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5/3/2019 Top Ten Cases of Chinese IP Theft - CPA

Top Ten Cases of Chinese IP Theft

May 01, 2018

By Je Ferry, CPA Research Director

Industrial espionage has been going on for centuries, but experts agree China’s
espionage campaign is on a di erent scale from anything we’ve seen in history.

It has been going on at least since the 1990s and there is no sign it is letting up. Targets
include an incredibly broad range of US companies, embracing civilian as well as military
technology, with a special focus on the telecom and Internet sector. In 2009, National
Security Agency Director General Keith Alexander called Chinese IP theft “the greatest
transfer of wealth in history.”  He put the value of cyber-theft of US trade secrets and
intellectual property (IP) at a stunning $250 billion a year and called it “our future
disappearing in front of us.”

Rather than describe general trends (such as Chinese military o cers whose job consists
of hacking American companies from 9 to 5 daily, 5 days a week), we thought it would be
more evocative to describe ten of the most agrant cases of IP theft. They range across
many industries. What they have in common is that these cases involve gains for Chinese
companies—even when the industrial spies are caught and imprisoned. For the US victim
companies, they involve loss of markets, loss of jobs, and even loss of life.

1. The Wind Turbine Case

A decade ago, American Superconductor Corporation (AMSC) was a high-tech, high-

growth software success story. Spun out of MIT and headquartered in Ayer,
Massachusetts, AMSC developed world-class technology for software to control the wind
turbines.

In 2005, the Chinese government made wind power and large-scale wind farms a key
strategic objective for China. AMSC partnered with a Chinese maker of the wind turbine
hardware, Sinovel, to sell into the Chinese market.  AMSC sales rose rapidly into the
hundreds of millions of dollars. In 2011, AMSC discovered that Sinovel had an illegal copy
of the entire AMSC software code on one of their windmills. AMSC launched an
investigation and found that a Serbian engineer working at their Austrian development
facility, Dejan Karabasevic, had stolen the full software code and turned it over to Sinovel.
An investigation by the Austrian police found that Karabasevic had agreed to provide the
software in exchange for $1.7 million in cash, an apartment, and the services of call girls.
Karabasevic was convicted and served a year in an Austrian prison.

 In 2011, AMSC led the largest-ever IP theft case in a Chinese court, seeking $1.2 billion
compensation for their losses. Sinovel cancelled all its business with AMSC and refused
to pay the $800 million it owed AMSC. As a result, AMSC had to lay o 600 employees at
its Massachusetts headquarters (over 60% of its workforce), its stock market
capitalization fell by half, and the company went into survival mode. The China case has
gone nowhere. However, the US government led a criminal case in 2013 charging
Sinovel, two Chinese Sinovel executives, and Karabasevic with charges including
conspiracy to commit trade secret theft. In 2018, the company and three individuals were
convicted. But all are out of the reach of US justice.

Today, Sinovel still uses stolen AMSC software to power its wind turbines. It is the world’s
number two, and China’s number one, provider of wind turbines. AMSC estimates that
20% of the wind turbines deployed in China today use illegal AMSC software.

2. The Oreo White Case

In 2014, federal prosecutors launched an industrial espionage case by showing the jury
an Oreo, the famous Nabisco cookie. The white Oreo cream lling uses the chemical
titanium dioxide (TiO2) to achieve that brilliant white color.  Automotive paint and
hundreds of other industrial products use TiO2, making it a highly valuable chemical.
American manufacturer Dupont has long had a world-leading proprietary multi-stage
process for producing titanium dioxide.  In 2012, chemical engineer Walter Liew was
charged with secretly conspiring to steal Dupont technology over the course of 14 years
for the bene t of Chinese chemical manufacturers.

According to a detailed reportin Bloomberg Business Week, in 1991, Liew met senior
Chinese Communist Party o cial Luo Gan, who thanked him for being a “patriotic
overseas Chinese” and began to send him “directives” describing China’s industrial aims. 
Liew was born in Malaysia of Chinese parentage, moved to the US to study at University
of Oklahoma in the early 1980s, and became a US citizen in the 1990s. According to
federal prosecutors, “with Mr. Luo’s directives to Mr. Liew, so began a 20-year course of
conduct of lying, cheating, and stealing.”

In 1997, Liew found two retired disgruntled American Dupont engineers, Tim Spitler and
Robert Maegerle. He won their con dence through charm and gifts. They provided him
with information, sketches, and blueprints of Dupont’s titanium dioxide facilities and
processes. In 2004, Liew used this information to win a series of contracts totaling $28
million from China’s Pangang Group to build a TiO2 production facility.

In 2012, Dupont found out about Liew’s activities and called the FBI. The conspirators
were arrested. In his interrogation, Tim Spitler admitted to receiving a $15,000 payment
from Liew. Shortly after, he committed suicide. In 2014, Liew was convicted and
sentenced to 15 years for economic espionage, possession of trade secrets, and tax
fraud. Maegerle got two and a half years for conspiring to sell trade secrets. Liew’s wife
Christina got probation for evidence tampering.

