Criminal trade secret prosecutions are on the rise nationwide and in the Northern District of California, especially cases relating to alleged theft by Chinese nationals and entities. According to a 2017 report by the White House Office of Trade and Manufacturing Policy, Chinese theft of American intellectual property costs between $225 billion and $600 billion annually.
On Nov. 1, 2018, former Attorney General Jeff Sessions announced the U.S. Department of Justice’s new “China Initiative,” designed to “identify priority Chinese trade theft cases, ensure that we have enough resources dedicated to them, and make sure that we bring them to an appropriate conclusion quickly and effectively.” Since that announcement, the DOJ has prosecuted numerous cases related to alleged Chinese theft of trade secrets under the Economic Espionage Act (18 U.S.C. 1831, et. seq.), accelerating a trend already in place.
Criminal prosecutions for trade secret theft involving no foreign component at all are also on an uptrend. These cases involve private actors that are U.S.-based with no national security implications. Finally, criminal trade secret prosecutions following parallel civil actions are becoming more commonplace. These major trends are discussed below.
A Spike in Prosecutions of Criminal Trade Secret Cases Related to China
While announcing the China Initiative on Nov. 1, the DOJ also revealed that it was bringing a case involving the alleged theft of Micron trade secrets: “a grand jury in San Francisco has returned an indictment alleging economic espionage on the part of a Chinese state-owned, government owned, company, a Taiwan company, and three Taiwan individuals for an alleged scheme to steal trade secrets from Micron, an Idaho-based semi-conductor company.”
The case is United States v. United Microelectronics Corp. The corporate defendants were arraigned on Jan. 9, 2019, and both pleaded not guilty. This case is being watched closely because it is the first one brought under the China Initiative, and the government is reportedly employing novel tactics in prosecuting it. For the first time, the government has filed a simultaneous civil lawsuit under the Economic Espionage Act in addition to the criminal indictment. In the civil case, the government aims to block the Chinese corporate defendant from exporting dynamic random access memory, alleging that it contains Micron’s trade secrets. Meanwhile, prosecution-friendly revisions to Federal Rule of Criminal Procedure 4 have allowed for easier service on foreign corporate defendants.
The statistics on economic espionage cases involving China in the past several years are staggering. While announcing the indictment of two computer hackers associated with the Chinese government on Dec. 20, 2018, Deputy Attorney General Rod Rosenstein noted that “[m]ore than 90 percent of the Department’s cases alleging economic espionage over the past seven years involve China. More than two-thirds of the Department’s cases involving thefts of trade secrets are connected to China.”
The very next day, on Dec. 21, the DOJ announced that a Chinese national had been arrested in the Northern District of Oklahoma for stealing trade secrets from his employer, a U.S.-based petroleum company. The alleged trade secrets relate to a product valued at over $1 billion regarding the manufacture of a “research and development downstream energy market product.” Assistant Attorney General for National Security John C. Demers stated: “The theft of intellectual property harms American companies and American workers. As our recent cases show, all too often these thefts involve the Chinese government or Chinese companies. The Department recently launched an initiative to protect our economy from such illegal practices emanating from China, and we continue to make this a top priority.”
Unsurprisingly given its proximity to the Pacific Rim and as home to a plethora of major technology companies, the Northern District of California in particular has become a hotbed for criminal trade secret prosecutions. In July 2018, the U.S. Attorney’s Office for the Northern District indicted a former Apple Inc. employee for theft of trade secrets in violation of 18 U.S.C. § 1832. The employee was arrested at San Jose Airport as he attempted to board a flight to China.
The government alleges that he downloaded numerous documents from Apple’s server prior to resigning, including a confidential 25-page document containing detailed schematic drawings of a circuit board designed to be used in the critical infrastructure of a portion of an autonomous vehicle. They allege that he left Apple under false pretenses to join an autonomous vehicle technology company headquartered in China.
Then in September 2018, four Chinese state-owned industrial companies were arraigned on an indictment charging them and two of their officers with economic espionage in conspiring to acquire stolen or misappropriated technology trade secrets from DuPont Co.
In October 2018, the government also issued indictments against four former Genentech Inc. employees accused of stealing confidential Genentech trade secrets in order to assist a company in Taiwan in creating and selling drugs similar to Genentech’s.
If this trend continues we can expect to see several more China-related criminal trade secret cases in the Northern District by the end of 2019.
