Sino-American Double Loyalty

Apple has 'deep concerns' that Sino-American ex-employees accused of theft will flee to China

By Stephen Nellis

SAN JOSE, California -- Apple Inc on Monday told a federal court it has “deep concerns” that two Chinese-born former employees accused of stealing trade secrets from the company will try to flee before their trials if their locations are not monitored.

The Apple Inc. logo is seen hanging at the entrance to the Apple store on 5th Avenue in Manhattan, New York, U.S., October 16, 2019. 

At a hearing in U.S. District Court for the Northern District of California, prosecutors argued that Xiaolang Zhang and Jizhong Chen should continue to be monitored because they present flight risks.
Zhang worked on Apple’s secretive self-driving car program and took files related to the project before disclosing that he was going to work for a Chinese competitor. 

Federal agents arrested Zhang last year at the San Jose airport as he was about to board a flight for China.
Chen took from Apple more than 2,000 files containing “manuals, schematics, diagrams and photographs of computer screens showing pages in Apple’s secure databases” with intent to share them. 

Agents arrested him in January at a train station on his way to San Francisco International Airport for a trip to China.
The men were each charged with one count of criminal trade secrets theft and pleaded not guilty. They were released on bail shortly after their arrests and have been monitored since then.
Attorney Daniel Olmos, who represents the men, said Monday that both had family reasons to visit China and had shown no signs of violating their pre-trial conditions so far.
Assistant U.S. Attorney Marissa Harris argued that if either man fled to China, it would be impossible for federal officials to secure their extradition for a trial. 

Three Apple employees sat in the courtroom to support prosecutors, including Anthony DeMario, a strategic adviser to Apple’s global security group and veteran of the U.S. Central Intelligence Agency.
Harris read Apple’s statement to U.S. District Judge Edward J. Davila in San Jose, California.
“Apple’s intellectual property is at the core of our innovation and growth,” the statement said. 

“The defendants’ continued participation in these proceedings is necessary to ensure a final determination of the facts, and we have deep concerns the defendants will not see this through if given the opportunity."
Zhan stood listening through an interpreter and was dressed in a white and blue dress shirt, black jeans and Nike sneakers. 

Harris said Zhang’s wife told federal agents that Zhang, who is a permanent U.S. resident, attempted to flee to Canada when agents searched his home.
During that search, agents found a laptop at the bottom of a laundry hamper that contained trade secrets about Ethernet technology from Zhang’s prior employer, chip supplier Marvell Technology Group Ltd, according to court documents.
Chen, a U.S. citizen who emigrated from China in 1991, listened to the proceedings through an interpreter and wore a dark blue hoodie. 

He has been under radiofrequency monitoring, which is less precise than GPS tracking.

CONFIDENTIAL MISSILE DOCUMENTChen is a flight risk in part because prosecutors found documents from several other former employers -- including General Electric Co and Raytheon Co -- at Chen’s second residence in Maryland, where his wife and son live. 

Prosecutors found a 2011 document from Raytheon that they later determined was classified as “confidential,” the lowest level of sensitivity in the U.S. government system.
“This document contains information relating to Raytheon’s work on the Patriot Missile program and was not (and is not) permitted to be maintained outside of Department of Defense secured locations,” prosecutors wrote.
Trial dates have not been scheduled. 

A hearing is scheduled for February.

Chinese Firm, Taiwanese Partner Steals Trade Secrets From Micron

Indictment is announced alongside wide-ranging initiative to combat Chinese theft of critical U.S. technology
By Aruna Viswanatha, Kate O’Keeffe and Dustin Volz

The indictment, unsealed Thursday, is the latest in a flurry of charges targeting massive Chinese technology theft.

The Justice Department unsealed charges Thursday against a Chinese state-owned firm and its "Taiwan partner" for stealing trade secrets from the U.S.’s largest memory-chip maker, Micron Technology Inc.
The indictment, announced alongside a wide-ranging U.S. initiative to combat Chinese national security threats, is the latest in a flurry of charges targeting Chinese technology theft.
The case, which follows related criminal charges filed by Taiwanese authorities last year, charges United Microelectronics Corp. , a Taiwan semiconductor foundry that is publicly traded on the New York Stock Exchange; Chinese state-owned Fujian Jinhua Integrated Circuit Co.; and three Taiwan nationals.
Attorney General Jeff Sessions also condemned China for clear violations of an accord reached with the Obama administration under which both governments agreed not to support cyberattacks to steal corporate secrets from one another.
“In 2015, China committed publicly that it would not target American companies for economic gain,” Mr. Sessions said. 

