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Ninth Circuit Upholds Convictions in Economic Espionage Case

A businessman and his company’s convictions for conspiracy and attempt to commit economic espionage, as well as convictions related to stealing trade secrets for producing titanium dioxide, will stand, the Ninth Circuit ruled Friday.

(CN) – A businessman and his company’s convictions for conspiracy and attempt to commit economic espionage, as well as convictions related to stealing trade secrets for producing titanium dioxide, will stand, the Ninth Circuit ruled Friday.

“If you wanted to learn about the secretive and lucrative world of titanium dioxide production, then this was the trial for you,” U.S. Circuit Judge John Owens wrote for the Ninth Circuit’s unanimous three-judge panel.

At the heart of the case is a process that uses chloride to produce titanium dioxide, or TiO2, that is cheaper, more efficient and produces a better product than the traditional method of using sulfate. Delaware-based E.I. du Pont de Nemours and Company (DuPont) is the world’s leading producer of TiO2, in large part because its chloride process allows it to use low-grade ore.

Titanium dioxide, or TiO2, is a pigment used to whiten a variety of products, including paint, paper and Oreo cookie filling. According to Marketwatch, its worldwide market is projected to be worth $14.12 billion by 2021.

China’s government attempted to purchase DuPont’s technology in the early 1990s, but DuPont asked for $75 million. Instead of biting, Chinese officials tasked Walter Liew, a U.S. citizen who had designed a Chinese acrylic resin plant, with helping China with its TiO2 production efforts.

In 1997, Liew contacted two retired DuPont employees, Robert Maegerle and Tim Spitler. In 2005, a Chinese company and Liew’s company – the now-bankrupt LH Performance – signed a contract to allow Liew to upgrade an existing Chinese TiO2-production facility to one that used the chloride process. In 2009, the same Chinese company hired Liew to build a new facility.

According to the Ninth Circuit’s review of the case, two consulting firms determined “that DuPont is the source of the [project] technology.”

The FBI discovered in its criminal investigation that Liew took notes of his conversations with Spitler and wrote that a factory could fail “without … startup people and maintenance experienced people … [e]ven with the best technology with stolen prints.”

Liew, Maegerle – who is not a party in the current appeal – and Liew’s company, USA Performance Technology Inc. (USAPTI), were convicted on all counts at trial.

Spitler committed suicide shortly before he was scheduled to plead guilty.

Liew and USAPTI ’s appeal focused on jury instructions and whether DuPont’s process was a “trade secret.” Liew argued that DuPont’s methods were not protected because information about them appeared in textbooks and patents.

Judge Owens disagreed. “The dispute at trial was whether the material available in TiO2-related patents and textbooks was the same material DuPont claimed as its trade secrets and whether the information in those patents and textbooks would enable an individual to design a TiO2 chloride-route plant,” he wrote in the court’s 36-page opinion.

Owens added that the government adequately demonstrated that such information would have been insufficient to recreate a plant.

Liew also argued that DuPont’s chloride process was no longer a trade secret because it constructed a TiO2 plant in 1967 for Sherwin-Williams. Sherwin-Williams agreed to keep its proprietary information secret for 15 years, then sold the factory.

But Owens shot down that argument, too. “Contrary to defendants’ assertions, the government was not required to prove that no disclosures of DuPont’s TiO2 technology occurred,” he wrote. “Instead, it needed to establish that DuPont took reasonable measures to guard that technology. Defendants fail to show that the sale of the [Sherwin-Williams] factory was unreasonable, particularly under the [Economic Espionage Act’s] then requirement that trade secrets not be generally known to ‘the public.’”

However, Owens did reverse Liew and USAPTI’s conviction for conspiracy to obstruct justice. The conviction arose because they had filed a false answer to a civil suit brought by DuPont when they claimed to have “never misappropriated any information from DuPont or any of its locations.”

The Ninth Circuit reasoned that Liew’s actions were more appropriately understood as a general denial of liability and were insufficient to sustain an obstruction conviction.

The panel also found insufficient evidence to support Liew’s conviction for witness tampering, which was related to Liew  giving a mandate to one of his employees not to speak about hiring former DuPont employees, hinting that doing so could be bad for the employee and his family. This statement did not demonstrate beyond a reasonable doubt that Liew meant to intimidate or threaten the employee, the Ninth Circuit ruled.

Dennis P. Riordan from Riordan & Horgan in San Francisco represented Liew and could not be reached for comment Friday. The U.S. Attorney’s Office declined to comment.

U.S. Circuit Judges Mary Schroeder and Kim Wardlaw joined Owens on the panel.

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