Trade Secret/Economic Espionage Cases
April 11, 2002
U.S. Department of Justice
United States Attorney
District of New Jersey
Christopher J. Christie
970 Broad Street
Newark, NJ 07102
Contact: Scott S. Christie
Assistant U.S. Attorney
New Indictment Expands Charges Against Former Lucent Scientists Accused of Passing
Trade Secrets to Chinese Company
NEWARK . A federal grand jury today returned a new indictment against three men . two of them former employees of Lucent Technologies . for stealing trade secrets from Lucent for transfer to a joint venture with a Chinese telecommunications company, U.S. Attorney Christopher J. Christie announced. The Superseding Indictment adds, in Count Two through Count Fifteen, allegations of possession of trade secrets stolen from Lucent; and, in Count Sixteen through Count Twenty-Four, allegations of wire fraud. The original one-count Indictment charged conspiracy to steal trade secrets and to possess stolen trade secrets. It was returned on May 31, 2001, and charged Hai Lin and Kai Xu . both former Distinguished Members of the Lucent staff developing the PathStar Access Server . and Yong-Qing Cheng, who served as a Lucent consultant on the PathStar project. Lin, Xu and Cheng are scheduled to be arraigned on the new Indictment on Monday, April 15, at 9:30, before U.S. District Judge William H. Walls. Each of the defendants are currently free on bail. A trial for the defendants is scheduled to begin Sept. 24. Lin, 30, is of Scotch Plains; Xu, 33, is of Somerset, and Cheng, 37, is of East Brunswick. All three are legal U.S. resident aliens from China. Count One carries a maximum penalty of 10 years in prison and a $250,000 fine. Each of the counts of possession of stolen trade secrets carries a maximum penalty of 10 years in prison and a $250,000 fine. The wire fraud counts each carries a maximum penalty of five years in prison and a $250,000 fine. The Superseding Indictment, like the original Indictment, describes how the defendants, via e-mail, a password-protected Web site and visits to China, conspired to steal and transfer the software and hardware of the PathStar Access Server to a joint venture with Datang Telecom Technology Co. of Beijing, according to Assistant U.S. Attorney Scott S. Christie. According to the Superseding Indictment, the PathStar Access Server was a sophisticated computer that facilitated the transmission of voice communications over the Internet. It converted analog voice signals to and from Internet-recognized transmission units (.IP packets.), merged voice and data IP packets, and handled delivery and routing of these merged IP packets over the Internet while, at the same time, providing call waiting, speed dialing, conference calling and dozens of other telephony features.
As the Superseding Indictment alleges, Lin, Xu and Cheng founded ComTriad Technologies, Inc., a New Jersey high-tech startup, in January 2000, purportedly to develop products integrating the transmission and reception of voice and data over the Internet. Among new allegations raised in the Superseding Indictment: . that the defendants had attempted to obtain private financing for ComTriad through a venture capital consultant to manufacture and market its own modified version of the PathStar server based on the stolen trade secrets.
In April 2000, Lin, Xu and Cheng sought the venture capital for the product they called the CLX-1000. However, when the consultant insisted upon a demonstration and review of the CLX-1000 prototype and for related technical documents, Lin, Xu and Cheng allegedly ceased contact with this individual to avoid disclosing the theft of PathStar components from Lucent. In July 2000, the defendants then turned to Datang and proposed that Datang provide venture capital for an ownership interest in ComTriad and that they create a joint venture in Beijing for the development of products based upon the CLX-1000. . that, in early September 2000, Lin, Xu and Cheng demonstrated their CLX-1000 prototype for representatives of Datang in the basement of Lin’s home. By late December 2000, Lin Xu and Cheng received an investment of $500,000 from Datang and had formally agreed with Datang to form the joint venture in Beijing, to which the defendants agreed to contribute the stolen PathStar technology incorporated in the CLX-1000. Beginning in early January 2001, soon after the business relationship between ComTriad and Datang had been formalized, Lin, Xu and Cheng allegedly attempted to distance themselves from ComTriad and obscure their connection to the company to avoid disclosure of their theft and possession of the PathStar components and proprietary technical documents. The defendants did this, according to the charges, by removing their names from the publically-filed ComTriad articles of incorporation and obtaining a post office box as the new mailing address for ComTriad; Cheng removed his name from an Internet registry record linked to the password-protected ComTriad Internet Web site . www.comtriad.com . and Lin and Xu began using ComTriad electronic mail addresses that did not identify them by name and obtained cell phones in their wives names to use for ComTriad business. Lin and Xu also assumed the aliases Howard Lin and Roy Xu when communicating with the public regarding ComTriad business, going so far as to obtain business cards in these aliases, according to the charges. In mid-February 2001, Lin, Xu and a co-conspirator began the transfer of the stolen PathStar technology to the joint venture in Beijing with portions of the stolen and modified PathStar software. In late April 2001, Lin and this co-conspirator electronically transferred to China more of the stolen and modified PathStar software.