“Obviously, that commitment has not been kept.”
According to the indictment, one of the defendants was a former Micron employee in Taiwan who moved to UMC in 2015 and recruited the two other individuals who were charged to join him and bring Micron’s trade secrets with them. 

The ringleader arranged for UMC to partner with Jinhua, where he then went to work, to develop the same technology, the indictment says.
Representatives for Jinhua and the Chinese Embassy in Washington, D.C., didn’t immediately provide comment. 

A lawyer for UMC declined to comment. 

The individuals, who are not in U.S. custody and believed to be overseas, couldn't be located for comment.
Micron praised the indictments in a statement, saying it has invested billions of dollars over decades to develop its intellectual property.
The unsealing of the indictment, obtained in September and made public Thursday, comes just days after the Commerce Department dealt a potentially fatal blow to Jinhua by barring exports and transfers of U.S.-origin technology to the firm, which depends on the technology to produce its own chips. 

Jinhua, a startup backed by $5.7 billion in state funds, is a key part of China’s plan to build a world-class semiconductor industry and wean itself off a dependence on foreign technology.
The Justice Department also filed a civil action to prevent UMC and Jinhua from exporting the allegedly stolen technology to the U.S. to compete with U.S. chip firms. 

“We are not just reacting to the crimes... We are acting to block the defendants from doing more harm to our United States-based company, Micron,” Mr. Sessions said.

Also on Thursday, Mr. Sessions announced a new “China initiative” to better combat theft of trade secrets, bribery, illegal Chinese lobbying and business deals that could give Chinese investors access to critical U.S. technology.
Mr. Sessions said that as part of the initiative, a new working group of Justice Department officials, including the top federal prosecutors from districts in California, Texas and other states, would increase law-enforcement engagement with U.S. universities, where the Justice Department believes Chinese Communist party initiatives target technology and threaten academic freedom.
U.S. officials have stepped up pressure on Beijing over what they describe as a wide-ranging campaign to improperly obtain critical U.S. technology. 

Earlier this week, federal prosecutors unsealed charges against two Chinese intelligence officers and eight others who worked with them on a yearslong campaign to steal information about a commercial aircraft engine being developed by a U.S. and a French firm.
“Taken together, these cases, and many others like them, paint a grim picture of a country bent on stealing its way up the ladder of economic development, and doing so at American expense,” said John Demers, who heads the Justice Department’s national security division.
With a mix of cyberattacks and on-the-ground recruiting, Beijing’s corporate raiding costs the U.S. economy hundreds of billions of dollars annually.

FBI officials say the agency has active economic espionage investigations leading back to China in all 56 FBI field offices that span nearly every industry and sector.
On Thursday, the FBI’s deputy director David Bowdich said China poses one of the “broadest, most complicated and longest-term threats we face,” and highlighted company insiders, students, and academics who share research results with people not authorized to receive them as the types of spies the FBI is concerned about.
The administration’s renewed focus on rooting out Chinese spies in the scientific community has caused concern among Sino-American suspects.

The sharp rhetoric from senior Justice Department officials contrasted with Trump’s description of a “long and very good call” earlier Thursday with Chinese dictator Xi Jinping, on topics including trade and North Korea.
The Justice Department action against UMC and Jinhua comes after Micron in December sued the companies in a federal court in California, alleging they stole its talent and trade secrets. 

Jinhua contests the claim and the case is continuing.
Jinhua then sued Micron in January in a court in China’s Fujian province—whose government partly controls Jinhua—and won a temporary order blocking Micron units from selling products in China on which each company claims patents. 

Micron has said Jinhua’s suit was a bogus retaliation measure and has criticized Beijing over its treatment.
Among the files pilfered from Micron are hundreds of pages of documents and large Microsoft Excel spreadsheets containing precise design specifications for the architecture of various dynamic random access memory, or DRAM, products. 

Micron is the only U.S.-based company to manufacture DRAM devices, and the value of the stolen intellectual property was at least $400 million and as high as $8.75 billion, according to the indictment.
Thursday’s allegations also added to a growing consensus that China is in violation of the 2015 bilateral pact between Xi Jinping and then-President Obama on cybertheft. 

Officials said that even if the Micron case wasn’t itself a cyber matter, it involved insiders stealing information with the help of cybertools.
U.S. intelligence officials and several private-sector cybersecurity firms believe the accord led to a light decline in Chinese corporate espionage through hacking, but that the malicious activity has returned since Mr. Trump took office as hostilities over trade and other issues have escalated.
Idaho-based Micron, valued at about $100 billion, owns a 20% to 25% share of the dynamic random access memory industry, a computer technology the Chinese didn’t possess until very recently, Mr. Sessions said.

