Motions Set in Technology Espionage Case
By Rachel Konrad,
AP Business Writer

SAN JOSE, Calif. (AP)—Prosecutors say the case of two men arrested on their way to China with suitcases crammed with data from high tech companies is clear-cut trade theft. Defense attorneys say the data was routine reference material that any engineer might carry.

A federal judge was scheduled to hear pretrial motions Monday in the case of Fei Ye, 37, and Ming Zhong, 36. Both are accused of stealing microchip designs and other secrets, as well as at least $10,000 in equipment, from computer giants Sun Microsystems Inc., NEC Electronics Corp., Transmeta Corp. and Trident Microsystems Inc.

If allowed to proceed, the case brought under the 1996 Economic Espionage Act could have implications for international relations. It also could spur other companies to be more forthcoming about trade secret theft, which costs the nation's 1,000 largest businesses more than $45 billion per year, according to a 2001 study by PricewaterhouseCoopers.

The men were arrested in November 2001 at San Francisco International Airport with tickets to China. Prosecutors say they intended to use the stolen data to start a company called Hangzhou Zhongtian Microsystems Co.—a joint venture with the Chinese city Hangzhou.

The Chinese government wrote in documents found at the men's homes that their project would be extremely useful to the development of China's integrated circuit industry, according to court filings.

Hangzhou officials could not be reached for comment. China's Foreign Ministry said it knew nothing about the case, and China's Consulate General in San Francisco said there was no link or connection between the men and the Chinese government.

Economic espionage is more difficult to track and prosecute than trade secret theft because it requires authorities to find evidence that a foreign government was involved.

It's much more difficult to prove someone stole trade secrets with the intent to benefit a foreign government, said Ross Nadel, chief of the Computer Hacking and Intellectual Property Unit of the U.S. Attorney's Office for Northern California.

But we believe we do have the proof to prove separate counts of trade secrets, transportation of stolen property and conspiracy, he said.

If convicted, Ye and Zhong could face up to 95 years in prison and $3 million in fines on 10 criminal counts.

Ye, a naturalized U.S. citizen, worked for Transmeta, but it's unclear what role Zhong, a permanent resident, played at the companies involved in the case. Both men are originally from China.

Paul B. Meltzer, who represents Ye, said his client was merely carrying the materials that any engineer would take and use as reference materials when they were arrested at the airport.

If you carefully analyze that which was found, it would be like taking apple seeds to plant oranges, Meltzer said. The information he possessed was not relevant to the business he was going to be involved in China.

Zhong's attorneys did not return calls seeking comment.

The FBI and the Justice Department are investigating or prosecuting 132 cases of trade secret theft, including at least three dozen economic espionage investigations.


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