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Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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Speaker 1: day we bring you insight an analysis into the most

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Speaker 1: important legal news of the day. You can find more

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Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud

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Speaker 1: and on Bloomberg dot com slash podcasts. Federal prosecutors are

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Speaker 1: using novel tactics to prosecute trade secret theft in China,

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Speaker 1: a multibillion dollar problem. After a seven month investigation, the

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Speaker 1: US Trade Representative found that Chinese theft of American intellectual

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Speaker 1: property currently costs between two d billion and six hundred

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Speaker 1: billion annually. Assistant Attorney General John de Murs explained the

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Speaker 1: impact last month. What we've been seeing over the course

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Speaker 1: of a number of years is a determined program to

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Speaker 1: take American and other countries intellectual property in order to

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Speaker 1: develop Chinese capabilities, domestic capabilities in their market and then

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Speaker 1: outside their market. What I call it in my test

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Speaker 1: simony is a rob replicate and replace approach to economic development.

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Speaker 1: Take the U s I P, replicate the US product,

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Speaker 1: and then replace the US company. On January four, the

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Speaker 1: China state owned fujian Jinuan Integrated Circuit and it's Taiwan

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Speaker 1: based partner United Microelectronics pleaded not guilty in San Francisco

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Speaker 1: Federal court to allege trade secret theft. Joining me is

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Speaker 1: Peter Henning, professor at Wayne State University Law School. So, Peter,

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Speaker 1: what kinds of intellectual property theft by China are we

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Speaker 1: talking about here? Well, the focus of the government has

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Speaker 1: been that China has not been enforcing copyrights or trademarks,

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Speaker 1: but much more importantly, that China has been behind the

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Speaker 1: theft of trade secrets and companies that are trying to

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Speaker 1: keep their manufacturing processes and things like that secret. The

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Speaker 1: Chinese have targeted them and then of course copy them

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Speaker 1: and use them to develop their own markets. So really,

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Speaker 1: what this is it's it's not just they've gotten a

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Speaker 1: movie and reproduced it and not paying any copyright fees

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Speaker 1: on it. But this is really theft of technology, and

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Speaker 1: that's the much greater threat that the Justice Department has identified.

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Speaker 1: The US has tried to combat it with tariffs. China

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Speaker 1: has tried to combat it with an array of punishments

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Speaker 1: for IP violations, but the IP violations are increasing. Why.

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Speaker 1: I think that the core reason is that it isn't

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Speaker 1: just the intellectual property violations, But it is that there

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Speaker 1: is technology that Chinese companies need and that they are developing,

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Speaker 1: and of course that the Chinese government, which controls the economy,

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Speaker 1: is largely behind this push that they want to get technologies.

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Speaker 1: It's much cheaper in a and to steal it then

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Speaker 1: to develop it yourself. So the real concern here is

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Speaker 1: that technology is being taken from the United States, not

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Speaker 1: paid for it at all, and then being used in

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Speaker 1: China to develop their own market and also for them

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Speaker 1: to sell to other countries in the world, which of

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Speaker 1: course hurts American companies that developed the technology. So the

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Speaker 1: US is pushing forward on a key front of the conflict,

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Speaker 1: which is criminal prosecution of alleged trade secret theft. Tell

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Speaker 1: us about the China initiative well, Attorney General Sessions, before

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Speaker 1: he left his Attorney General announced back on November one,

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Speaker 1: eighteen that he was creating this initiative that would identify

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Speaker 1: what he called priority Chinese trade theft cases and then

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Speaker 1: ensuring that the government put enough resources into them. These

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Speaker 1: are complex cases you are talking about out not just

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Speaker 1: trade secrets, but understanding what was taken and then trying

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Speaker 1: to bring a case against a foreign company and foreign

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Speaker 1: nationals so that they're not easy cases to pursue. And

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Speaker 1: what Mr. Sessions identified was, we're going to make this

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Speaker 1: our top priority because China is perceived as the greatest

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Speaker 1: threat to American technology and the theft of American technology.

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Speaker 1: So prosecutors are also using some novel tactics in this

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Speaker 1: latest fight. Let's start with the new rule on serving

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Speaker 1: indictments to foreign companies. What's that and is it working well?

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Speaker 1: What happened is back in Rule four of the Federal

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Speaker 1: Rules of Criminal Procedure was amended so that as long

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Speaker 1: as the defendant is given notice of the charges, and

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Speaker 1: it can be done in different ways, and one way

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Speaker 1: in which it can be done is is submitting a

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Speaker 1: request under an international agreement. China has signed many of

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Speaker 1: these international agreements. So as long as you notify the defendant,

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Speaker 1: that now is sufficient. So you don't necessarily have to

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Speaker 1: get the company or the person into the United States.

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Speaker 1: But as long as you give them notice, the case

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Speaker 1: can move forward. That makes life much easier for prosecutors.