How China Systematically Pries Technology From U.S. Companies

Beijing leans on an array of levers to extract intellectual property coercively

By Lingling Wei in Beijing and Bob Davis in Washington

When China set out to build the C919 jet, it made clear it would buy components only from joint ventures whose foreign partners would share technology. 

DuPont Co. suspected its onetime partner in China was getting hold of its prized chemical technology, and spent more than a year fighting in arbitration trying to make it stop.
Then, 20 investigators from China’s antitrust authority showed up.
For four days this past December, they fanned out through DuPont’s Shanghai offices, demanding passwords to the company’s world-wide research network, say people briefed on the raid. Investigators printed documents, seized computers and intimidated employees, accompanying some to the bathroom.
Beijing leans on an array of levers to pry technology from American companies—sometimes coercively so, say businesses and the U.S. government.
Interviews with dozens of corporate and government officials on both sides of the Pacific, and a review of regulatory and other documents, reveal how systemic and methodical Beijing’s extraction of technology has become—and how unfair Chinese officials consider the complaints.
China’s tactics, these interviews and documents show, include pressuring U.S. partners in joint ventures to relinquish technology, using local courts to invalidate American firms’ patents and licensing arrangements, dispatching antitrust and other investigators, and filling regulatory panels with experts who may pass trade secrets to Chinese competitors.
In DuPont’s case, the dispute concerned a process to produce supple textile fibers from corn, a $400 million business for the company in 2017. 

The antitrust investigators, say the people briefed on the raid, told DuPont to drop the case against its former Chinese partner.
U.S. companies have long complained that Beijing pressures them to hand over intellectual property. More recently, their concerns have escalated as China turns into an advanced rival in industries ranging from chemicals to computer chips to electric vehicles.
Coerced technology transfer is now a central part of the spiraling U.S.-China trade fight, a standoff that appears to be only more entrenched. 

The White House estimates China inflicts $50 billion yearly in damages on U.S. companies. 

That transfer weakens American businesses’ competitiveness and undermines the incentive to innovate.

Coerced technology transfer is part of the spiraling U.S.-China trade war.

Chinese authorities referred questions to a paper issued on Monday by the State Council, China’s cabinet, that says: “Foreign companies are allowed to access China’s markets but they would need to contribute something in return: their technology.”

U.S. companies have gone into China with eyes wide open, for the most part, and many are wary of going public with complaints. 

American companies initially brought the idea of joint ventures to China as a way to get access to a market of 1.4 billion people and tap a low-cost workforce. 

The bargain included helping Chinese firms become more technologically advanced.
At a January U.S. Chamber of Commerce dinner in Washington, executives pressed U.S. Ambassador to China Terry Branstad not to hit Beijing too hard on technology issues, according to dinner attendees. 

China has many ways to get even, warned Christopher Padilla, a vice president of International Business Machines Corp., which licenses technology to Chinese firms.
“If someone gets knifed in a dark alley, you don’t know who did it until the next morning,” Mr. Padilla said at the dinner. 

“But there has been a murder.”
DuPont briefed U.S. officials on its problems but didn’t want its case raised in trade talks, say some of the people familiar with the case. 

Its former Chinese partner, Zhangjiagang Glory Chemical Industry Co., continues to sell chemicals used to make fibers that DuPont believes are knockoffs of its technology. 

DuPont and Glory declined to make executives available for comment.
China’s antitrust regulator said “the investigation is still ongoing,” declining to elaborate.

‘Notable pressure’
About one in five members of the American Chamber of Commerce in Shanghai say they have been pressured to transfer technology, according to a survey conducted in the spring. 

Of those companies, 44% in aerospace and 41% in chemicals report “notable pressure.” 

China considers both industries strategically important.
Trading market access for technology dates to Chinese leader Deng Xiaoping’s effort to launch the pro-market policies that propelled China’s rise. 

General Motors Co. executives on an exploratory 1978 visit proposed a joint venture with a local company to boost a then-antiquated Chinese industry, say Chinese government advisers, historians and auto-industry executives.
The idea fit with Deng’s desire to obtain Western technology but limit Western influence. 

China “needs to give up portions of the domestic market in exchange for advanced technologies we need,” he pronounced in 1984. 

The policy was a success, according to a March 2018 paper by economists at the universities of Colorado, Hong Kong and Nottingham, who found that foreign technology “diffuses beyond the confines of the joint venture” and boosts competitors’ technology.
Foreigners bring cash, technology, management know-how and other intellectual property while the Chinese partner usually contributes some land-use rights, financing, political connections and market know-how. 

