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Trade Secret/Economic Espionage Cases -U.S. v. ComTriad (D.N.J.)

Department of Justice


Trade Secret/Economic Espionage Cases

    Press Release
    For Immediate Release
    May 3, 2001

Lucent Scientists Arrested, Charged with Stealing Tech Secrets for Joint Venture with
China-controlled Company

May 3, 2001

NEWARK, N.J. - Two Chinese nationals working in high-level technical positions at Lucent Technologies Inc. in Murray Hill were charged today with conspiring to steal source code and software associated with an industry-leading Internet server developed exclusively by Lucent, and to transfer it to a Chinese state-owned company, U.S. Attorney Robert J. Cleary announced.

The two Chinese nationals - both of whom were working at Lucent on business visas - and a third co-conspirator, a naturalized Chinese-American, sought to use the stolen technology to create the leading data networking company in the People's Republic of China - "the Cisco of China" - according to a criminal complaint filed today in U.S. District Court.

Arrested at their homes this morning by Special Agents of the FBI were Lucent employees Hai Lin, 30, of Scotch Plains, and Kai Xu, 33, of Somerset. Also arrested was Yong-Qing Cheng, 37, of East Brunswick, a naturalized American citizen and vice president of Village Networks, an optical networking vendor in Eatontown. Cheng was arrested at Village Networks.

Simultaneous to the arrests, the FBI executed search warrants at the defendants' homes.

"This was a grave intrusion upon American business and technology," Cleary said. "In the information age, it is difficult to imagine anything more dangerous to a company's business interests."

"Today's arrests represent the evolving nature of crime in the United States in the 21st century," said Kevin Donovan, Special Agent in Charge of the FBI in Newark. "The tools are different now - computers and information technology - but the profit motive is the same."

Cleary thanked Lucent Technology for its extensive cooperation during the investigation.

An affidavit with today's criminal complaint describes electronic mail obtained by the FBI via search warrant and court order. In the emails, the defendants and representatives of the Chinese-owned company allegedly plan the theft and transfer of Lucent's technology to create a server identical to Lucent's PathStar Access Server.

Until today, Lin and Xu were both Lucent employees designated as Distinguished Members of the company's technical staff, according to the complaint. Both men were experts in the source code, software and entire design of Lucent's PathStar system - the highly advanced and profitable technology Lin, Xu and Cheng allegedly conspired to steal and transfer out of the United States.

Each of the defendants was charged with conspiracy to commit wire fraud. Charged in the same complaint was ComTriad Technologies, Inc., a New Jersey corporation which was founded in January 2000 by the defendants. Beginning with a July 2000 trip by Cheng to Beijing, ComTriad started negotiations for a joint venture with Datang Telecom Technology Co. of Beijing, a company that is majority-owned by the Chinese government.

Subsequent to that trip, according to the complaint, the defendants and representatives of Datang exchanged electronic mail and visited in China and the U.S. to negotiate the joint venture. Ultimately, the Lucent technology - the PathStar source code and software - was stored in its entirety on a password-protected website created by ComTriad and established with a web-hosting company.

The source code and software were stored on that website - www.comtriad.com. The defendants transfered the data earlier this year to Datang for use in developing a ComTriad system - the CLX 1000 - that was identical to Lucent's PathStar Server, according to the complaint.

The Datang-ComTriad joint venture, funded with $1.2 million from Datang, was named DTNET, and was approved by the Datang board of directors on or about October 28, 2000, according to intercepted emails described in the complaint.

Datang is engaged in the development, manufacture and sale of telecommunications products in the People's Republic of China, including computer hardware and software to facilitate voice transmissions over the Internet, according to the complaint.

The PathStar system is recognized as a unique product in the industry, designed to facilitate low-cost voice and data services over the Internet. In the market for telephony and packet networking integration, the PathStar system commands a 93-percent share, according to the complaint, and generated revenue of approximately $100 million for Lucent in fiscal year 2000.

Lin, Xu, Cheng and ComTriad planned to go public in a joint venture with Datang through initial public offerings of stock in the United States and China, according to the complaint.

Among the allegations related in the complaint:

. that source code recovered from the ComTriad website was prefaced by explicit language reflecting that the information was proprietary, unpublished intellectual property of Lucent.

. that on Jan. 21, 2001, Lin sent an email advising that the "bare src" - allegedly referring to a portion of the PathStar source code - had been transferred to the ComTriad password-protected website, and that more source code would follow.

. that an email was circulated among the co-conspirators and a Datang representative, laying out a business plan for the joint venture, including that the joint venture would be 51 percent owned by Datang and that it endeavored to become "the Cisco of China."

Each of the defendants faces a maximum penalty of five years in prison and a $250,000 fine on the charge of conspiracy to commit wire fraud.

The charge is merely an accusation. All defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt.

It is expected that the matter will be presented to a grand jury.

Cleary credited Special Agents of the FBI, under the direction of Special Agent in Charge Kevin Donovan, in Newark.

The government is represented by Assistant U.S. Attorney Scott S. Christie.

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