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9th Circ. affirms Chinese cos. must face criminal DuPont trade secret case

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A logo is pictured outside of Dupont offices in Geneva, Switzerland, April 15, 2021. REUTERS/Denis Balibouse

  • Pangang Group claimed immunity as Chinese government entity
  • Appeals court rejected argument, company not directly owned by China
  • Court avoids novel question of whether FSIA applies in criminal cases

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(Reuters) - The 9th U.S. Circuit Court of Appeals said Monday that four companies with connections to the Chinese government must face criminal claims over an alleged conspiracy to steal E.I.

du Pont de Nemours & Co's trade secrets related to a white pigment used in a variety of products, rejecting their argument that they were immune under the Foreign Sovereign Immunities Act.

Sidestepping the question of whether the FSIA applies to criminal cases, U.S. Circuit Judge Daniel Collins said the Pangang Group Co Ltd and its three affiliates failed to show they were Chinese government entities under the law, a baseline requirement for FSIA immunity.

Pangang's attorney John Potter of Quinn Emanuel Urquhart & Sullivan didn't immediately respond to a request for comment, nor did the Department of Justice. Pangang couldn't be reached for comment.

Pangang Group and its three affiliates were indicted in 2016 in the U.S. District Court for the Northern District of California for violating the Economic Espionage Act by allegedly conspiring to steal DuPont trade secrets related to titanium dioxide, a white pigment used in products "ranging from paints to plastic to paper," for the Chinese government. The court said no Chinese company had been able to develop a clean and efficient way to produce the pigment, and DuPont wouldn't sell or license its technology to Chinese companies.

The Pangang companies asked U.S. District Judge Jeffrey White in Oakland to dismiss the case in 2019, arguing they were immune from the claims under the FSIA as instrumentalities of the Chinese government. The indictment said Pangang Group is "a state-owned enterprise controlled by" the Chinese government's State-owned Assets Supervision and Administration Commission of the State Council (SASAC), and the other three companies are its subsidiaries.

White denied the motion, finding that even if the FSIA applied to criminal cases, Pangang wasn't immune because it had engaged in commercial activity in the U.S. and waived its immunity by participating in the case.

Collins, joined by Circuit Judge Kim McLane Wardlaw and Senior Judge Richard Eaton of the U.S. Court of International Trade sitting by designation, affirmed that the companies weren't immune. While the parties "vigorously dispute(d)" whether the FSIA applies in criminal cases at all, which the court had never addressed before, Collins said the statute wouldn't apply to Pangang regardless based on the facts of the indictment.

The indictment's allegation that Pangang was controlled by SASAC wasn't enough to show that it is a foreign instrumentality, Collins said, and the "crucial question" was if SASAC or the Chinese government owned a majority of its shares.

The indictment didn't specify whether Pangang was state-owned "merely in the colloquial sense of that term — which would include indirect ownership — or whether the term is instead meant to refer to owning shares as a matter of corporate law," Collins said. But according to Collins, the indictment appeared to use the word colloquially, and the U.S. government later submitted evidence that SASAC owned Pangang indirectly.

The case is United States v. Pangang Group Co Ltd, 9th U.S. Circuit Court of Appeals, No. 19-10306.

For Pangang: John Potter of Quinn Emanuel Urquhart & Sullivan

For the U.S.: Matthew Yelovich of the U.S. Department of Justice

Blake Brittain reports on intellectual property law, including patents, trademarks, copyrights and trade secrets. Reach him at blake.brittain@thomsonreuters.com

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