Kolon Industries Charged With Stealing DuPont Secrets

Kolon Industries Inc. (120110) and five of its executives were charged with stealing trade secrets from DuPont Co. (DD) related to the manufacture of Kevlar, an anti- ballistic fiber used in police and military gear.

Kolon, based in Gyeonggi, South Korea, and the five officials were indicted in federal court in Richmond, Virginia. All were charged with one count of conspiracy to convert trade secrets, four counts of theft of trade secrets and one count of obstruction of justice. The indictment, which was filed Aug. 21 and unsealed today, includes a forfeiture claim seeking at least $225 million in alleged criminal proceeds from the company.

“Today’s announcement should indicate that industrial espionage is not a business strategy and will not be tolerated by the United States Department of Justice,” U.S. Attorney Neil MacBride said at a press conference announcing the charges.

A federal jury in Richmond in September 2011 awarded DuPont about $920 million in damages after finding that Kolon and its U.S. unit wrongfully obtained DuPont’s proprietary information about Kevlar by hiring some of the company’s former engineers and marketers. Kolon sells the Heracron line of so-called para- aramid fibers as a competitor to Kevlar.

Jury Verdict

Last month, a federal appeals court in Richmond considering the company’s challenge to the jury verdict put on hold a judge’s order that barred Kolon from selling para-aramid products for 20 years.

Prosecutors also allege that Kolon stole trade secrets related to a similar product made by Teijin Ltd. (3401), based in Osaka, Japan.

“Kolon sought to obtain trade secrets related to Kevlar and Twaron by hiring and attempting to hire former and current employees of DuPont, DuPont-Toray, and Teijin Twaron USA as ‘consultants,’ and by asking these ‘consultants’ to reveal information that was confidential and proprietary,” according to the indictment.

Jeff Randall, a Washington-based attorney who represents Kolon, said his client denies doing anything illegal and will fight the charges.

Much of the product information the government claims are trade secrets had been made publicly available by DuPont in patent applications and technical journals, Randall said in a telephone interview.

‘Consultants’ Representations’

“Kolon is entitled to reasonably rely on the consultants’ representations that they were engaged in legitimate consulting activities and were only providing information that DuPont had already publicly made available, and that they were not disclosing any proprietary information,” said Randall, a partner at Paul Hastings LLP.

The five individual defendants still work for Kolon in South Korea, MacBride said. None are currently in custody, he said. The conspiracy and theft charges carry maximum 10-year prison terms while the obstruction charge carries a maximum 20- year penalty.

“We hope to secure their presence here in the Eastern District of Virginia whether through voluntary surrender here or through the extradition process with Korea if that’s necessary,” MacBride said.

Currently, no Kolon assets in the U.S. have been seized or frozen and the indictment can’t stop Kolon from selling its product, MacBride said.

‘Great Consequences’

“Any corporation that’s convicted of a felony has great consequences as to how it can do business in the United States,” Lanny Breuer, head of the Justice Department’s Criminal Division, said at the press conference.

DuPont, based in Wilmington, Delaware, spent more than $500 million to boost Kevlar production and meet rising demand for armor and lightweight materials that reduce energy use.

Kevlar, together with Nomex, a heat-resistant fiber used in firefighting gear, accounted for about $1.5 billion of DuPont’s $38 billion in sales last year, according to the company.

The indictment is “a major step in bringing this matter to a conclusion,” DuPont Senior Vice President and General Counsel Thomas L. Sager said in an e-mailed statement.

“We will continue to pursue enforcement of our civil judgment in the United States, Korea and around the world,” he said.

DuPont sued Kolon in February 2009 alleging it stole confidential Kevlar data. DuPont began selling the bullet- resistant fiber in 1965 and it’s used in body armor, military helmets, ropes, cables and tires. Kolon began making its own version of the para-aramid fiber in 2005.

Jurors found Kolon got access to Kevlar secrets by hiring Michael Mitchell, a former DuPont engineer who also had served as a Kevlar marketing executive.

In March 2010, Mitchell, who worked at a DuPont-owned plant in Richmond for 25 years, was sentenced to 18 months in prison after pleading guilty to theft of trade secrets and obstruction.

The case is U.S. v. Kolon Industries, 12-cr-137, U.S. District Court, Eastern District of Virginia (Richmond).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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