As the practice increased, one U.S. administration after another, with only modest success, pressed Beijing to ease requirements that U.S. companies fork over technology. 

The Trump administration says it wants to “change the paradigm” by hitting Beijing with tariffs.
China mandates that foreign companies wanting to open or expand in 35 sectors do it through joint ventures, though it announced a plan in April to phase out rules requiring foreign auto makers to share factory ownership and profits with Chinese companies by 2022.
The arrangement has worked for some. 

When China set out to build its first large commercial passenger jet in 2008, state-owned Commercial Aircraft Corp. of China made clear it would buy components only from joint ventures whose foreign partners would share technology. 

General Electric Co. agreed.
GE’s venture with state-owned Aviation Industry Corp. of China now is a main supplier of avionics for the domestic C919 aircraft. 

The joint venture helped GE avoid writing down a struggling avionics unit, according to former and current GE employees.
GE says “there was never a write down at our avionics business, nor was there risk of one.” 

It says, referring to intellectual property, that GE is “highly sensitive to the protection of our IP whether in our wholly-owned operations or in our” joint ventures.
Advanced Micro Devices Inc., a Silicon Valley chip company, entered a joint venture in 2016 with Chinese private and state-owned entities, including the government’s Chinese Academy of Sciences. AMD licenses microprocessor technology to the venture and is developing new computer chips with it.
AMD has received about $140 million in licensing through 2017, enough to help boost it into the black last year for the first time since 2011. 

“We created a joint venture that was very much a win-win,” AMD Chief Executive Lisa Su said at a 2016 conference. 

An AMD spokesman says the joint venture is “part of our strategy to create a complementary product offering.”
Chinese leaders see innovative technologies as forces to propel its industries up the value chain into more sophisticated sectors and the country into rich-nation ranks. 

To ensure foreigners bring their best, phalanxes of regulatory panels scrutinize foreign investments to make sure they meet government goals.
Huntsman Corp. has singled out these review panels as a conduit for siphoning trade secrets. 

The Woodlands, Texas, chemicals maker is thriving in China, which accounted for about 14% of its 2017 revenues.
Still, “our competition isn’t going to be standing on the sidelines cheering a song,” CEO Peter Huntsman told analysts in June. 

They could be “trying to either steal the technology or develop the technology themselves.” 

Mr. Huntsman declined to be interviewed.
Regulatory panels, packed with industry experts, must approve many chemicals before they can be produced in China and require detailed information on formulas and production processes, say U.S. trade groups and chemical firms. 

“Enough information to duplicate the product,” is how the American Chemical Council trade group put it in a filing to the U.S. government.
For Huntsman, these panels have drilled down on specialized knowledge, such as how it makes plastics with high transparency and elasticity—the kind of material often used for making sports shoes—people close to Huntsman say. 

Soon after those experts conducted their evaluations, local competitors used the same kind of technology in their own products, they say.
Huntsman is battling over a crown jewel of its business, a black dye used in textiles that is less polluting to make. 

It filed a lawsuit in Shanghai against a Chinese company for infringing a patent on the dye in 2007. Huntsman then found a court-appointed review panel stacked against it, it said in a 2011 complaint it filed with the U.S. Commerce Department.
The three-panel members included an engineer from the company Huntsman was suing, another from a local dye-research group and a third who once worked at a local dye firm, according to the complaint and people with knowledge of the matter. 

The experts’ work “effectively turned them into allies and ‘spokespersons’ ” for the Chinese competitor, the complaint said.
Litigation of the patent-infringement case has dragged on. 

Huntsman has asked the Trump administration to consider blocking Chinese firms if they set up operations in the U.S. using disputed Huntsman technology.
For foreign auto makers, the review panels have become a battleground over electric-vehicle technology. 

New vehicles must get government approval before mass production, undergoing a mandatory technology audit that usually lasts several days, foreign makers say.

An electric-vehicle manufacturing line in China. 

An audit this year convinced an employee at one foreign auto maker there was “clear evidence of collusion” between the audit team and Chinese auto makers. 

When the audit began, the person says, inspectors asked for only the blueprints of the electric-vehicle components the foreign company was striving to protect from its Chinese joint-venture partner.
“Somehow they knew exactly the areas to look at,” the person says. 

“There wasn’t a single question about any of the other very complex systems on the vehicle.”

The DuPont raid
DuPont also shared information with its Chinese partner, Zhangjiagang Glory, when it licensed the Chinese firm in 2006 to produce and distribute Sorona, the textile polymers made from corn. 

