Tze Chao pleaded guilty in federal court in San Francisco on March 1, 2012, to conspiracy to commit economic espionage. Chao, 77 of Newark, Delaware, was indicted by a federal grand jury on February 7, 2012. He was charged with one count of conspiracy to commit economic espionage, in violation of 18 U.S.C. § 1831(a)(5).

Economic espionage falls under the ambit of the protection of trade secrets by the United States government. The statute that Chao has pleaded guilty to makes it a federal crime to knowingly transmit trade secrets to benefit a foreign government or instrumentality. In other words, an individual can be criminally prosecuted under this federal statute if they breach a private employment agreement by providing trade secrets to a foreign government or agent, which is what Chao has been accused of. The punishments are also severe, including fines up to $500,000 or imprisonment up to 15 years, or both.

In pleading guilty, Chao, who was employed by DuPont from 1966 to 2002, stated that he provided trade secrets concerning DuPont’s proprietary titanium dioxide (TiO2) manufacturing process to companies he knew were controlled by the government of the People’s Republic of China (PRC). Beginning in 2003, the year after Chao left DuPont, he began consulting for the Pangang Group, a PRC government controlled company that produces TiO2.

As an employee of DuPont, Chao had signed an agreement to protect the trade secrets of DuPont before and after his employment, which is typical for scientists in the industry. Based on Chao’s statements in the plea agreement, he discusses the benefit of the new technology and how it was more beneficial for the environment. One would think that if the new TiO2 manufacturing process was more efficient and favorable to the environment, sharing such information might actually be useful. Therefore, Chao may have never intended to benefit the PRC and harm the U.S. Specifically, he may have not realized the criminal implications by engaging in such behavior. This is also evidenced by the fact that Chao, an employee of DuPont for over 35 years, never communicated trade secrets to a foreign government.

Chao’s plea comes in connection with the superseding indictment returned three weeks ago charging Walter Liew, Christina Liew, Robert Maegerle, and USA Performance Technology Inc., among others, for their efforts to sell DuPont trade secrets to companies controlled by the PRC government. Those companies – the Pangang Group and three subsidiaries – also were named as defendants in the indictment and charged with conspiracy to commit economic espionage and attempted economic espionage.

Chao has already pleaded guilty, but it will be interesting to follow the others that were indicted in the case. The motive, or intent, in providing trade secrets will be a significant issue if the case goes to trial. If the individuals can prove that they did not intend to conspire to benefit a foreign government, a favorable outcome might be possible.

In addition to criminal prosecution, Chao and the other former employees of DuPont have opened themselves up to civil suits for breach of contract with DuPont.

The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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