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6 Chinese Men Indicted in Theft of Code From U.S. Tech Companies

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6 Chinese Men Indicted in Theft of Code From U.S. Tech Companies

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  • 6 Chinese Men Indicted in Theft of Code From U.S. Tech Companies

    6 Chinese Men Indicted in Theft of Code From U.S. Tech Companies

    By DAVID E. SANGER and NICOLE PERLROTH
    Source: "http://www.nytimes.com"
    MAY 19, 2015


    WASHINGTON — The Obama administration on Tuesday announced the arrest of a Chinese professor and the indictment of five other Chinese citizens in what it contended was a decade-long scheme to steal microelectronics designs from American companies on behalf of the Chinese government.

    The indictment, under a provision of the Economic Espionage Act that is used only in cases where the government believes it can prove the theft was on behalf of a foreign power, was the largest since five members of the People’s Liberation Army were indicted last year, accused of hacking into the computer systems of American companies to steal technology for state-owned Chinese companies.

    None of those five officials have been arrested or seen in an American courtroom, and for a time those indictments froze discussions between the United States and Chinese governments over rules for reducing online attacks. But the chief of the national security division of the Justice Department, John P. Carlin, recently defended the approach as the best way to “raise the price” for the Chinese.

    In the current case, however, authorities arrested a Chinese professor as he landed Saturday at Los Angeles International Airport on his way to a conference, a move clearly meant to signal to China that the United States would now aim to capture and try those accused of perpetrating what the former head of the National Security Agency, Keith B. Alexander, often called “the greatest transfer of wealth in history.”

    Prosecutors said that the professor was Zhang Hao, 36, of Tianjin University, which dates back to 1895 and advertises itself on its website as China’s “first university.”

    Mr. Zhang appeared in court for the first time on Monday; his lawyer did not return phone calls.

    It is a delicate time in United States relations with China. The Obama administration is considering how hard to push back against China’s occupation of disputed islands in the South China Sea, a marked acceleration in its nuclear weapons and missile programs, and continued tension over online theft. This case, curiously, involved no evidence of hacking, but rather of insider theft.

    The question of economic espionage, however, has moved to the center of the relationship — and so far the Obama administration’s effort to combat it has had only limited success.

    Two years ago, the White House vowed to make investigations and prosecutions in the theft of trade secrets a top priority, after Chinese hacker attacks began to dominate headlines.

    The new indictment contends that Mr. Zhang was one of six men who created a network as they studied and later worked in the United States, taking jobs at two small American technology companies, Avago Technologies and Skyworks Solutions, that make a type of chip critical to cellphones.

    The chip is popularly known as a filter, which is used for acoustics in mobile telephones; while the parts are small, the market for them worldwide is worth well more than $1 billion a year. According to the charges, the men took the firms’ technology back to Tianjin University, created a joint venture company with the university to produce the chips and soon were selling them both to the Chinese military and to commercial customers.

    “Sensitive technology developed by U.S. companies in Silicon Valley and throughout California continues to be vulnerable to coordinated and complex efforts sponsored by foreign governments to steal that technology,” said Melinda Haag, the United States attorney in San Francisco.

    According to the indictment, two of the professors began to apply for patents on some of the technology in the United States, beginning in 2010. They portrayed their work as on behalf of Tianjin, a state-sponsored university. Because of that link, prosecutors are trying to use provisions of the Economic Espionage Act that have been part of only about a dozen cases in the last 20 years.

    Proving the case will require the Justice Department to establish that the stolen trade secrets benefited the Chinese government — often a tough case to make. Peter J. Toren, a lawyer at Weisbrod Matteis and Copley, a Washington law firm, said that if convicted, the defendants could face lengthy prison terms that would be based largely on the dollar value of the trade secrets.

    The indictment lists the patent applications that it says Mr. Zhang and another Chinese professor, Pang Wei, who apparently remains in China, “needed to justify their hiring as full professors” at Tianjin by “having patent applications in their names in both the United States” and in China.

    The indictment includes emails from several of the accused Chinese professors and engineers dating to 2006, when they were still working in the United States.

    “Please try not to check personal email account in company,” said one email from Mr. Pang to Mr. Zhang and another defendant, Zhang Huisui. “It could be tracked as long as in company’s network. It is very important. Even in Avago, I have seen several law cases” where employees were investigated.

    The indictment cites other emails describing plans to “form a company and establish a factory in China” to produce the filter chips used by Motorola, Samsung, Nokia and others, and estimating that the market for the chips was around $1 billion. That was a year before the iPhone was introduced in 2007, which led to an explosion in smartphone sales.

    Other emails cited in the indictment run through 2013, and the government contends they included a “stolen Avago design kit” for the chips.

    From 2009 to 2013, the Federal Bureau of Investigation reported a 60 percent increase in trade theft investigations, but prosecutions have proved difficult. For one thing, the hackings can be difficult to trace to the individuals behind them, and jurisdictional limits make it difficult to arrest Chinese citizens or to serve summonses to the Chinese companies that benefit from trade secret theft.

    Universities have often played a major role in the investigations. Several digital attacks on American targets have been traced back to Chinese universities, which security experts believe are used to camouflage state-sponsored hacking.

    In some cases, security reports have tied hackings against Chinese targets and companies in Japan to students at Sichuan University in Chengdu, China, which receives substantial government backing for its research in computer network defense.

    But many cases, including the latest one, center on corporate insiders rather than hackers — often Chinese citizens charged with stealing intellectual property from their American employers and sending it back to China for replication abroad.

    Last year, federal prosecutors achieved the first-ever federal jury conviction on economic espionage charges, against two Americans and a corporation accused of selling DuPont trade secrets to a state-owned company in China. But the Justice Department has yet to charge the two Chinese citizens who it says played a critical role in the theft, or the Chinese state-owned entity that benefited.

    The grand jury in the latest case charged six Chinese citizens: Zhang Hao; Mr. Pang, 35; Zhang Huisui, 34; Jinping Chen, 41; Chong Zhou, 26; and Zhao Gang, 39. The indictment said they conspired to replicate stolen technologies in a new Chinese venture, named ROFS Microsystem.

    Correction: May 20, 2015
    An earlier version of this article reversed the given name and surname of a Chinese professor arrested in an espionage case. He is Zhang Hao. It also reversed the given name and surname of the suspect Pang Wei, as well as the suspect Zhang Huisui.

    David E. Sanger reported from Washington and Nicole Perlroth from San Francisco.

    A version of this article appears in print on May 20, 2015, on page B1 of the New York edition with the headline: U.S. Accuses Six Chinese in the Theft of Tech Data. Order Reprints| Today's Paper|Subscribe


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