Within DuPont, the Glory deal was called a “tolling” partnership—a relationship that serves as a kind of toll to enter the market. 

DuPont trained Glory to set up a factory to produce Sorona polymers and to spin them into fibers.
Around 2013, say the people familiar with the case, DuPont didn’t renew Glory’s license amid suspicions the Chinese firm was ripping off its intellectual property to sell products similar to Sorona, which has grown to a $70 million business in China. 

DuPont filed two arbitration cases in China, alleging patent infringement, with hearings stretching through 2017.
Around that time, officials with the National Development and Reform Commission’s antitrust division in Beijing took an interest in the matter and started holding meetings with DuPont. 

The commission showed little interest in DuPont’s planned merger with Dow Chemical Co., completed late last year, even though it launched an antitrust investigation into the combined entity in December.
Rather, investigators focused on the DuPont-Glory standoff, say the people briefed on the case. During three days of meetings in December, DuPont became worried about a raid on its office. 

It planned an employee-training session on how to deal with one, but the investigators showed up first.
An investigator told DuPont officials they were looking at antitrust behavior, specifically their unwillingness to license technology to Chinese firms and their pursuit of the Glory case, say these people. 

DuPont officials, they say, now fear that even dropping the case won’t be sufficient to satisfy Beijing, which may want a hostage in the trade fight with Washington.
Trump administration officials see cases like this as evidence of China’s economic aggression. 

“The combination of naiveté and hubris on the part of U.S. companies seeking to enter the Chinese market, coupled with a sophisticated Chinese effort to extract technology has been a lethal combination,” says White House trade adviser Peter Navarro.

Micron Technology chips. 

During August trade talks, U.S. negotiators pressed Beijing about coerced technology transfer. 

They cited memory-chip maker Micron Technology Inc., which filed a lawsuit in U.S. District Court in California in December alleging technology theft by Fujian Jinhua Integrated Circuit Co. 

Jinhua sued Micron in January in a court in Fujian province—whose government partly controls Jinhua—and won a temporary order blocking some Micron subsidiaries from selling products in China that each company claims patents to.
Jinhua declined to comment. 

In a July statement, it said Micron has “recklessly” infringed on its patents. 

Micron says it intends “to vigorously protect our intellectual property and business interests through all available means.”

Nation of Thieves

Chinese companies stole Hitachi Metals trade secrets
By Hudson Lockett, Shawn Donnan

Hitachi Metals has filed a complaint with the US International Trade Commission against Chinese companies it alleges stole trade secrets for manufacturing ribbons made of a special alloy.
The complaint, filed by Hitachi and its US subsidiary Metglas, requests the commission investigate the companies in question, ban imports to the US of related products and issue a cease and desist order barring sale, marketing and distribution of products already in the US.
The product at the centre of the allegations is amorphous metal ribbon, or AMR – thin ribbons of a special alloy produced using trade secrets.
Amorphous metal is commonly used in electronic transformers and magnetic theft-prevention tags. The complaint to the ITC names companies including Beijing ZLJG Amorphous Technology and Qingdao Yunlu Energy Technology as having misappropriated trade secrets.
It also names two Japanese nationals and former Hitachi Metals employees as having provided said secrets to these companies. 
Hitachi argues in the complaint that substantial output growth of AMR in China from 2012 to 2015 – which it asserts occurred in the absence of any growth in production capacity – “could only have happened by receiving knowledge” of its trade secrets, which it says would have increased production efficiency.
Hitachi says one China-based company, AT&M International Trading, even filed an antidumping petition against itself and Metglas in September 2015, which alerted it to the rapid growth in China’s AMR output capacity since 2012.
Section 337 cases such as the one filed by Hitachi are often brought by US companies claiming IP violations by Chinese companies.
But cases alleging industrial espionage are relatively rare and not always successful.
US Steel last year filed an unsuccessful Section 337 case against Chinese competitors calling for a broad ban on steel imports from China because of espionage.
The steel maker claimed that government-backed Chinese hackers had stolen its formula for special high-strength steel used in automobiles.
But it struggled to prove any link between the hackers, who were charged with the theft by US prosecutors, and the product made by Chinese companies.

U.S. 3.8 Million Chinese Spies

Feds accuse Sino-Americans of stealing trade secrets for China
By Gabrielle Banks and Keri Blakinger

The FBI and other federal authorities raided a ritzy Hedwig Village home Tuesday.

