Chinese economic espionage against the United States has been increasing rapidly, and the Department of Justice has had enough.

To counter these threats, the agency on Nov. 1 announced the creation of a new “China Initiative,” whose aim will be to “identify priority Chinese trade theft cases, ensure that we have enough resources dedicated to them, and make sure that we bring them to an appropriate conclusion quickly and effectively,” then-Attorney General Jeff Sessions stated in prepared remarks announcing the new initiative.

“We’re not going to take it anymore,” Sessions said. “China cannot be a safe haven for criminals who run to China when they are in trouble, never to be extradited. China must accept the repatriation of Chinese citizens who break U.S. immigration law and are awaiting return. We will continue to charge wrongdoers based on carefully conducted investigations done with integrity and professionalism, not politics, and we will seek extradition of criminals.”

Sessions set the following goals for the Initiative:

  • Identify priority trade secret theft cases, ensure that investigations are adequately resourced, and work to bring them to fruition in a timely manner and according to the facts and applicable law;
  • Develop an enforcement strategy concerning non-traditional collectors (e.g., researchers in labs, universities, and the defense industrial base) that are being co-opted into transferring technology contrary to U.S. interests;
  • Educate colleges and universities about potential threats to academic freedom and open discourse from influence efforts on campus;
  • Apply the Foreign Agents Registration Act to unregistered agents seeking to advance China’s political agenda, bringing enforcement actions when appropriate;
  • Equip the nation’s U.S. attorneys with intelligence and materials they can use to raise awareness of these threats within their districts and support their outreach efforts;
  • Implement the Foreign Investment Risk Review Modernization Act (FIRMA) for the Justice Department, including by working with Treasury to develop regulations under the statute and prepare for increased workflow;
  • Identify opportunities to better address supply chain threats, especially ones impacting the telecommunications sector, prior to the transition to 5G networks;
  • Identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with U.S. companies;
  • Increase efforts to improve Chinese responses to requests under the Mutual Legal Assistance Agreement (MLAA) with the United States; and
  • Evaluate whether additional legislative and administrative authorities are required to protect our national assets from foreign economic aggression.

“To counter the threat of Chinese malign economic aggression, prosecutors in the Criminal Division are redoubling our efforts to aggressively investigate Chinese companies and individuals for theft of trade secrets,” said Assistant Attorney General Brian Benczkowski.

The China Initiative will be led by Assistant Attorney General John Demers, head of the National Security Division, and composed of a senior FBI Executive, five U.S. Attorneys, and several other Department of Justice leaders and officials, including Benczkowski.

Recent cases

In his remarks, Sessions noted that the Justice Department is currently prosecuting five cases in which defendants stole or attempted to steal trade secrets for the benefit of the Chinese government. He also announced an indictment brought Nov. 1 against a Chinese state-owned company, a Taiwan company, and three Taiwan individuals for an alleged scheme to steal trade secrets from U.S. semi-conductor company Micron.

One of the defendants served as president of a company acquired by Micron in 2013. He left the company in 2015 and went to work for the Taiwan defendant company—from where he is alleged to have orchestrated the theft of trade secrets from Micron worth up to $8.75 billion. The Taiwan defendant company then partnered with a Chinese state-owned company, so that ultimately China could steal this technology from the United States and then use it to compete against us in the market.

If convicted, the defendants face up to 15 years in prison and $5 million in fines. The companies could face forfeiture and fines worth more than $20 billion.

Additionally, the Commerce Department added the Chinese company to its Entity List to prevent it from buying goods and services in the United States, to keep it from profiting from the technology it stole. Moreover, the Department of Justice has filed a civil action to seek an injunction that would prevent the Chinese and Taiwan companies from transferring the stolen technology, or exporting products based on it to the United States.

“We appreciate the U.S. Department of Justice’s decision to prosecute the criminal theft of our intellectual property,” said Joel Poppen, senior vice president, legal affairs, general counsel and corporate secretary at Micron Technology. “Micron has invested billions of dollars over decades to develop its intellectual property.”

The three former Micron employees named in the indictment are former Micron Memory Taiwan chairman Stephen Chen and engineers JT Ho and Kenny Wang.

In December 2017, Micron filed suit against United Microelectronics Corporation and Fujian Jinhua Integrated Circuit (Jinhua) in the U.S. District Court for the Northern District of California for the misappropriation of Micron intellectual property and trade secrets.

Enforcement implications

“These developments promise to make the international enforcement landscape even more challenging and complex for multinational companies, and they underscore the importance of continued vigilance, proactive assessment of relevant legal risks and contingency planning,” states a client alert from law firm Skadden.

Moving forward, Chinese companies and individuals should be on high alert that the U.S. government has had enough and that the likelihood of facing civil and/or criminal liability for the misappropriation of U.S. trade secrets is higher than ever.

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