3. The Motorola Case

On February 28, 2007, a Motorola engineer named Hanjuan Jin was stopped by customs
agents at O’Hare Airport. They searched her and found she had $30,000 in cash, a carry-
on bag full of Motorola documents marked “con dential and proprietary,” and a one-way
ticket for Beijing. She was arrested.

Jin was a successful engineer working on Motorola’s cellular technology at a time when
Motorola was one of the world’s top wireless companies (and a substantial supplier to
the Pentagon). Investigations revealed that after eight years with Motorola, Jin had in
2006 taken medical leave, gone to China, and in violation of the terms of her Motorola
employment, pursued a job with Sun Kaisens, a Chinese telecom company that does
work for the Chinese military. In 2007, she returned to Chicago and resumed work brie y
for Motorola, during which time she was seen leaving the o ce with shopping bags full
of documents in the evenings. Born in China, Jin had gone to the US where she received a
master’s degree in physics from Notre Dame, and obtained US citizenship.
5/3/2019 Top Ten Cases of Chinese IP Theft - CPA

In 2012, she was sentenced to four years in prison and a ne of $20,000. At the trial, the
judge said: “The most important thing this country can do is protect its trade secrets.”

4. The Iowa Seed Corn Case

In 2014, six Chinese nationals were arrested for attempting to steal genetically modi ed
corn seeds from Dupont and Monsanto experimental farms in Iowa. The conspirators
were employed by Chinese conglomerate DBN and its corn seed subsidiary, Kings Nower
Seed. The Chinese government puts a high priority on agricultural development to feed
its large and growing population.

One of the six conspirators, Mo Yun, was the wife of the founder of DBN, and a second,
Mo Hailong aka Robert Mo, was her brother. The US prosecutors charged the
conspirators with stealing samples of the “parent” seeds that produced the genetically
modi ed seeds and attempting to smuggle them to China, including one attempt that
involved hiding the seeds in a bag of microwave popcorn. Monsanto said it has spent
billions of dollars developing advanced corn seed.

In 2016, Mo Hailong was sentenced to 36 months in federal prison. The government also
con scated two farms, one in Iowa and the other in Illinois, purchased by the
conspirators. It’s unclear what happened to the other ve conspirators.

5. The Tappy the Robot Case

When a telecom company allows engineers from its suppliers into its carefully guarded
testing labs, those engineers are expected to obey all the rules laid down by their
customer. Two engineers from Chinese supplier Huawei used a 2014 visit to T-Mobile’s
labs in Seattle to steal information and even a piece of con dential T-Mobile equipment,
Tappy the Robot. T-Mobile used Tappy’s fast-moving ngers to test the performance of
the smartphones it sold. Not only did they take photos of Tappy, the Huawei engineers
stole one of his ngertips.

Huawei apologized and said it red the two engineers. However T-Mobile pursued its
case and in 2017 a Seattle jurydecidedthat Huawei misappropriated T-Mobile trade
secrets and awarded the wireless operator damages of $4.8 million.

Huawei has a long track record in intellectual property theft. In 2004 Cisco Systems, the
market leader in routers, took Huawei to court for stealing its core router software code
and using it in Huawei routers. The case was settled con dentially. More recently, when
Huawei public statements claimed that the 2004 case did not involve stolen Cisco code,
Cisco in 2012 replied by describing the essence of their original complaint this way: “this
litigation involved allegations by Cisco of direct, verbatim copying of our source code, to
say nothing of our command line interface, our help screens, our copyrighted manuals
and other elements of our products.” Routers are the core hardware technology at the
heart of the Internet. Huawei routers, widely used in China and Europe, have played a
key role in Huawei’s growth into a $95 billion global telecom equipment giant.

6. The CLIFBAW case

In 2015, the federal government charged six Chinese citizens with stealing wireless
communications technology from two Silicon Valley microchip makers, Avago and
Skyworks, and launching their own company to sell that technology in China.  (Avago is
now known as Broadcom.)

According to the indictment, after leaving their employers and taking the stolen
technology, one of the six co-conspirators was so cocky that he suggested in an email to
his partners that they should name their new company CLIFBAW for “China Lifts Bulk
Acoustic Wave.” One of the other co-conspirators wrote in an email: “My work is to make
every possible e ort to nd out about the process’s every possible detail and copy
directly to China.”

The six alleged IP thieves were former employees of the two American chipmakers. Three
of them had met studying electrical engineering at USC in Los Angeles. The technology
they stole, thin- lm bulk acoustic wave resonator technology, is used to clean up wireless
signals, allowing cellular phone service to work better at greater distances from cell
towers. It’s a critical piece of successful wireless systems.