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Speaker 1: You don't have to go out and try to search

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Speaker 1: people down or hope that somehow they come to the

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Speaker 1: United States or to a country of that would arrest

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Speaker 1: them or give them notice. So it certainly has made

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Speaker 1: life easier for prosecutors in these types of cases, especially

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Speaker 1: targeting Chinese companies, because many of them do not have

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Speaker 1: a presence in the United States, so now this is

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Speaker 1: a way to notify them if the government is going

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Speaker 1: to bring criminal charges. Prosecutors are also testing out a

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Speaker 1: provision of the Economic Espionage Act that dates back more

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Speaker 1: than two decades. That's right that there is a provision

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Speaker 1: of the Economic Espionage Act which really focuses on theft

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Speaker 1: of trade secrets. But there's a provision in there that

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Speaker 1: allows the Justice Department to obtain what's called quote appropriate

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Speaker 1: injunctive relief for any violation. And so what they're doing

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Speaker 1: in a case out in San Francisco, they have not

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Speaker 1: only indicted a Chinese and a Taiwanese company and three

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Speaker 1: individual defendants, but they've also filed for this injunctive action

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Speaker 1: to prevent the companies from developing these DRAM chips dynamic

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Speaker 1: random access memory chips and also exporting them and trying

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Speaker 1: to take that technology back. So usually you don't see

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Speaker 1: the government filing a parallel civil action, but here I

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Speaker 1: think what the Justice Department is doing, is they're using

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Speaker 1: every arrow in their quiver to try to crack down

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Speaker 1: on this theft of trade secrets and infringements on intellectual property.

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Speaker 1: So this case is really sending a message that it

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Speaker 1: isn't just that we're concerned about this one case. We

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Speaker 1: want to send a message to Chinese companies that if

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Speaker 1: you're going to steal trade secrets, you're going to face

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Speaker 1: the full force of the Department of Justice. And not

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Speaker 1: only the Department of Justice, but the Commerce Department got

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Speaker 1: involved in this as well, so they had a multi

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Speaker 1: pronged strategy explain that, well, the Commerce Department has identified

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Speaker 1: here in this area what it believes to be systemic

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Speaker 1: violations by the Chinese government and Chinese companies, and so

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Speaker 1: one of the responses, of course, has been the tariffs

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Speaker 1: that have been imposed. And you also have in this

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Speaker 1: area to the private companies. The case out in San

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Speaker 1: Francisco involves Micron Technology, they can also bring a law

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Speaker 1: suit for any damage to their company. And so you

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Speaker 1: really have an effort here along a number of different

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Speaker 1: fronts to try to crack down and send a message

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Speaker 1: that these half hearted efforts are claimed by the Chinese

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Speaker 1: government that well we're going to try to stop intellectual

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Speaker 1: infringement and theft of i P materials. That really has

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Speaker 1: been half hearted, and Peter does it seem as if

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Speaker 1: the judges are getting the message to certainly, and these

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Speaker 1: are serious cases because they involve potential prison sentences, and

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Speaker 1: so I think the judges are reflecting the concern of

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Speaker 1: the Justice Department that China has played rather fast and

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Speaker 1: loops with intellectual property protections, whether it be patent, copyright, trademark,

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Speaker 1: or here especially trade secrets. Companies don't want to publicize

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Speaker 1: their processes and their technology by, for example, filing a patent,

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Speaker 1: and so they're trying to protect themselves. And I think

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Speaker 1: the judges are very much attuned. And I think that's

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Speaker 1: one reason why we see that this particular case was

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Speaker 1: filed in San Francisco, that there has been a real

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Speaker 1: concern with trade secret theft out in Silicon Valley, and

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Speaker 1: so I think the judges are especially attuned here to

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Speaker 1: protecting companies who are having their secret stolen who would

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Speaker 1: go to prison in the prosecution. In San Francisco, you

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Speaker 1: have three Taiwanese individuals who have been identified who had

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Speaker 1: once worked at Micron and are identified as having stolen

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Speaker 1: the materials. Companies can't be put in prison, but hefty

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Speaker 1: fine certainly can be imposed on companies. I think just

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Speaker 1: as importantly too, that the civil injunctive action that the

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Speaker 1: Justice Department is pursuing is going to give them authority

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Speaker 1: to go around and try to shut down or demand

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Speaker 1: compliance with American law by these companies. And so it's

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Speaker 1: really part of an effort to get them to follow

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Speaker 1: the law and not go and steal. Instead, if you

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Speaker 1: want technology, license it, pay for it, but don't just

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Speaker 1: go out there and say, well, let's see how we

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Speaker 1: can sneak it out of the United States and then

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Speaker 1: develop our own industry. It seems though, as if it's

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Speaker 1: chipping away bit by bit at this huge problem, and

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Speaker 1: one wonders when they'll they'll really be a dent in

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Speaker 1: the problem. Well, that's certainly an interesting question, because given

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Speaker 1: the size of China and the size of its economy,

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Speaker 1: you do small dents make much of a difference. I

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Speaker 1: think the answer is that the Justice Department wants to

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Speaker 1: send a message that we're going to be more vigilant,

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Speaker 1: and so the China initiative is an effort to say

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Speaker 1: we're watching and we're going to put this at the

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Speaker 1: top of our priority list. How how much fear is

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Speaker 1: that going to strike in Chinese companies? I wonder, because

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Speaker 1: they've operated largely with impunity to this point, and so

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Speaker 1: are they really going to be all that concerned if

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Speaker 1: they just steer clear of the United States. That's Peter Henning,

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Speaker 1: a professor at Wayne State University Law School. Thanks for

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Speaker 1: listening to the Bloomberg Law Podcast. You can subscribe and

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Speaker 1: listen to the show on Apple Podcasts, SoundCloud, and on

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Speaker 1: Bloomberg dot com slash podcast. I'm June Brosso. This is

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Speaker 1: Bloomberg yea