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Two Silicon Valley engineers have gained the notorious distinction of becoming only the second defendants in the nation to be indicted for economic espionage under a 1996 federal statute. Fei Ye and Ming Zhong on Friday pleaded not guilty to a 10-count federal indictment, alleging economic espionage, trade-secrets theft, conspiracy and foreign transportation of stolen property. Federal agents arrested the pair in November 2001 at the San Francisco airport. They had tickets to China, and their bags were packed with what U.S. attorneys allege were trade secrets from Sun Microsystems Inc., Transmeta Corp., NEC Electronics Corp. and Trident Microsystems Inc. Prosecutors allege documents found on the pair show Zhong and Ye were taking trade secrets and recruiting engineers to establish Supervision Inc., a microsystems company in China. According to the indictment, the pair indicated to others they were seeking funding from the City of Hangzhou, China, and the National High Technology Research and Development Project of China and were working with a professor from Zhejiang University, who was receiving state funding from China. Assistant U.S. Attorney Ross Nadel, who is handling the case, said while federal prosecutors regularly indict under the trade secrets section of the 1996 Economic Espionage Act, this marks only the second time federal prosecutors have pursued economic espionage charges since the statute’s enactment. The first case is pending in a federal court in Ohio and involves two Japanese men accused of stealing genetic material from the Cleveland Clinic Foundation. Under the act, assistant U.S. attorneys must receive permission from the Department of Justice to file espionage charges. Wednesday’s indictment provides more evidence of the Department of Justice’s mounting efforts to criminalize intellectual property disputes, which until recently have primarily been battles played out in civil court. Nadel said stealing trade secrets should be viewed no differently than an employee embezzling money from an employer. “This is stealing property from a victim company,” Nadel said. “Why should the theft of intellectual property not be criminalized when the theft of physical property is?” In U.S. v. Ye et al, 20145, there is no allegation that China was a co-conspirator, but to make their case, federal prosecutors must prove that the defendants intended the trade secrets to benefit a foreign government or an agent of the government. “The element of the offense doesn’t require the foreign government to know or be a party to the crime,” Nadel said. Paul Meltzer, who is representing Ye, called the criminal prosecution “absolutely misguided” Friday after the arraignment. “We do not believe these are proprietary trade secrets, and we believe the jury will find this,” said Meltzer, a Santa Cruz solo. John Williams Jr., of Manchester, Williams & Seibert in San Jose, represents Zhong. On Friday, civil IP attorneys said the indictment and the San Jose assistant U.S. attorneys’ involvement were not surprising. Morrison & Foerster partner and former Assistant U.S. Attorney Stephen Freccero said he expects that Kevin Ryan, the Northern District’s new U.S. attorney, has articulated to staff that such cases will be a priority. “You can expect them to aggressively seek out and pursue these kinds of cases,” he said. “It’s a recognition of the economic importance of what would fall under the larger category of IP. In the global economy the argument is that having civil remedies is not sufficient.” The different burden of proof also raises the stakes. “In a criminal case there can be no reasonable doubt of the proprietary nature of the information stolen,” Freccero said.

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