A Growing Willingness to Prosecute Cases With No Foreign Actor or National Security Interest
While trade secret prosecutions connected to China are a major focus, a related trend has also simultaneously emerged: the DOJ’s increased willingness to bring trade secret cases involving no foreign actor or national security concern. The DOJ’s Justice Manual lists several discretionary factors to be considered in deciding whether to initiate a prosecution under the Economic Espionage Act, including: “(a) the scope of the criminal activity, including evidence of involvement by a foreign government, foreign agent or foreign instrumentality; (b) the degree of economic injury to the trade secret owner; (c) the type of trade secret misappropriated; (d) the effectiveness of available civil remedies; and (e) the potential deterrent value of the prosecution.”
In recent years, the significance of factor (a) regarding the involvement of a foreign actor in the alleged crime appears to be shifting. Benjamin B. Wagner, the former United States attorney for the Eastern District of California, discussed this trend at a September 2018 trade secrets conference in San Francisco. He explained that the U.S. attorney’s office historically has been reluctant to take cases when one private actor has a civil action pending or threatened against another private actor, and where there is no foreign actor or national security interest to protect. The DOJ was traditionally loath to be seen as having been dragged into civil litigation and used as a weapon by one company against another.
According to Wagner, this reticence has receded gradually over the years, and the DOJ is now more willing to take such cases as the value of the U.S. economy is much more tied to intellectual property than it was 20 ago. In other words, the protection of intellectual property rights has significant economic consequences, and the involvement of prosecutors in otherwise private, civil disputes could be perceived as increasingly warranted depending on the case. In Wagner’s estimation, there is still probably only a 50 percent chance that a U.S. attorney would file a case with only private civil actors involved, though this is a substantial increase from the previous likelihood of just 20 percent.
A recent example of the trend toward domestic-focused trade secret prosecutions in the Northern District of California is United States v. Mogal. In June 2018, the U.S. attorney’s office indicted six former employees of a defunct fitness tracker company, Jawbone, alleging that they possessed Jawbone trade secrets after their employment with Jawbone ended and they accepted employment with Fitbit Inc. The indictment contains no allegation of “evidence of involvement by a foreign government, foreign agent or foreign instrumentality.”
In addition, the high-profile civil trade secret theft case between Uber Technologies Inc. and Waymo LLC has apparently led to a criminal investigation of Uber, though no indictment has yet been issued. In February 2017, Google subsidiary Waymo alleged that Anthony Levandowski, a former employee, stole trade secrets regarding driverless cars from Google before leaving and using that information for Uber’s benefit. The companies settled the civil case in February 2018, but the DOJ confirmed that it had opened a criminal investigation of Uber after the federal judge in the civil action referred the case to the U.S. attorney’s office.
An Increase in Criminal Trade Secret Prosecutions Following Parallel Civil Cases
Following the announcement of a criminal investigation or indictment, it is common for private plaintiffs to capitalize on the government’s work and file civil suits against the same defendants. However, the dispute between Waymo and Uber highlights another trend: the rise of criminal trade secret prosecutions that follow parallel civil cases.
The DOJ’s criminal investigation of Uber may have arisen out of unusual circumstances, namely the direct referral of the case from the federal judge in the civil case to the U.S. attorney’s office. However, the practice of prosecutors filing criminal trade cases alongside parallel civil actions, or following civil actions, has become more common in recent days.
For example, prosecutors filed the Mogal criminal case against former Jawbone employees after Jawbone had already litigated civil actions against Fitbit for trade secret misappropriation, including in the U.S. International Trade Court and San Francisco Superior Court. Similarly, with regard to United States v. United Microelectronics Corp., prosecutors issued the indictments after a parallel civil case by Micron against UMC had been under way for almost a year. In both cases, there was already an extensive civil-case record upon which prosecutors could rely for the subsequent criminal cases if they chose to do so.
In some cases, “victim” companies will even make presentations to prosecutors to convince them to take a case in order to increase their leverage in the civil litigation. The rise of these follow-on prosecutions may suggest that prosecutors are weighing the factor of “the effectiveness of available civil remedies” less heavily in making their charging decisions.
While white collar filings are significantly down nationwide, one area of white collar prosecutions appears to be expanding quickly, especially in the Northern District of California. The prosecutorial appetite for bringing criminal trade secret cases, especially relating to China, appears voracious. Even where no foreign actor or national security concern is involved, or where a dispute among two private actors has been (or is being) fully litigated in a civil forum, the DOJ may still be more inclined than ever to bring a criminal investigation or action. At the same time, legislative revisions such as the changes to Federal Rule of Criminal Procedure 4 to allow for easier service on foreign corporate defendants and related precedent that has developed around it are facilitating trade secret prosecutions against foreign actors. All signs indicate that there is much more to come.
