U.S. attorneys hit stumbling block in Pangang espionage case

An apparent communication breakdown has stalled the federal government’s trade secrets theft case against a Chinese steel and titanium maker. A U.S. District Court judge in San Francisco gave federal prosecutors until mid-August to answer allegations that they did not appropriately notify Pangang Group Steel Vanadium & Titanium Co. Ltd. of the criminal charges.

Pangang is the defendant in an industrial espionage case that alleges the Chinese manufacturer indirectly paid California engineers to swipe chemical secrets for TiO2 from their employer, DuPont. DuPont is the global leader in the production of TiO2, a titanium dioxide powder used to add a white tint to plastic, paper and paint products.

Federal prosecutors told the judge that the government did inform Pangang of the indictment through an American company called Pan America, a purported agent for the Sichuan steel maker. The judge said prosecutors failed to prove that the Pan America-Pangang link was strong enough for Pan America to be an agent of the Chinese firm.

The economic espionage case opened earlier this year when a grand jury in Northern California issued an indictment against Pangang and its alleged spies. A California business professional, a U.S. citizen, pleaded not guilty to charges he was the financial go-between for Pangang and the DuPont engineers.

Companies use several methods to prevent the public and competitors from discovering trade secrets. Employers include restraints in legal employment contracts to keep workers and former employees from sharing confidential information.

Some businesses use a different tack to ensure valuable company information stays under wraps. Trade secret information is limited to a choice few individuals rather than shared with a greater, changeable workforce.

Business rivals sometimes try to crack trade secret codes by hiring former employees of their competition. Another method to unlock the ingredients of an intellectual recipe is reverse engineering, when a product is taken apart and analyzed for its individual contents. Industrial espionage is considered an inappropriate and often illegal form for securing trade secrets.

Source: reuters.com, “UPDATE 1 – U.S. prosecutors dealt setback in China economic espionage case,” Dan Levine, July 23, 2012