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 eleven 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 ten-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 2 years and 3 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 upon 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, which
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 U.S. 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 plead 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. PRNewswire, Federal Criminal Charges Brought for Theft of
Gillette Shave Secrets, Sept. 25, 1997.
5. Reuters, Retired Kodak Employee Dealt Trade Secrets, August 29,
1997.
6. National Counterintelligence Center, Counterintelligence
News and Developments, Vol. 4, December 1997.
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