 White House Office of Trade and Manufacturing Policy, How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World, Whitehouse.gov at p.5 (June 2018), https://www.whitehouse.gov/wp-content/uploads/2018/06/FINAL-China-Technology-Report-6.18.18-PDF.pdf (citing The Comm’n on the Theft of Amer. Intellectual Prop., The Nat’l Bureau of Asian Research, ipcommission.org at 1 (2017), http://www.ipcommission.org/report/IP_Commission_Report_Update_2017.pdf ).
 U.S. Department of Justice, Attorney General Jeff Sessions Announces New Initiative to Combat Chinese Economic Espionage, justice.gov (November 1, 2018), https://www.justice.gov/opa/speech/attorney-general-jeff-sessions-announces-new-initiative-combat-chinese-economic-espionage.
 United States v. United Microelectronics Corp. (UMC), Case No. 3:18-cr-00465 MMC (N.D. Cal.). The authors’ law firm serves as counsel for a defendant in this case. Only public information regarding the case is provided in this article.
 Joel Rosenblat, U.S. Deploys New Tactics in Prosecution of Chinese Chipmaker, Bloomberg ( Jan. 9, 2019 4:00 PM), https://www.bloomberg.com/news/articles/2019-01-09/u-s-deploys-new-tactics-in-prosecution-of-chinese-chipmaker.
 In addition, federal prosecutors received a boost when the Ninth Circuit affirmed in the 2017 case against Chinese-government-owned Pangang Group that the company had been properly served a criminal summons through its U.S. counsel, after its U.S. counsel appeared on its behalf in court solely to contest the service and admitted the company’s actual knowledge of the summons. The basis for the ruling was Federal Rule of Criminal Procedure 4, which was revised in 2016 to allow “an organization not within a judicial district of the United States,” to be served by, among other methods, “any other means that gives notice . . . .” Fed. R. Crim. P. 4(c)(3)(D). Tiffany Hu, 9th Circuit Says Chinese Co. Given Notice In Trade Secrets Row, Law360 (Aug. 23, 2018 4:09 PM), https://www.law360.com/articles/1076084/9th-circ-says-chinese-co-given-notice-in-trade-secrets-row.
 U.S. Department of Justice, Deputy Attorney General Rod J. Rosenstein Announces Charges Against Chinese Hackers, justice.gov (Dec. 20, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-announces-charges-against-chinese-hackers.
 U.S. Department of Justice, Chinese National Charged with Committing Theft of Trade Secrets, justice.gov (Dec. 21, 2018), https://www.justice.gov/opa/pr/chinese-national-charged-committing-theft-trade-secrets.
 U.S. Department of Justice, Former Apple Employee Indicted on Theft of Trade Secrets, justice.gov (July 16, 2018), https://www.justice.gov/usao-ndca/pr/former-apple-employee-indicted-theft-trade-secrets.
 U.S. Department of Justice, Four Chinese State Owned Industrial Companies Arraigned in Economic Espionage Conspiracy, justice.gov (Sept. 7, 2018), https://www.justice.gov/usao-ndca/pr/four-chinese-state-owned-industrial-companies-arraigned-economic-espionage-conspiracy.
 U.S. Department of Justice, Former Genentech Employees Charged With Theft of Trade Secrets, justice.gov (Oct. 29, 2018), https://www.justice.gov/usao-ndca/pr/former-genentech-employees-charged-theft-trade-secrets.
 Economic Espionage Act of 1996 (18 U.S.C. §§ 1831-1837)—Prosecutive Policy, Justice Manual, § 9-59.100, https://www.justice.gov/jm/jm-9-59000-economic-espionage.
 2018 Update, Two Years After DTSA, 800 Cases Trade Secrets Protection, Enforcement and Litigation Panel (Sept. 27, 2018).
 United States v. Mogal, et al., Case No. 5:18-cr-00259-BLF (N.D. Cal).
 U.S. Department of Justice, Six Former and Current Fitbit Employees Indicted for Possessing Multiple Trade Secrets Stolen from Jawbone, justice.gov (June 14, 2018), https://www.justice.gov/usao-ndca/pr/six-former-and-current-fitbit-employees-indicted-possessing-multiple-trade-secrets.
 See supra, n.13.
 Mike Isaac, Uber Under Criminal Investigation, Justice Dept. Confirms in Letter to Court, nytimes.com (Dec. 13, 2017), https://www.nytimes.com/2017/12/13/technology/uber-waymo-driverless-cars.html.
 Melissa Daniels, Fitbit Cleared of Jawbone’s Trade Secret Claims at ITC, Law360 (Oct. 20, 2016 10:21 PM), https://www.law360.com/articles/854094/fitbit-cleared-of-jawbone-s-trade-secret-claims-at-itc.
 Micron v. United Microelectronics Corp., Case No. 3:2017cv06932 (N.D. Cal.).
 See supra, n.14
 See supra, n.7.