One of the accused, Zhang Hao, was arrested at LA Airport in 2015 and spent eight weeks
in Santa Clara jail. As of a 2016 report, he was ghting the case in a federal court in San
Jose.

According to the federal government, Avago spent 20 years and $50 million developing
this technology. Avago only learned about the theft in 2011, at least four years after the
six thieves started seeking backing from Chinese universities for their new business.

7. The Allen Ho TVA/Nuclear Power case

In August 2017, Taiwanese-American engineer Allen Ho was sentenced to two years in

prison for providing nuclear energy technology information to China’s state-owned China
General Nuclear Power Company (CGNPC). According to the indictment, Ho, a naturalized
American citizen, used his company Energy Technology International, which was based at
his home in Wilmington, Delaware, to gather information on the production of nuclear
material from American nuclear power developers including the Tennessee Valley
Authority and pass that information to the CGNPC.  Ho engaged in these activities
between 1997 and 2016, through his own e orts and that of unnamed consultants he
hired.
8. The File Storage and China National Health case

According to a May 2017 Department of Justice press release, Chinese spy Xu Jiaqiang
stole data storage technology from a US storage technology company for the bene t of
China’s health system, the National Health and Family Planning Commission. He then
communicated with two undercover FBI agents and o ered to sell them the so-called
clustered le storage technology from the unnamed victim company. He explained to the
undercover cops how to set up a network of servers and uploaded the proprietary
storage software onto the servers. He o ered to show them how to edit the software to
eliminate any trace of the name of the victim company from the screen prompts. At a
meeting in a hotel room on Dec. 7, 2015, Xu showed the undercover cops the proprietary
software on his laptop and boasted of multiple other “customers” to whom he had
provided the stolen software. He was arrested.

In 2017, Xu pleaded guilty to three counts of economic espionage. In January 2018, Xu

was sentenced to ve years in prison. “Xu, a Chinese national, is being held accountable
for engaging in economic espionage against an American company,” said Acting Assistant
Attorney General Dana Boente. “Xu not only stole high tech trade secrets from his U.S.
employer – a federal crime – he did so both for his own pro t and intending to bene t
the Chinese government.”

9. The Unit 61398 Case

In May 2014, federal prosecutors charged ve members of the People’s Liberation Army
(PLA) of China with cyberhacking their way into the con dential computer les of four US
companies and one labor union. The ve military men were allegedly members of Unit
61398, a unit of the PLA dedicated to cyberhacking. The companies that were hacked
included aluminum producer Alcoa, nuclear power plant producer Westinghouse, solar
cell manufacturer SolarWorld, Allegheny Technologies Inc., and labor union United Steel
Workers.  SolarWorld said that a key proprietary technology for making solar cells more
e cient was stolen in this hack and turned over to a Chinese competitor.

Attorney General Eric Holder said the case was “the rst ever charges against a state
actor for this type of hacking…The range of trade secrets and other sensitive business
information stolen in this case is signi cant and demands an aggressive response."

Since none of the PLA hackers were in the US, the indictment was not followed by trial.
One cyber-sleuth has said that after the exposure of Unit 61398, China moved its
dedicated cyber-hacking unit out of the PLA and into a division of Chinese intelligence.

10. The Great Firewall Case

The Great Wall of China was built to keep out invaders. The so-called Great Firewall is a
network of software tools China uses to control what Internet information and websites
Chinese citizens have access to. You would think that if a totalitarian Communist nation
wanted to control what its citizens could see and read, it would carefully construct its
own software.

But even here, China enjoys stealing American IP. In 2009, Solid Oak Software of
California announced that parts of China’s Green Dam-Youth Escort software, which
China required be loaded onto every PC sold in China to control access to pornography
and other sites deemed unsuitable by the government was actually stolen directly from
Solid Oak source code.

According to Solid Oak CEO Brian Milgrim, days after he announced his intent to sue
Green Dam for stealing source code, unknown hackers began attacking the Solid Oak
computer network with denial-of-service attacks, forcing the Solid Oak team to abandon
their own network and use Dropbox to exchange les.  “It felt like they had a plan...if they
could just put the company out of business, the lawsuit goes away. They didn’t need guys
with guns or someone to break my kneecaps,” Milgrim told Bloomberg News. After three
years of litigation, the case was settled out of court and the cyberattacks stopped as
mysteriously as they had begun.

Michael Feng commented 3 months ago

At least 3 of the cases were dismissed in court due to no real evidence, so what a joke.
But hey, whatever makes people feel better and catch the eyes.

Absalon Loot commented 3 months ago

The recent chinese lunar landing on the dark side simply shows the extent Of chinese
activities in high tech theft…..the West was caught at footed by chinese clandestine
activities…will the damage be really recovered? The decades of research in technologies
stolen by chinese in just ONE day….Now you see the chinese industry surpassing the
West’s ability to lead….

Robert Johns
commented 12 months ago
Excellent recap of things seeing the light of day. The tip of the iceberg.
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