Economic espionage conviction viewed as crucial win

SAN JOSE, Calif - Two engineers were moments away from boarding a flight to China when they were singled out for what appeared to be a routine customs inspection. They didn't know FBI agents were waiting nearby, ready to examine their luggage.

The contents, investigators said, were startling: Thousands of pages of trade secrets stolen from four Silicon Valley companies, including microchip blueprints and other closely guarded documents, many marked ''Proprietary,'' ''Confidential'' or both. The men were arrested and their homes raided.

Documents seized there allegedly revealed a plot to smuggle trade secrets to China to start a microprocessor company backed by Chinese government entities.

Fei Ye, 40, a U.S. citizen from China, and Ming Zhong, 39, a permanent U.S. resident from China, pleaded guilty this week to the rare charge of economic espionage to benefit a foreign nation. Legal experts said Friday that the convictions - the first of their kind - were crucial victories for federal prosecutors.

''It's a home run for the government and a much-needed one,'' said James Pooley, an intellectual-property litigator and adjunct law professor at the University of California, Berkeley. ''It demonstrates not only that we do have a real problem out there, but we also have the tools to combat it, and the government can make it happen. Industry cannot stop this kind of conduct on its own.''

However, the settlement leaves unanswered one of the key underlying questions of the case: Did the Chinese government or any of its officials know the trade secrets were stolen?

No foreign official was charged in the case, and the law does not require that the government prove complicity by foreign concerns to secure a conviction.

Legal experts said if the government had evidence of foreign involvement, but not enough to charge a foreign official, some of that might have come out at trial. There's still a chance such evidence might come out in sentencing arguments.

Prosecutors declined to discuss whether any foreign officials were suspected in the Ye and Zhong case.

U.S. Attorney Kevin Ryan said investigations of international economic espionage cases are often hampered by the difficulty in tracking down suspects and evidence in other countries.

''We know this is going on,'' he said. ''We know our technology is sought all over the world, there are a lot of individuals who want to get it, and there's a lot of money being thrown at them to get it.''

Prosecutors have been criticized for not bringing more cases under the Economic Espionage Act of 1996 that allege the intent to benefit a foreign government.

The law was originally written to combat the threat of trade secrets by foreign agents, with the FBI identifying at least 23 countries suspected of aggressively seeking to steal intellectual property from U.S. businesses. It was later expanded to include the lesser crime of domestic intellectual property theft. But virtually all the indictments handed up have not involved foreign nations or entities.

Some industry experts said the impact of the case against Ye and Zhong, who remain free on bail, won't be known until they are sentenced April 23. They each face up to 30 years in prison.

''That will be the real measure of whether this is the beginning of sentencing with teeth in it,'' said Steven Fink, president of a Los Angeles-based crisis management firm specializing in economic espionage matters.