By early March 2001, Lin, Xu and Cheng had allegedly stored several versions of the stolen and modified PathStar software on their password-protected ComTriad Internet Web site, www.comtriad.com. FBI agents obtained the contents of this Web site with a search warrant. On May 3, 2001, the day the defendants were arrested and their homes were searched, FBI agents seized large quantities of the component parts of the PathStar Access Server, both software and hardware, as well as schematic drawings and other technical documents related to the PathStar Access Server marked .proprietary. and .confidential.. Among other things, the agents seized a modified PathStar machine from Lin’s basement. Among other new details appearing in Count One, which alleges that the defendants conspired to steal trade secrets from Lucent and to possess stolen trade secrets:
. victims of the trade secret theft are not only Lucent, but other companies that licensed portions of their software to Lucent for use in the PathStar Access Server and sold Lucent custom-designed circuit boards for use in the PathStar Access Server, including: . Telenetworks, a business unit of Next Level Communications, headquartered in Rohnert Park, Ca. . NetPlane Systems, Inc. (formerly Harris & Jeffries, Inc.), a wholly-owned subsidiary of Mindspeed Technologies, Inc., headquartered in Dedham, Mass. . Hughes Software Systems, Ltd., a division of Hughes Network Systems, Inc., headquartered in Gurgaon, India; and . ZiaTech Corporation, a wholly-owned subsidiary of Intel Corporation, headquartered in San Luis Obispo, Ca. . that before approaching Datang, Lin, Xu and Cheng first sought financing through a venture capital consultant. . Lin and Xu began transferring the PathStar software to China in mid-February 2001. . a large percentage of the software files stored on the ComTriad Web site was identical to or modified from PathStar software. Count One of the Superseding Indictment also sets forth in greater detail the trade secrets
of the PathStar server that were seized during searches at the defendants homes and Village Networks, Cheng’s employer in Eatontown. Counts Two through Fifteen of the new Indictment allege that Lin, Xu and Cheng possessed specific PathStar components and proprietary technical documents on the day of their arrest. Counts Sixteen through Twenty Four allege that Lin, Xu and Cheng also victimized Lucent by committing wire fraud. The fraud scheme is alleged to be that Lin and Xu deprived Lucent of their loyalty and honest services by stealing trade secrets and by owning and participating in ComTriad, a competitor, while employed at Lucent. The scheme was carried out by Lin, Xu and Cheng sending e-mail among themselves and to China. Despite Indictment, every defendant is presumed innocent, unless and until found guilty beyond a reasonable doubt following a trial at which the defendant has all of the trial rights guaranteed by the U.S. Constitution and federal law. Under U.S. Sentencing Guidelines, actual prison sentences are, upon conviction, determined under a formula that takes into account the severity and characteristics of an offense and the criminal histories, if any, of the defendants. Parole has been abolished in the federal system. Under Sentencing Guidelines, defendants who are given custodial terms must serve nearly all that time. U.S. Attorney Christie credited Special Agents of the FBI, under the direction of Special Agent in Charge Phillip W. Thomas, of the FBI’s Newark Office; and Special Agents of the Defense Criminal Investigative Service, under the direction of James Murawski, Resident Agent in Charge, for their skill and persistence in investigating the case. The government is represented in the case by Assistant U.S. Attorney Christie of the U.S. Attorney’s Office Fraud and Public Protection Division, and by Special Assistant U.S. Attorney Jennifer Martin, a trial attorney with the Computer Crime and Intellectual Property Section of the Department of Justice. Defense attorneys: