mr. Liou guilty of stealing protected trade secrets from Dow Chemical Company, including by bribing fellow employees for this valuable information,” said Assistant Attorney General Lanny A. Breuer of the Criminal Division Breuer. “American industries thrive on innovation and they invest substantial resources in developing new products and technology. We will not allow individuals to steal the technology and products that U.S. companies have invested years of time and considerable money to create.”

“This office will continue to pursue sophisticated and complex schemes, such as the one perpetrated by this defendant,” said U.S. Attorney Donald J. Cazayoux Jr. for the Middle District of Louisiana. “Such actions undermine the economic viability of our community and our nation, and will not be tolerated.”

“Companies within the United States lose millions of dollars to the theft of trade secrets such as this,” said Special Agent-in-Charge David Welker of the FBI’s New Orleans Division. “The FBI is committed to aggressively identifying and investigating such schemes and along with our partners to bring the perpetrators to justice.”

In addition, according to evidence presented at trial related to the perjury charge, Liou falsely denied during a deposition that he made arrangements for a co-conspirator to travel to China to meet with representatives of a Chinese company interested in designing and building a new CPE plant. Liou was under oath at the time of the deposition, which was part of a federal civil suit brought by Dow against Liou.

Liou faces a maximum of 10 years in prison on the conspiracy to commit trade secrets theft charge, and a maximum of five years in prison on the perjury charge. Each count also carries a maximum fine of $250,000. A sentencing date has not yet been scheduled.

The case is being prosecuted by Assistant U.S. Attorney Corey R. Amundson, who serves as the Senior Deputy Criminal Chief, and Assistant U.S. Attorney Ian F. Hipwell for the Middle District of Louisiana, as well as Trial Attorney Kendra Ervin of the Criminal Division’s Computer Crime and Intellectual Property Section. The case was investigated by the FBI’s New Orleans Division.

Communist Chinese Spy Pleds Guilty To Stealing Ford Secrets

A former Ford employee, Xiang Dong Yu, aka Mike Yu, 49, of Beijing, China, pleaded guilty today in federal court to two counts of theft of trade secrets, announced Barbara L. McQuade, United States Attorney for the Eastern District of Michigan.

McQuade was joined in the announcement by Andrew G. Arena, Special Agent in Charge of the FBI.

According to the plea agreement in this case, Yu was a product engineer for the Ford Motor Company from 1997 to 2007 and had access to Ford trade secrets, including Ford design documents.

In December 2006, Yu accepted a job at the China branch of a U.S. company. On the eve of his departure from Ford and before he told Ford of his new job, Yu copied some 4,000 Ford documents onto an external hard drive, including sensitive Ford design documents.

Included in those documents were system design specifications for the engine/transmission mounting subsystem, electrical distribution system, electric power supply, electrical subsystem and generic body module, among others.

Ford spent millions of dollars and decades on research, development, and testing to develop and continuously improve the design specifications set forth in these documents. The majority of the design documents copied by the defendant did not relate to his work at Ford.

On December 20, 2006, the defendant traveled to the location of his new employer in Shenzhen, China, taking the Ford trade secrets with him. On January 2, 2007, Yu e-mailed his Ford supervisor from China and informed him that he was leaving Ford’s employ.

The plea agreement further states that in November 2008, the defendant began working for Beijing Automotive Company, a direct competitor of Ford. On October 19, 2009, the defendant returned to the United States, flying into Chicago from China.

Upon his arrival, the defendant was arrested on a warrant issued upon the indictment in this case. At that time, the defendant had in his possession his Beijing Automotive Company laptop computer.

Upon examination of that computer, the FBI discovered that 41 Ford system design specifications documents had been copied to the defendant’s Beijing Automotive Company work computer.

The FBI also discovered that each of those design documents had been accessed by the defendant during the time of his employment with Beijing Automotive Company.

Under the plea agreement, Yu faces a sentence of between 63-78 months’ imprisonment based on an agreed loss amount of more than $50 million and less than $100 million and a fine of up to $150,000. The agreement also provides that Yu will be deported from the United States after completing any term of incarceration.

"We will vigilantly protect the intellectual property of our U.S. automakers, who invest millions of dollars and decades of time in research and development to compete in a global economy," McQuade said. "Those who do not play by the rules will be brought to justice."

Special Agent Arena stated, “Michigan, as well as the rest of the United States, is significantly impacted by the auto industry. Theft of trade secrets is a threat to national security and investigating allegations involving theft of trade secrets is a priority for the FBI. The FBI will continue to aggressively pursue these cases.”

Yu remains in federal custody and is scheduled to be sentenced on February 23, 2011 at 10:00 a.m.

The investigation of this case had been conducted by the Federal Bureau of Investigation. This case is being prosecuted by Assistant U.S. Attorney Cathleen Corken.