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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 pleaded not guilty on Dec. 6 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 San Francisco International Airport. They had tickets to China, and their bags were allegedly packed with trade secrets from Sun Microsystems Inc., Transmeta Corp., NEC Electronics Corp. and Trident Microsystems Inc. Prosecutors claim documents found on the pair show they were taking trade secrets and recruiting engineers to establish Supervision Inc., a microsystems company in China. According to the indictment, Ye and Zhong indicated to others they were seeking funding from the city of Hangzhou 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 that while federal prosecutors regularly indict under the trade secrets section of the 1996 Economic Espionage Act, the indictment against Ye and Zhong marks only the second time that federal prosecutors have pursued economic espionage charges since the statute’s enactment. The first case, which is pending in a federal court in Ohio, 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 Justice Department superiors to file espionage charges. The indictment against Ye and Zhong provides more evidence of the federal government’s mounting efforts to criminalize intellectual property disputes, which until recently have primarily been battled out in civil courts. Nadel said stealing trade secrets should be viewed no differently than 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?” Although the Chinese government is not named as a co-conspirator in U.S. v. Ye, et al., 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,” said Nadel. Paul Meltzer, a solo practitioner in Santa Cruz, California, who is representing Ye, dismissed the case against his client as “absolutely misguided.” “We do not believe these are proprietary trade secrets, and we believe the jury will find this,” said Meltzer. Zhong is represented by John Williams Jr., a partner at San Jose’s Manchester, Williams & Seibert. The indictment did not come as a surprise to some intellectual property attorneys. Stephen Freccero, a partner at Morrison & Foerster and a former assistant U.S. attorney, said he expects that Kevin Ryan, the Northern District’s new U.S. attorney, has articulated to his staff that such cases will be a priority. “You can expect them to aggressively seek out and pursue these kinds of cases,” said Freccero. “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,” said Freccero.

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