Engineer Indicted for Alleged Espionage

Engineer Indicted for Alleged Espionage
Engineer Indicted for Alleged Espionage 

AP Business Writer 
Dec. 14, 2006

SAN JOSE, Calif.  A Chinese engineer was charged Thursday with stealing 
trade secrets from a Silicon Valley company that made military training 
software and attempting to sell them to Asian governments.

Xiaodong Sheldon Meng, 42, a Chinese national with Canadian citizenship, 
was indicted on 36 felony counts, including the rare charge of economic 
espionage to benefit a foreign government and various violations of 
military technology export laws.

In an unrelated but similar economic espionage case, two other engineers 
pleaded guilty Thursday to stealing proprietary computer chip designs 
from four technology giants and attempting to smuggle them to China.

Prosecutors say Meng stole the code for software made by his former 
employer, Quantum3D Inc., that's used to train military fighter pilots, 
and tried to sell it to the Royal Thai Air Force, the Royal Malaysian 
Air Force and a company with ties to China's military.

Under U.S. law, anyone attempting to sell such information overseas must 
first obtain a license from the State Department and is subject to 
strict regulations. Meng never applied for such a license.

No foreign government or agent was named as a conspirator in the case, 
and prosecutors declined to discuss whether any of the secrets were sold 
or whether any foreign officials or agents knew about the alleged 

In economic espionage cases, the law does not require proof of 
complicity by a foreign government, and investigators often don't know 
the extent of foreign involvement.

Meng's case marks only the third time in a decade prosecutors have 
charged someone with economic espionage to benefit a foreign government, 
the most serious crime under the Economic Espionage Act of 1996. A 
conviction carries a maximum penalty of 15 years in prison.

His defense lawyer did not immediately return a call.

U.S. Attorney Kevin Ryan said the case highlights the threat U.S. 
businesses face from thieves looking to sell hard-won intellectual 
property overseas. Few cases allege intent to benefit a foreign 
government because it's difficult to prove, but he said U.S. companies 
are frequently targeted by overseas concerns.

"Silicon Valley understands full well the threat they are faced with 
here," he told The Associated Press. "It's not only a threat to the 
economic value of the products being produced, but in some cases it's a 
threat to our national security and military infrastructure."

In the second case, Fei Ye, 40, a U.S. citizen from China, and Ming 
Zhong, 39, a permanent resident of the U.S. from China, pleaded guilty 
in San Jose federal court to two counts each of economic espionage to 
benefit a foreign government as part of a deal with prosecutors. Ye and 
Zhong initially faced 10 counts each, and had been scheduled to go to 
trial in January.

They were charged with stealing confidential microchip blueprints and 
other trade secrets from their employers and attempting to smuggle them 
to China. The indictment alleges they planned to start a microprocessor 
company with the financial backing of various Chinese government 

Ye and Zhong were arrested in 2001 at San Francisco International 
Airport, attempting to board a flight to China. Their luggage was 
allegedly crammed with thousands of pages of trade secrets stolen from 
four Silicon Valley companies _ NEC Electronics Corp., Sun Microsystems 
Inc., Transmeta Corp. and Trident Microsystems Inc.

The indictment alleges the men, former employees of those companies, 
stole schematic drawings of computer chips under development, internal 
instructions for the design and layout of circuits and components, and 
other confidential information from the companies.

Documents seized from their homes included a corporate charter and a 
fundraising application touting the project's ability to raise China's 
stature in the field of integrated circuit design, according to the 

Other documents allegedly show a panel of Chinese government officials 
had reviewed the company's business plan, deemed it feasible and 
encouraged agencies to provide financial support.

A business partner who tipped off the FBI told investigators the 
startup, called Supervision Inc., had received $2 million in funding 
from two Chinese cities, Hangzhou and Guangzhou, to develop the new 
microprocessor, according to an affidavit.

Both said little during Thursday's 40-minute hearing, and afterward 
declined to comment through their defense lawyers.

Ye and Zhong, who remain free on bail following their pleas, are 
scheduled to be sentenced April 23. Each face a maximum of 30 years in 

James Pooley, an intellectual property litigator and adjunct law 
professor at the University of California, Berkeley, said the conviction 
_ the first of its kind _ was a much-needed victory for the Justice 

"You're finding people who aren't just trying to take something 
opportunistically from their employer. They're going places, planning to 
take trade secrets, and combining secrets from many different places," 
Pooley said. "This shows the problem is real and it's big."

The only other case to allege economic espionage involved two Ohio 
researchers indicted in 2001 for allegedly stealing genetic materials 
used for Alzheimer's disease research and funneling it to a Japanese 
government-funded corporation.

But the case fizzled after Japan refused to extradite one defendant, 
Takashi Okamoto, because a Japanese judge ruled he had not violated U.S. 
laws. The other defendant, Hiroaki Serizawa, pleaded guilty in the U.S. 
to a much lesser charge of making false statements to investigators.

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