In Pursuit of Chinese Trade Secret Theft: Fresh Allegations Against Huawei and Chinese Military Grabs 145 Million SSNs

Orrick - Trade Secrets Group
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Orrick - Trade Secrets Group

Loyal readers are familiar with the DOJ’s “China Initiative,” launched in November 2018 to prosecute the theft of U.S. trade secrets by or for Chinese interests. Attorney General Barr reaffirmed the DOJ’s commitment “to combat the threat posed by theft directed and encouraged by the PRC” in an address at the China Initiative Conference last month. The DOJ’s campaign recently intensified with two new, gripping indictments.
 

First, the government added new charges of conspiracy to steal trade secrets and racketeering to the pending bank-fraud case in New York against Huawei, four subsidiaries, and CFO Meng Wanzhou, whom the United States is seeking to extradite from Canada. Independent from the government’s case in Seattle against Huawei for allegedly stealing trade secrets from T-Mobile, the new allegations describe a scheme dating back to 2000 by Huawei and its subsidiaries to misappropriate trade secrets and copyrighted work from six unnamed U.S. companies. The indictment also alleges that Huawei established a formal bonus program in 2013 to reward employees for stealing confidential information from competitors.

The alleged scheme includes familiar misappropriation methods, such as (1) recruiting other companies’ employees to disclose confidential source code and technical specifications to the defendants, (2) persuading professors to obtain access to other companies’ prototypes for “research purposes” and then reverse engineer the hardware for the defendants’ benefit, and (3) entering into NDAs with other companies under the false pretense of seeking a commercial relationship but then passing the shared confidential information to the defendants’ own engineers to develop competing technology.

Defendants also allegedly engaged in bold attempts to directly steal trade secrets. The government claims a Huawei employee was caught in the middle of the night inside another company’s booth at a trade fair, prying apart a network device and photographing its internal circuitry. In another instance, after Huawei negotiated access to another company’s robot lab, Huawei employees allegedly photographed robots and software interface systems in violation of confidentiality agreements, and also stole a robot arm from the laboratory by slipping it into a laptop bag.

Second, in a case that has personal implications for likely many of us, DOJ accused four Chinese nationals allegedly associated with the Chinese military with hacking into the computer network of Equifax, one of the three main consumer credit reporting agencies. The hackers allegedly stole Equifax’s proprietary data compilations and database schemas. But the purloined data compilations did not merely have economic value to Equifax; they contained sensitive PII including 145 million Social Security numbers and associated names and birth dates, 10 million driver’s license numbers, and 200,000 credit card numbers. That’s about 45% of the U.S. population.

The charges against the four Chinese nationals include economic espionage, attempt to commit economic espionage, and conspiracy to commit economic espionage under the Economic Espionage Act. Unlike in civil litigation, the government need not prove the existence of the trade secret. As we’ve previously discussed, it can obtain a conviction under the attempt and conspiracy theories if the jury concludes that the hackers believed they were targeting trade secrets. However, it’s unlikely that the hackers will face the charges before a U.S. judge anytime soon as long as they stay in China.

With these recent indictments, it’s clear that the DOJ has been living up to the initiative’s mandate.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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