Six technology experts in the Houston area have been charged with stealing trade secrets from a Houston engineering company and slipping them to a manufacturer in China in what investigators said was an effort by the Chinese government to become a worldwide marine power.
The Chinese manufacturer tried to use the same stolen trade technology to sell products back to the U.S. company at "significantly reduced prices," according to court documents.
The product at the center of the thefts is called syntactic foam, a high-performance buoyancy agent that can be used in both civilian and military projects for oil exploration, aerospace, submarines and what prosecutors termed "stealth technology."
The Houston company is not identified in court papers unsealed Wednesday, but is a global engineering firm considered a leader in marine technology, particularly in the production of syntactic foam, according to court documents.
The arrests were announced Wednesday, a day after federal agents armed with a search warrant swept through the $1.6 million Hedwig Village home of Shan Shi, 52, who authorities say was hired as a consultant by the Chinese manufacturer to set up a company to push marine buoyancy technology.
Shi was among four U.S. citizens charged in the federal complaint, along with Uka Kalu Uche, 35, of Spring; Samuel Abotar Ogoe, 74, of Missouri City; and Johnny Wade Randall, 48, of Conroe.
Also charged were Houston residents, Kui Bo, 40, a Canadian citizen, and Gang Liu, 31, a Chinese national with permanent resident status.
Hui Huang, 32, who lives in China and works for the Chinese manufacturing firm in Zhejiang Province, was also charged.
All are charged in federal court in the District of Columbia with conspiracy to commit theft of trade secrets, which carries a maximum sentence of 10 years in prison and financial penalties.

A civil forfeiture complaint was also filed in Washington, D.C., for properties officials say were used for or in connection with illegal conduct.
The Chinese manufacturing company intended to sell syntactic foam as part of a push to meet China's national goals of boosting its marine engineering industry, according to federal officials.
The investigation was led by the FBI's Houston field office, the U.S. Department of Commerce's Bureau of Industry and Security export enforcement office and the Internal Revenue Service's Criminal Investigation Unit.
The scheme played out over a five-year period, from 2012 to May 2017, according to the criminal complaint.
Shi set up a Houston company -- first known as Optimax International Inc. and later renamed Offshore Dynamics Inc. -- that billed itself as an engineering consultant to oil and gas companies, according to an sworn statement from an FBI special agent from Houston.
The sole owner of the company is the Chinese manufacturing firm, records show.
The company then began recruiting well-placed employees at local competitors, hiring away several who had knowledge of the U.S. company's technology, according to court documents.
Investigators traced 23 wire transfers of $2.2 million sent from China to the Houston site, apparently to fund the scheme.
Proprietary information -- some of which was privy to just a half-dozen of the 400 employees at the U.S. company -- was eventually shipped back to the Chinese manufacturer, according to court records.
In one email sent April 14, 2015, Huang asks Shi and Bo to provide specific details on how to manufacture syntactic foam, according to the complaint.
"I need information regarding formula, preparation process and performance of the syntactic materials," Huang said in the email.
By 2016, the upstart company became a bit more brazen. 

An official at the U.S. company told the FBI that in October 2016, Shi and Huang offered to produce spheres in China for less than what it cost the American company to make them.
The person trying to cut the deal "even offered to sign an exclusivity agreement" if the American company bought a large enough quantity of macrospheres. 

The company official visited the Chinese plant to consider the offer.
"The main rationale for considering the deal was to block [the U.S. company's] competitors from gaining access to cheaper macrospheres," according to the statement from the FBI agent.
The company official was surprised by how quickly the imitation company "had been able to develop quality products," he said.
The FBI operation kicked in when the Chinese-backed company began offering its technology and making deals with other companies for underwater vehicles.
It's hard to put an exact dollar value on it, but trade secret theft is a massive underground market, powered by Chinese interests.
A report this year by the bipartisan, nongovernmental Commission on the Theft of American Intellectual Property described China as the "world's principal IP infringer." 

Purloined trade secrets -- in combination with more quantifiable thefts, such as counterfeit goods and pirated software -- cost the U.S. at least $225 billion per year, and possibly as much as $600 billion.
Less than a week before the most recent arrests, a Chinese man pleaded guilty in federal court on charges of economic espionage and trade secret theft. 

The ex-IBM employee stole computer code with the intent to benefit the National Health and Planning Commission of the People's Republic of China.
U.S. companies don't report such thefts, given the costs of pursuing redress and the possible negative impacts on stock prices.

