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Chinese company accused of stealing DuPont secrets loses bid to toss case

The panel agreed Chinese company accused of stealing manufacturing secrets worth billions of dollars is not a foreign state and cannot hide behind diplomatic immunity.

(CN) --- The Ninth Circuit denied a bid by a consortium of Chinese companies to evade responsibility for the theft of trade secrets by invoking diplomatic immunity. 

A three-judge panel ruled that a lower court properly denied a motion to dismiss filed by Pangang Group Company and other Chinese-based companies who invoked immunity as stipulated by the Foreign Sovereign Immunities Act. 

U.S. Circuit Judge Daniel Collins, a Donald Trump appointee writing on behalf of the majority, said Pangang Group Company failed to establish they are a “foreign state” as established by the Foreign Sovereign Immunities Act and therefore are not covered by its provisions, which may or may not absolve companies from the alleged conduct. 

“Because the Pangang companies relied solely upon the indictment’s allegations, and presented no evidence to support their motion to dismiss, they necessarily failed to establish a prima facie case that they were 'foreign state[s]' entitled to immunity,” Collins wrote. 

The case stems from a 2012 indictment alleging Pangang Group, among others, conspired with Walter and Christina Liew of Orinda, California, to steal secrets on how to manufacture chloride-route titanium oxide (TiO2), a white pigment that is used to whiten products ranging from paint to plastics to paper.

As the Chinese economy grew in the 1990s, mostly on the back of its manufacturing prowess, demand for the TiO2 grew exponentially. But Dupont, which controls the confidential trade secrets related to the ingredient, was reluctant to license its technology to Chinese companies. 

So the Chinese government contracted with Walter Liew, a U.S. businessman, to steal the trade secrets. According to court documents, Liew assembled a team of former DuPont employees, including one with intimate knowledge of how TiO2 was produced, to steal the trade secrets and transfer them to the Pangang Group. 

When a criminal indictment was filed against the Pangang Group claiming the company violated criminal provisions of the Economic Espionage Act, the company claimed it was acting at the behest of the People’s Republic of China and had immunity as a result. 

A lower court denied the company’s motion to dismiss, which the Ninth Circuit affirmed Monday. The ruling means the company must face trial on the merits after the lengthy appeal process.

According to the indictment, the Pangang Group companies were aided by individuals in the United States who had obtained TiO2 trade secrets and were willing to sell for significant sums of money. It says defendants Walter Liew, Christina Liew, Robert Maegerle and Tze Chao obtained and possessed TiO2 trade secrets belonging to DuPont. Each of these individuals allegedly sold the information to the Pangang Group companies so they could develop large-scale chloride route TiO2 production capability in China, including a 100,000-ton TiO2 factory at Chongqing.

Federal prosecutors say USA Performance Technology Inc. and its predecessor Performance Group entered into contracts worth more than $20 million to convey the trade secret technology to Pangang Group companies. The Liews allegedly received millions of dollars from these contracts, proceeds that were wired through the United States, Singapore and ultimately back into several bank accounts in China in the names of relatives of Christina Liew.

At the time, then-Assistant Attorney General Lisa Monaco said "the theft of America's trade secrets for the benefit of China and other nations poses a substantial and continuing threat to our economic and national security, and we are committed to holding accountable anyone who robs American businesses of their hard-earned research."

U.S. Circuit Judge Kim McLane Wardlaw and Judge Richard Eaton of the U.S. Court of International Trade, both Bill Clinton appointees, rounded out the panel.

Follow Matthew Renda on Twitter

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