From China with Love: Front Page Article in The Wall Street Journal Highlights Liew and Pangang Group Spying Prosecution

The Wall Street Journal has a fascinating story today about how the investigation of Walter Liew and Pangang Group Company Limited unfolded last year.  This case is rapidly becoming the highest profile prosecution in the relatively short history of the Economic Espionage Act -- a prosecution that has expanded to include the Pangang Group, a company owned and controlled by the Chinese government.  

As I wrote last month, in essence, the U.S. Attorney for the Northern District of California indicted China for the theft of DuPont's trade secrets for the process and manufacture of titanium dioxide (TiO2).  Titanium dioxide is a commercially valuable white pigment that is used in a large number of materials ranging from paints to plastics to paper and is particularly valuable in military and aerospace applications. 

The Wall Street Journal article provides further detail about the investigation and documents that led to the indictment of Pangang Group, including the description of documents confiscated from Liew's home.  According to the Wall Street Journal, in a letter written by Liew to Pangang, "he stated that a high-ranking Chinese Communist Party leader asked him in 1991 to bring the titanium-dioxide-making secrets back to China."  Liew has since filed an affidavit disavowing the contents of those documents and claiming that they "are not accurate or reliable."

Liew reportedly received more than $12 million from a Pangang subsidiary between 2009 and 2011 for his efforts.  He recruited former DuPont employees, including Tim Spitler, an engineer from Reno, Nevada, and Tze Chao, a 36-year DuPont employee, to allegedly provide him with DuPont's titanium-oxide trade secrets. Chao pleaded guilty to conspiracy to commit economic espionage last week and he is quoted in the article as saying that Chinese officials led him astray by "overtly appeal[ing] to my Chinese ethnicity and ask[ing] me to work for the good of the [People's Republic of China]."

Unfortunately, the story does not shed any further light on two of the more interesting features of the case.  First, there is no explanation for the release of two unidentified senior Pangang Group executives who were detained during a visit to California to meet with Liew.  They were initially held as material witnesses while the FBI reviewed and translated documents retrieved from the Liews' home.  According to the article, prosecutors decided they could no longer hold the men as witnesses and allowed them to return to China.  Why they were not charged, when the FBI had discovered the trove of documents, still remains a mystery.  Second, there is no detail surrounding the apparent suicide of Spitler, who had agreed to serve as an important witness in the government's case and killed himself just before the indictment of Pangang Group last month.

The story is important in three respects:  (1)  It emphasizes that international economic espionage should be an issue of grave concern for companies doing business outside the U.S.; (2) It reinforces the importance of the pending legislation to add a civil cause of action to the Economic Espionage Act, an amendment that would provide U.S. businesses with a powerful tool to combat international misappropriation of their trade secrets; and (3) It serves as yet another reminder of the importance of aggressively safeguarding your trade secrets.  While DuPont is lauded for its vigilance (it commenced a civil action against Liew and promptly notified federal authorities), the FBI is concerned that the problem is growing despite its efforts to raise the awareness of companies to this threat.