3.8 Million Chinese Spies

Ex-IBM Employee Guilty of Stealing Secrets For China
By Jeff John Roberts

A former developer for IBM pled guilty on Friday to economic espionage and to stealing trade secrets related to a type of software known as a clustered file system, which IBM sells to customers around the world.
Xu Jiaqiang stole the secrets during his stint at IBM from 2010 to 2014 "to benefit the National Health and Family Planning Commission of the People’s Republic of China," according to the U.S. Justice Department.
In a press release describing the criminal charges, the Justice Department also stated that Xu tried to sell secret IBM source code to undercover FBI agents posing as tech investors. (The agency does not explain if Xu's scheme to sell to tech investors was to benefit China or to line his own pockets).
Part of the sting involved Xu demonstrating the stolen software, which speeds computer performance by distributing works across multiple servers, on a sample network. 

The former employee acknowledged that others would know the software had been taken from IBM, but said he could create extra computer script to help mask his origins.
Xu, who is a Chinese national who studied computer science at the University of Delaware, will be sentenced on October 13.
The Justice Department's press release does not identify IBM, but instead refers to "the Victim Company." 

But other news outlets name IBM as the target of the theft, while a LinkedIn page with Xu's name shows he worked at IBM as a file system developer during the relevant dates.
IBM did not immediately respond to request for comment on Sunday.
This isn't the first time that Chinese nationals have carried out economic espionage against American companies. 

In 2014, the Justice Department charged five Chinese hackers for targeting U.S. nuclear and solar energy firms. 

And late last year, the agency charged three others for hacking U.S. law firms with the goal of trading on insider information that they obtained.

Nation of Spies

Chinese convicted of theft of engineered rice
Reuters

The Bad and Ugly: Zhang Weiqiang, left, and Yan Wengui. The Chinese are accused of giving proprietary rice seeds that contained medicinal qualities to crop researchers in their native China.

A federal jury on Thursday convicted a Chinese scientist in Kansas of conspiring to steal samples of a variety of genetically engineered rice seeds from a U.S. research facility, the U.S. Justice Department said, the latest attempt at agricultural theft linked to China.
Weiqiang Zhang, 50, a Chinese national living in Manhattan, Kansas, was convicted on three counts, including conspiracy to steal trade secrets and interstate transportation of stolen property, the department said in a statement.
Zhang, who has a doctorate from Louisiana State University, worked as a rice breeder for Kansas-based Ventria Bioscience Inc, which develops genetically programmed rice used in the therapeutic and medical fields.
He stole hundreds of rice seeds produced by Ventria and stored them at his Manhattan residence, the statement said.
In recent years, U.S. law enforcement officials have urged agriculture executives and security officers to increase their vigilance and report suspicious activity involving farm products, citing a growing economic and national security threat to the sector.
The number of Chinese economic espionage cases referred to the U.S. Federal Bureau of Investigation is rising, up 15 percent each year from 2009 to 2014 and up 53 percent in 2015.
In Zhang's case, employees of a crop research institute in China visited him in 2013 in Kansas.

U.S. customs officers found seeds belonging to Ventria in the luggage of Zhang's visitors as they prepared to leave the United States for China, the department said.
Last year, a Chinese man charged with conspiracy to steal high-tech U.S. corn seeds pleaded guilty in federal court in Iowa for participating in the theft of the patented seeds with the intention of transporting them to China.
The case laid bare the value, and vulnerability, of advanced food technology in a world with 7 billion mouths to feed, 1.36 billion of them Chinese.
China bans commercial growing of GMO grains due to public opposition to the technology. 

Still, Xi Jinping called in 2014 for China to innovate and dominate the technique, which promises high yields through resistance to drought, pests and disease.
In October, a geneticist at the U.S. Agriculture Department, Wengui Yan, pleaded guilty to making false statements to the FBI when questioned about plans to send U.S. rice samples to China. 

Yan admitted a group of Chinese tourists in 2013 told him of their plans to steal engineered U.S. rice.

China’s New Cybersecurity Law Is Bad News for Business

This law provides China with the legal tool to obtain all foreign anti-hacking proprietary security hardware and software, which could then be passed on to relevant Chinese firms. 

By Georges Haour 

In this Aug. 16, 2016 file photo, a worker is silhouetted against a computer display showing a live visualization of the online phishing and fraudulent phone calls across China during the 4th China Internet Security Conference (ISC) in Beijing.

China’s new cybersecurity law, expected to take effect next June, could hurt any foreign firm looking to do business in the world’s second-largest economy. 

Though the law is intended to fight hackers, it also requires that foreign companies provide China’s government with sensitive information about network equipment and software. 

Given the weaknesses of China’s enforcement of laws around intellectual property, it’s easy to see how trade secrets can fall into the hands of Chinese competitors at the expense of the best interests of foreign firms.
Businesses most at risk will be those with special hardware and systems for network management, which could well include ATMs. 

