March 5 (Bloomberg) -- DuPont Co.’s secrets for cleanly manufacturing the ubiquitous white pigment found in paper and plastics were stolen and sold to a Chinese company by a California engineer, a jury said, handing a conviction to U.S. prosecutors cracking down on economic espionage.
Walter Liew, 56, a consultant who rose from a farm in Malaysia to earn $28 million from contracts with a Chinese company, was found guilty by federal jurors in San Francisco of 22 counts of economic espionage, trade secret theft, witness tampering and making false statements. He sold the secrets to China’s Pangang Group Co., a Chengdu-based chemical company building a 100,000 metric-ton-per-year plant to produce titanium dioxide, a white pigment with a global annual sales of $14 billion, prosecutors said.
The convictions of Liew and an ex-DuPont engineer are a victory for the U.S. Justice Department, which has charged about 20 people in recent years with stealing U.S. technology for China. The Obama administration has said Chinese spy agencies are involved in a far-reaching industrial espionage campaign targeting biotechnology, telecommunications, clean energy and nanotechnology industries. This case marks the first federal jury conviction on charges brought under the Economic Espionage Act of 1996, federal prosecutors said.
“As today’s verdict demonstrates, foreign governments threaten our economic and national security by engaging in aggressive and determined efforts to steal U.S. intellectual property,” Melinda Haag, the U.S. attorney in San Francisco, said in a statement.
Pangang was charged, too, yet didn’t face trial after prosecutors were unable to legally serve legal documents on the company. Ex-DuPont engineer Robert Maegerle, 78, who prosecutors said helped obtain the trade secrets, was also convicted by the jury today on economic espionage, trade secrets and witness tampering charges.
The jury deliberated for four days after a trial that lasted almost five weeks and featured testimony by 33 witnesses, including engineers from Wilmington, Delaware-based DuPont, the world’s largest producer of titanium dioxide, and rival manufacturers Tronox Ltd. and Cristal Global.
Liew, a U.S. citizen born in Malaysia, was taken into federal custody today after U.S. District Judge Jeffrey White, who presided over the trial, said that millions of dollars Liew received from Chinese entities was unaccounted for and that his relationships with Chinese agencies were “substantial enough” that there’s a risk he would try to flee if released. The judge scheduled sentencing for June 10.
“We are very disappointed,” Stuart Gasner, Liew’s attorney, said after the verdict. “Walter Liew is a good man in whom we believe and for whom we will continue to fight.”
An appeal of the conviction is likely, Gasner said.
The jury found Liew and Maegerle guilty of obstructing justice for claiming in a civil lawsuit DuPont filed against Liew that no information from a DuPont pigment plant in Taiwan was used in Liew’s company’s designs.
The maximum penalty for the most serious charges against the two is 20 years in prison and a $250,000 fine.
Liew’s wife, Christina Liew, a Chinese citizen, was also charged with economic espionage, trade secret theft and witness tampering. She will be tried separately. She wept and clung to her husband before U.S. marshals took him into custody.
Former DuPont employee Tze Chao, a naturalized U.S. citizen who worked at the company for 35 years, pleaded guilty in 2012 to his role in the conspiracy to steal trade secrets and cooperated with the prosecutors.
Federal agents who raided Liew’s residence found documents in which Liew claimed that in 1991 Luo Gan, former secretary general of China’s state council, encouraged him to obtain technologies beneficial to the nation, including titanium dioxide, Assistant U.S. Attorney Peter Axelrod told the jury at trial.
Liew and his Oakland, California-based consulting company were paid $28 million from 2006 to 2011 for contracts to design a titanium dioxide plant for Pangang, prosecutors said at trial.
He used five trade secrets stolen from DuPont, including a drawing of a plant system, an internal report about a computer model for a chemical process, a plant flow sheet and a basic data document containing the process and equipment needed to design a titanium dioxide production line, Axelrod said, citing documents discovered during an investigation.
An anonymous letter to DuPont by a fired employee of Liew’s company accusing the consultant of embezzlement set in motion the federal investigation that led to Liew’s conviction. The civil case against Liew by DuPont is on hold.
“Today’s verdict underscores the consequences faced by those who steal trade secrets, and we appreciate the efforts of the DOJ and the FBI,” Dan Turner, a spokesman for DuPont, said in a statement. “DuPont will continue to take aggressive steps to preserve our technological edge, including cooperating with governments and law enforcement agencies around the world.”
Liew, the son of a poor farmer, earned an electrical engineering degree in Taiwan and a master’s degree from the University of Oklahoma, Gasner said at trial. He emigrated to the U.S. in 1980 and ran USA Performance Technology Inc., a now-defunct engineering consultancy.
Liew denied stealing trade secrets, Gasner said at trial. He obtained patents and publicly available information to come up with his own titanium dioxide plant design to compete with DuPont’s technology, said Gasner, who claimed the government was swayed by DuPont’s claims that trade secrets were stolen. The document that mentioned Luo Gan was a “piece of puffery” written when Liew was trying to win business, Gasner told jurors.
Hou Shengdong, the Vice Director of the Chloride Process TiO2 Project Department for Pangang Group, was also charged with conspiracy to commit economic espionage and trade secrets theft. He is currently a fugitive, prosecutors said.
Federal prosecutors in Virginia charged Korea’s Kolon Industries Inc. and five of its executive in 2012 with stealing trade secrets from DuPont related to the manufacture of Kevlar, the anti-ballistic fiber used in police gear. The company is challenging government attempts serve it with legal papers, a requirement for the case to proceed.
Six Chinese nationals were indicted in Iowa in December on charges of plotting to steal genetically modified seeds worth tens of millions of dollars to Monsanto Co. and DuPont. The director of international business at Beijing Dabeinong Technology Group Co., part of Beijing-based DBN Group, was arrested in December for allegedly stealing trade secrets after he was found digging in an Iowa cornfield.
The case is U.S. v. Liew, 3:11-cr-00573, U.S. District Court, Northern District of California (San Francisco).
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