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Engineer indicted in military trade secret case

A Silicon Valley engineer stole trade secrets from a San Jose software company and tried to sell them to foreign governments, prosecutors alleged Thursday.
/ Source: The Associated Press

A Chinese engineer was charged Thursday with stealing trade secrets from a Silicon Valley company that made military training software and attempting to sell them to Asian governments.

Xiaodong Sheldon Meng, 42, a Chinese national with Canadian citizenship, was indicted on 36 felony counts, including the rare charge of economic espionage to benefit a foreign government and various violations of military technology export laws.

In an unrelated but similar economic espionage case, two other engineers pleaded guilty Thursday to stealing proprietary computer chip designs from four technology giants and attempting to smuggle them to China.

Prosecutors say Meng stole the code for software made by his former employer, Quantum3D Inc., that’s used to train military fighter pilots, and tried to sell it to the Royal Thai Air Force, the Royal Malaysian Air Force and a company with ties to China’s military.

Under U.S. law, anyone attempting to sell such information overseas must first obtain a license from the State Department and is subject to strict regulations. Meng never applied for such a license.

No foreign government or agent was named as a conspirator in the case, and prosecutors declined to discuss whether any of the secrets were sold or whether any foreign officials or agents knew about the alleged scheme.

In economic espionage cases, the law does not require proof of complicity by a foreign government, and investigators often don’t know the extent of foreign involvement.

Meng’s case marks only the third time in a decade prosecutors have charged someone with economic espionage to benefit a foreign government, the most serious crime under the Economic Espionage Act of 1996. A conviction carries a maximum penalty of 15 years in prison.

His defense lawyer did not immediately return a call.

U.S. Attorney Kevin Ryan said the case highlights the threat U.S. businesses face from thieves looking to sell hard-won intellectual property overseas. Few cases allege intent to benefit a foreign government because it’s difficult to prove, but he said U.S. companies are frequently targeted by overseas concerns.

“Silicon Valley understands full well the threat they are faced with here,” he told The Associated Press. “It’s not only a threat to the economic value of the products being produced, but in some cases it’s a threat to our national security and military infrastructure.”

In the second case, Fei Ye, 40, a U.S. citizen from China, and Ming Zhong, 39, a permanent resident of the U.S. from China, pleaded guilty in San Jose federal court to two counts each of economic espionage to benefit a foreign government as part of a deal with prosecutors. Ye and Zhong initially faced 10 counts each, and had been scheduled to go to trial in January.

They were charged with stealing confidential microchip blueprints and other trade secrets from their employers and attempting to smuggle them to China. The indictment alleges they planned to start a microprocessor company with the financial backing of various Chinese government agencies.

Ye and Zhong were arrested in 2001 at San Francisco International Airport, attempting to board a flight to China. Their luggage was allegedly crammed with thousands of pages of trade secrets stolen from four Silicon Valley companies — NEC Electronics Corp., Sun Microsystems Inc., Transmeta Corp. and Trident Microsystems Inc.

The indictment alleges the men, former employees of those companies, stole schematic drawings of computer chips under development, internal instructions for the design and layout of circuits and components, and other confidential information from the companies.

Documents seized from their homes included a corporate charter and a fundraising application touting the project’s ability to raise China’s stature in the field of integrated circuit design, according to the indictment.

Other documents allegedly show a panel of Chinese government officials had reviewed the company’s business plan, deemed it feasible and encouraged agencies to provide financial support.

A business partner who tipped off the FBI told investigators the startup, called Supervision Inc., had received $2 million in funding from two Chinese cities, Hangzhou and Guangzhou, to develop the new microprocessor, according to an affidavit.

Both said little during Thursday’s 40-minute hearing, and afterward declined to comment through their defense lawyers.

Ye and Zhong, who remain free on bail following their pleas, are scheduled to be sentenced April 23. Each face a maximum of 30 years in prison.

James Pooley, an intellectual property litigator and adjunct law professor at the University of California, Berkeley, said the conviction — the first of its kind — was a much-needed victory for the Justice Department.

“You’re finding people who aren’t just trying to take something opportunistically from their employer. They’re going places, planning to take trade secrets, and combining secrets from many different places,” Pooley said. “This shows the problem is real and it’s big.”

The only other case to allege economic espionage involved two Ohio researchers indicted in 2001 for allegedly stealing genetic materials used for Alzheimer’s disease research and funneling it to a Japanese government-funded corporation.

But the case fizzled after Japan refused to extradite one defendant, Takashi Okamoto, because a Japanese judge ruled he had not violated U.S. laws. The other defendant, Hiroaki Serizawa, pleaded guilty in the U.S. to a much lesser charge of making false statements to investigators.