Because new-generation ATMs have a much higher level of connectivity, they’re more vulnerable to hacking, which is why they require sophisticated encryption devices and software to secure transactions. 

This cybersecurity law thus provides the government with the legal tool to obtain all such anti-hacking proprietary security hardware and software, which could then be passed on to relevant Chinese firms.

And having access to the hardware and software means Chinese firms would have access to individuals’ personal banking information, as well.
The new law is also counterproductive because the scope of information that foreign companies will be required to provide to Chinese officials is worryingly broad. 

Complying with this requirement will force U.S. firms to make expensive investments to build duplicate facilities within China. 

This is in total contradiction with the free flow of data, expected to swell in 2020 after the introduction of 5G.
U.S. companies will have to weigh this risk against the opportunity to do business in China, which has developed a reputation for ‘copying’ without getting insider access. 

For international companies, there is no easy way forward, as the choice is black or white. 

Either foreign companies will comply, knowing China has a way to peek into what was previously private, or they will choose to stand by principles of privacy at the risk of being excluded from the Chinese market. 

Despite the challenging dilemma, companies are likely to comply and give in to China’s demands. 

The market is too huge and far too ripe for future growth to be ignored, especially when compared to more stagnant outlooks in Europe and the U.S.
In addition to creating barriers for international business in China, this kind of legislative move could stall innovation. 

It could well be considered to be part of what is called “indigenous innovation” in China, which consists of favoring Chinese firms by establishing non-tariff barriers—such as specific standards or regulations on products—in order to prevent non-Chinese firms the access to China’s large and dynamic market. 

And the impact would be wide-ranging, from consumer electronics to products, such as equipment to produce renewable energy, including windmills and solar panels.
Innovation involves a complex process, but it requires a society to be as open as possible and to allow vibrant exchanges between people. 

While cybersecurity is important, this law will wrap around the free market as it grips security. Within China, entrepreneurs are, by and large, not bothered by their government’s management of the Internet, called the “great firewall.” 

However, this new law is a new step to tighten the government’s grip on Internet. 

Furthermore, far from favoring China’s champions in this very dynamic area, such as Huawei, Lenovo, or Tencent, this law will handicap them in the long term. 

Maybe the hope is that these companies themselves will fight to alter the law and mitigate the negative implications for China’s Internet landscape.
U.S. companies have already begun to strongly lobby against the law, as well as China’s position that the Internet must be managed by authorities. 

But despite the efforts of any company, American, Chinese, or other, the cybersecurity law is just a piece of a larger ongoing political puzzle that companies will have to deal with. 

In the end, agility will be key for companies to succeed in the tense political environment.

Nation of Thieves

Chinese man going to prison for stealing US corn seeds, DuPont trade secrets
www.foxnews.com

Corn theft is taken seriously in United States.

A naturalized American citizen originally from China has been sentenced to three years in prison for his part in stealing corn scientifically-enhanced seeds and sending them to a corporation in Beijing.
Businessman Mo Hailong, employed by Beijing’s Kings Nower Seed, worked with five other Chinese nationals to rob trade secrets from a pair of American agricultural heavyweights: Dupont Pioneer and Monsanto.
Working side by side, the team reportedly smuggled around 1,000 pounds of corn seeds to Beijing (some of which were discovered by custom officers hidden in manila envelopes surrounded by boxes of microwaveable popcorn). 

Those samples that made it through customs were sent out to scientists at Beijing Dabeinong Technology Group Co., the parent company of Kings Nower Seed, to be studied and duplicated in the country.
“We need to send a message to China that this kind of criminal behavior is not tolerated in the United States,” said US District Court Judge Stephanie Rose, who presided over the case, on Wednesday when handing over the ruling decision.
But stealing these patented seeds isn't something either of these companies take likely.

And the U.S. government agrees. 

According to the FBI a “parent” or “inbred” seed “constitutes valuable intellectual property of a seed producer.” 

Based on a press release the bureau released related to a seed theft in 2013, “the estimated loss on an inbred line of seed is approximately five to eight years of research and a minimum of 30 to 40 million dollars.”
Monsanto has previously aggressively protected its technology, and has been known to sue farmers who saved seeds from prior plantings for reuse. 

That action violates a contract farmers using Monsanto seeds are required to sign.
Now Hailong, who lived in America for two decades and has a wife and two children who are all U.S. citizens, will likely face deportation when he’s released. 

He’ll also have to pay restitution to Monsanto and Dupont Pioneer for the theft.