Notable Industrial Cases
The first U.S. law against economic espionage became effective in late
1996. Here are brief summaries of some of the first arrests under
this new law.
Notable Industrial
Espionage Cases
The Economic Espionage Act of 1996 was
approved by Congress because theft of U.S. trade secrets is costing U.S.
companies many billions of dollars a year in lost sales and costing U.S.
workers their jobs. Foreign intelligence services and corporations are
increasingly using classical espionage techniques to steal U.S. corporate
marketing information, technological advances, and proprietary data in
support of their national economic goals.
In testimony before Congress regarding
implementation of the new Economic Espionage Act, FBI Director Louis Freeh
reported on the following cases.1
Plant Cell Culture
Technology
Hsu Kai-lo and Chester H. Ho, naturalized
U.S. citizens, were arrested by the FBI in June 1997 and charged with
attempting to steal the process for culturing Taxol from plant cells. Taxol
is now used in the treatment of ovarian cancer. It is a trace element
originally found in an endangered species of yew tree, but it took 1 1/2
endangered yew trees to produce 1/4 ounce of Taxol. Bristol-Myers Squibb
invested approximately $15 million to develop the process for culturing
commercial quantities of the material from plant cells.
A Federal Grand Jury for the Eastern
District of Pennsylvania on July 10, 1997, returned indictments, totaling 11
counts against Hsu, Ho, and Jessica Chou (a Taiwanese citizen who was
actively involved with Hsu in attempting to obtain the Taxol formulas). Hsu
was Technical Director of the Yuen Foong Paper Manufacturing Company of
Taiwan, a multinational conglomerate. Chou was the Manager of Business
Development. Ho was a professor of biotechnology at the National Chaio Tung
University and the Institute of Biological Science and Technology in Taiwan.
Chou remains in Taiwan.
Chou contacted a technological information
broker in an effort to obtain the Taxol technology. She said the Yuen Foong
Paper Manufacturing Company wanted to diversify into biotechnology and
introduce technology from advanced countries into Taiwan. The broker she
approached was an undercover FBI agent. Subsequently, the company
representatives offered to pay a supposedly corrupt Bristol-Myers Squibb
scientist $400,000 cash plus stock and royalties on future sales and made
arrangements to receive the technology.
At a press conference after the indictment,
the first assistant U.S. attorney stated, "We have no ability to suggest one
way or the other, but there is no allegation today of involvement by the
government of Taiwan."2
Taxol is a billion dollar a year industry
for Bristol-Myers Squibb. The foreign market share is estimated to be $200
million. Potential losses could have been in the billions of dollars over
the 10-year period Bristol-Myers Squibb holds the patent for the plant cell
culture technology.
New Gillette Razor
Design
Steven Louis Davis was indicted in
Tennessee on October 3, 1997 on five counts of fraud by wire and theft of
trade secrets for stealing and disclosing trade secrets concerning the
development of a new shaving system by The Gillette Company. Davis was
subsequently sentenced to two years and three months in federal prison.
Davis was employed by Wright Industries, a
Tennessee designer of fabrication equipment which had been contracted by
Gillette to assist in development of the new shaving system. Davis was
originally assigned as the lead process control engineer for the project but
was removed from this position at Gillette's request. Subsequently, he is
alleged to have sent confidential engineering drawings for the new Gillette
razor to Gillette's competitors, including Warner-Lambert, Bic, and American
Safety Razor Co.4
One of the companies (Bic) to which Davis
allegedly sent information is foreign-owned. It is not known whether Davis
disseminated trade secrets overseas, but the FBI has learned that a
competitor in Sweden saw the drawings of the new Gillette razor.
Eastman Kodak Trade
Secrets
Harold C. Worden was a 30-year employee of
the Eastman Kodak Corporation who established his own consulting firm after
retiring from Kodak. Worden's firm was allegedly able to broker the
consulting services of more than 60 other Kodak retirees, some of whom
consulted for competitors. Worden's consulting contacts are believed to have
included foreign firms.
During his last five years at Kodak, Worden
was project manager for what was known as the 401 machine. This is a new
machine designed to inexpensively produce the clear plastic base used in
consumer film. The base is lined with emulsions using a secret formula
that determines the quality of the photographs. When Worden retired, he took
with him thousands of documents marked "Confidential" about the development
the 401 machine, and he recruited his successor to continue providing
confidential information.5
A Kodak spokesman said the numerous
drawings, plans, manuals and other documents removed by Worden were worth
millions of dollars to the company, even though Worden by the time of his
arrest had received only $26,700 for selling the information. The market
share at risk as a result of Worden's activities could have been in the
billions of dollars.
As part of a plea arrangement, Worden pled
guilty in August 1997 to one felony count of interstate transportation of
stolen property. Worden was sentenced in November 1997 to one year
imprisonment, three months of home confinement with monitoring bracelet,
three years of supervised probation, and a fine of $30,000. Kodak has a
civil suit pending against Worden for financial restitution.
A week after Worden was sentenced, Kodak
accused another retired employee of providing trade secrets to what was then
3M's photographic film division in Ferrania, Italy.6
Technology for
Self-Adhesive Products
Pin Yen Yang, and his daughter Hwei Chen
Yang (aka Sally Yang), were arrested in Cleveland on September 5, 1997 and
charged with mail fraud, wire fraud, money laundering, receipt of stolen
property and theft of trade secrets from Avery Dennison Corp. Avery Dennison
is one of the largest U.S. manufacturers of adhesive products, including
adhesives for such things as postage stamps, labels and diaper tape.3
Pin Yen Yang is the President of Four
Pillars Enterprise Company of Taiwan that manufactures and sells
pressure-sensitive products mainly in Taiwan, Malaysia, Singapore, People's
Republic of China, and the United States. The company has more than 900
employees and annual revenues of more than $150 million. His daughter has a
Ph.D. in analytical chemistry from New Mexico State University, was employed
most recently by Four Pillars as an Applied Research Group Leader, and may
hold dual citizenship in the United States and Taiwan.
The Yangs were convicted in April 1999 of
having paid an Avery Dennison employee in Ohio, Dr. Ten Hong Lee, between
$150,000 and $160,000 for highly sensitive and valuable proprietary
manufacturing information and research data over a period of approximately
eight years from 1989 to 1997. Payments were reportedly made through Lee
family members in Taiwan. Avery Dennison estimates that its direct costs for
developing the stolen technology were in the tens of millions of dollars.
Six months prior to the Yangs arrest, Lee
had been confronted by FBI officers and admitted providing confidential
information to Four Pillars. Dr. Lee pled guilty to one count of wire fraud
in return for cooperating with the investigation.
Related Topics:
Who's Doing What to Whom?,
Economic Espionage Act of 1996,
Espionage Killed the Company.
References
1. FBI Director Louis Freeh, statement before the
Senate Select Committee on Intelligence, January 28, 1998.
2. Donna Shaw and Joseph Slobodzian, "Three Indicted
in Scheme to Steal Formula," The Philadelphia Inquirer, July 11,
1997.
3. Department of Justice Press Release, "Taiwanese
Firm, Its President and His Daughter Indicted in Industrial Espionage Case,"
October 1, 1997.
4. "Federal Criminal Charges Brought for Theft of
Gillette Shave Secrets," PRNewswire, Sept. 25, 1997.
5. "Retired Kodak Employee Dealt Trade Secrets,"
Reuters, August 29, 1997.
6. National Counterintelligence Center,
Counterintelligence News and Developments, Vol. 4, December 1997.
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