Now Hear This!

Here's one that should be taught in law schools as more and more cases come to courts based on IP, technologies, and new legal provisions that most juries made up of so-called peers would not fully understand.

A trial began this week involving two engineers that have been accused of conspiracy to commit economic espionage and to steal trade secrets. Indicted by the US Department of Justice (DoJ) in September 2007 after being arrested in June 2006, US citizen Lan Lee, aka Lan Li, of Palo Alto, and Chinese national Yuefei Ge of San Jose, allegedly conspired to steal trade secrets from their former employer, NetLogic Microsystems, and from TSMC, at which they were not employed.

According to the indictment, the defendants allegedly created a company, SICO Microsystems, "for the purpose of developing and marketing products derived from and using the stolen trade secrets," which were related to computer chip design and development. The defendants also allegedly sought to obtain venture capital funding for their company from the government of China, in particular the 863 Program and the General Armaments Department (GAD). The 863 program is a funding plan created and operated by the government of China. It was designed by leading Chinese scientists to develop and encourage the creation of technology in China, with an emphasis on military applications. Meanwhile, GAD of the People’s Liberation Army was responsible for the army, navy, and air force in China and oversaw the development of weapons systems used by the country. GAD had a regular role in, and was a major user of, the 863 program, according to the DoJ. 

The case is being heard in US District Court for the Northern District of California and actually dates back some seven years when in 2002 the CEO of NetLogic received an e-mail from Ge's wife tipping him off to the alleged theft. She also made an anonymous call to the FBI, according to reports.

The defense is making part of its argument based on Ge's wife's anger toward her workaholic husband. Apparently, according to defense lawyers, she was feeling neglected and was ticked off that he was not spending enough time with her and the family and made up the allegations. Defense also argues that documents found on Lee's and Ge's computers that much of the prosecutors' case is founded on are useless in trying to build chips and that the defendants could have taken NetLogic out at the knees with other schematics that they had access to, if that was their intention.

According to reports, most of the documents found on Lee's and Ge's computers had to do with business agreements between SICO and China-based venture capital firms regarding the 863 program.

Prosecutors are relying on a somewhat rarely used provision of the Economic Espionage Act (EEA) of 1996, which deals with the theft of trade secrets for the benefit of a foreign nation. The EEA was passed to protect US trade secrets and IP from foreign government-sponsored theft, however, is difficult to prove in court. Indeed, only a handful of have been indicted under EEA, with less actually found guilty.

Because of the EEA provisions under which the case is being argued, prosecutors will have to prove that Lee's and Ge's actions were without doubt intended to benefit China's government, not just their own businesses, and that China's government was involved in the alleged trade secret theft to win the case. While implying that the allegedly stolen trade secrets would benefit China, the indictment does not directly make any allegations against China. Lee and Ge are both pleading not guilty.

It's a highly complicated case from both the legal argument and IP/entrepreneurial sides that will surely stump even the most law-savvy and technically astute member of the jury. That being so, the case could be seen as one that perhaps evidences that US laws don’t match or keep up with technology, so-called trade secrets or IP, and tech business practices. If these two engineers were indeed acting as spies for China and indisputably offering true trade secrets/IP that would not only hurt proprietary company information but also damage US security or ability to innovate, then off to jail they should go. There's no question about that. But if these engineers do turn out to be entrepreneurs who did not steal trade secrets/IP and were instead truly trying to build an honest start-up, with investment only from 863 no further government interference, then they have not gone wrong.

Without seeing all of the court documents and actually being in the court room as this trial plays out, one can't say for sure what the situation is. As an editor based in NY, I won't be attending the trail, although I have made calls for the documents. Espionage is not a matter to take lightly, but even without being in the courtroom or having the full set of documents in hand one can see that the case has more than irregularities to it.

What do you think? Is this a case of espionage or a misinterpretation of tech industry business practices? What defines a trade secret? Will more cases like this come down the pike regarding IP rights? Share your thoughts below.