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UPDATE 1-U.S. economic espionage trial over China allegations opens
January 8, 2014 / 8:15 PM / 4 years ago

UPDATE 1-U.S. economic espionage trial over China allegations opens

By Dan Levine

SAN FRANCISCO, Jan 8 (Reuters) - A California businessman accused of stealing DuPont trade secrets to help China is the victim of an “unholy alliance” between the chemical giant and U.S. authorities to wreck his company, his attorney said in federal court on Wednesday.

U.S. prosecutors contend that Walter Liew paid former DuPont engineers to obtain trade secrets for the benefit of a state-owned Chinese company, Pangang Group. Liew allegedly used those secrets to help Pangang develop a white pigment - chloride-route titanium dioxide, also known as TiO2 - used to make a range of white-tinted products, including paper, paint and plastics.

In opening statements on Wednesday, Liew attorney Stuart Gasner said the investigation began when a disgruntled former employee of Liew wrote an anonymous letter to DuPont accusing him of trade secret theft.

DuPont filed a civil lawsuit against Liew and alerted the FBI, Gasner said, despite the fact that the materials in Liew’s possession were widely available and not trade secrets.

“DuPont engineers sat side-by-side with the FBI for weeks and weeks,” Gasner said.

DuPont declined to comment on the case.

Assistant U.S. Attorney John Hemann, meanwhile, said Liew possessed four separate pieces of confidential DuPont materials, including a “recipe book” on how to build a TiO2 factory.

“They used these keys to take advantage for themselves, and to help Chinese companies get ahead unfairly,” Hemann said. Pangang paid Liew’s company $28 million, he said.

Liew, his wife and another man charged in connection with the events, Robert Maegerle, pleaded not guilty. His wife will be tried separately.

The United States has identified industrial spying as a significant and growing threat to the nation’s prosperity.

DuPont is the world’s largest producer of TiO2. Prosecutors also charged Pangang Group, a steel manufacturer in Sichuan province, in the case. However, the indictment against Pangang stalled after a U.S. judge ruled that prosecutors’ attempts to notify Pangang of the charges were legally insufficient.

In court on Wednesday, Hemann said Liew attended a banquet in 1991 with a number of Chinese officials. In court filings, prosecutors say the banquet was hosted by Luo Gan, who at the time was a high-ranking official of the Communist Party of China Central Committee. Luo Gan went on to become a member of the nine-member Standing Committee of the Politburo, prosecutors wrote in a court filing.

Liew described the meeting in a draft letter that U.S. federal officials say they seized from his safety deposit box.

“The purpose of the banquet is to thank me for being a patriotic overseas Chinese who has made contributions to China,” Liew wrote in a memo to a Chinese company, according to U.S. prosecutors, “and who has provided key technologies with national defense applications, in paint/coating and microwave communications.”

Luo Gan gave Liew directives at the meeting, and two days later Liew received a list of “key task projects,” including TiO2, prosecutors said.

In court filings, Liew denied he attended a banquet with Chinese officials, and said he never intended to benefit the Chinese government. And in court on Wednesday, Liew’s attorney Gasner said the letter was never sent.

“It was a piece of puffery,” Gasner said.

Prosecutors charged Maegerle with trade secret theft, but Hemann said in court that there was no evidence he knew the work was intended to benefit China.

During his opening statement, Maegerle’s attorney, Jerome Froelich Jr., said his client worked hard as an engineer for DuPont for decades and was under the belief that any confidences he owed to DuPont had expired by the time he began working with Liew.

“After five years from when they stopped working for DuPont, they had no confidential obligations to DuPont,” Froelich said.

The trial is expected to last about two months.

The case in U.S. District Court, Northern District of California is United States of America vs. Walter Liew, Christina Liew et al., no. 11-cr-573.

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