UPDATE: Chinese Agricultural Researcher Charged Under Economic Espionage Act for Trade Secret Thefts at Dow and Cargill

December 22, 2011

This is an UPDATE of a "Street Sweeper" column originally published on October 19, 2011.

While the original blog focused on espionage that targeted Dow, the importance of this case extends beyond that one major company. Agribusiness is big business - big international business. For emerging markets with large populations, often under-nourished and now seeking to raise the quality of their diet, the ability to increase agricultural yields may be a critical component in the ability to sustain economic transformation. An equally important consideration is the ability to stave off social unrest instigated by food shortages or inflationary prices.

Not only Dow but other major players in the agribusiness - ADM, Monsanto, potash and fertilizer producers - may all become targets of attempts to steal their trade secrets. One need simply look at the MOO ETF to get a sense of the make-up of this sector and its vulnerability.

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Following the 1996 enactment of the Economic Espionage Act, federal prosecutors state that eight cases have been brought charging violations of that law. On July 13, 2010, Kexue a/k/a "John" Huang, 48, a Chinese national who had been granted legal permanent resident status in the United States and a former resident of Carmel, Ind., was arrested in Westborough, MA and indicted on 17-counts in the Southern District of Indiana for misappropriating and transporting trade secrets to the People's Republic of China (PRC) while working as a research scientist at Dow AgroSciences LLC.

On October 18, 2011, a separate indictment filed in the District of Minnesota was unsealed, charging Huang with stealing a trade secret from Cargill Inc.

Dow

According to federal prosecutors, from January 2003 until February 2008, Huang was employed as a research scientist at Dow, where in 2005 he became a research leader in strain development related to unique, proprietary organic insecticides marketed worldwide. As a Dow employee, Huang was subject to confidentiality, as detailed in an agreement that he had signed addressing his obligations for handling confidential information and trade secrets.

The Dow Indictment alleged that without Dow's authorization, in December 2008, Huang published an article through Hunan Normal University (HNU) in the PRC, which contained Dow trade secrets and was premised on work supported by grants from the National Natural Science Foundation of China (NSFC), a foreign instrumentality of the PRC. It was further alleged that Huang directed individuals associated with HNU to conduct research at their laboratories on Dow trade secrets. After leaving Dow, Huang applied by March 2007 for NSFC grants, which he subsequently received, for the purpose of developing Dow trade secrets.

From 2007 to 2010, Huang apparently admitted to having transferred and delivered stolen Dow trade secrets to individuals in Germany and the PRC. With the assistance of these individuals, Huang used the stolen materials to conduct unauthorized research with the intent to benefit foreign universities tied to the PRC. Huang also admitted that he attempted to develop and produce the misappropriated Dow trade secrets in the PRC; and such efforts included his identifying PRC manufacturing facilities that would allow him to compete directly with Dow in the organic pesticide market. In addition, the Indictment alleged that Huang sought information about manufacturing facilities in the PRC that would allow him and others to compete in the same market as Dow.

Cargill

After leaving Dow, Huang was hired in March 2008 by Cargill, where he worked as a biotechnologist until July 2009. Similar to his undertaking at Dow, Huang signed a confidentiality agreement addressing his handling of confidential information and trade secrets.

Prosecutors state that Huang admitted that while employed at Cargill, he stole a key component in the manufacture of a new food product, which he later disseminated to a student at Hunan Normal University in the PRC.

Guilty Plea

On October 18,. 2011, Huang pleaded guilty to one count each of:

  • economic espionage to benefit a foreign university tied to the People's Republic of China (PRC); and
  • theft of trade secrets.

The aggregate loss from Huang's criminal conduct allegedly exceeded $7 million but was less than $20 million.
At sentencing, Huang faces a maximum prison sentence of 15 years for economic espionage and 10 years for the trade secrets theft.

Also read, Industrial Espionage at Dow Chemical ("Street Sweeper" February 8, 2011)

UPDATE

On December 21, 2011, Huang was sentenced to 87 months in prison and three years of supervised release.