Two Silicon Valley engineers indicted for economic espionage aiding China

Human Events, Jan 13, 2003 by Jeffrey, Terence P

When Fei Ye showed up at San Francisco International Airport on Nov. 23, 2001, holding a ticket for United Airlines Flight 857 to Shanghai, he may have appeared to be just another flyer heading to the People's Republic of China (PRC).

Only a week before, Ye, a naturalized U.S. citizen originally from China, had requested family leave from his job at Transmeta in Santa Clara, Calif. His parents were ill, he told his boss, and he wanted to return home to care for them.

The managers at Transmeta might have taken Ye's planned China trip at face value-but one of Ye's associates in another enterprise did not.

On November 16, the day after Ye requested his leave, Sun Li contacted the Palo Alto field office of the Federal Bureau of Investigation (FBI). The FBI immediately called him in for an interview.

Li, FBI Special Agent Kevin Koelbel explained in an affidavit submitted to the U.S. District Court in San Jose, was a partner with Ye and Ming Zhong (a Chinese national with permanent residency in the United States) in a company called Supervision Incorporated.

"Supervision Incorporated is an early-stage start-up providing silicon products for high-speed processing of data, voice, and video in a next generation enterprise," Li told Koelbel, Koelbel alleged in the affidavit. The company was "working to develop extremely high-performance, power-efficient, highly integrated processors."

The company was created to manufacture microprocessors not in the United States, but in the People's Republic of China (PRC), according to information prosecutors presented to the court.

"Ye has more than once verbally disclosed to Li that he has downloaded proprietary and/or trade secret information from current and former employers," Li told Koelbel, the affidavit said. "Ye intends to use this information to develop a new microprocessor in China. Li has never seen these documents himself; however, Ye often mentioned that he (Ye) was designing a microprocessor using the information he has taken from his current and past employers."

Where did Ye and his partners get financing for this company? "Supervision Incorporated has received $2 million in funding to develop a new microprocessor from the local governments of Hangzhou and Guanzhou, China," Li told Koelbel, accordiniglyto the affidavit.

Thanks to Li's interview with the FBI, federal authorities were waiting for Ye a week later when he arrived at the airport with partner Zhong, who was traveling with him. After the two checked into their flight, Customs Service officials pulled them aside and did a "routine border search." Executives from Transmeta and Sun Microsystems, where Ye had previously worked, were standing by to see the results.

Two officials from Transmeta told the authorities, according to Koelbel's affidavit, that "documents in Ye's luggage pertaining to Transmeta consisted of four compilations of Transmeta confidential and proprietary documents.... The compilations included circuit and component layout design schematics. All of the documents were labeled `Transmeta Corporation-Confidential and Proprietary."'

The Transmeta officials also examined and identified materials taken from Zhong's carry-on bag, which, according to the affidavit, "included two folders of Transmeta confidential and proprietary documents."

An official from Sun Microsystems, said the affidavit, told the authorities that the materials in Ye's luggage included "schematic drawings" of a Sun microchip. The drawings were marked "Sun Proprietary." Also included was a manual that "describes how to build" two other Sun chips. "All the documents in the manual are marked `Sun Proprietary Needto-Know,"' said the affidavit.

According to prosecutors, a search of Ye's home turned up more trade secrets from Sun and also from NEC and Trident. Zhong, the prosecutors allege, also had trade secrets from Trident at his home and in his office at Transmeta.

The two were arrested at the airport and later released on bail. After a follow-up investigation led by Assistant U.S. Attomey Ross Nadel, San Francisco-based U.S. Attorney Kevin Ryan charged Ye and Zhong in one of the first-ever economic espionage cases under a law enacted in 1996. Ryan also charged the two with possession of stolen trade secrets, foreign transportation of stolen property, and conspiracy.

But the economic espionage charges are by far the most significant in terms of U.S. public policy and national security.

To convict Ye and Zhong of economic espionage, prosecutors must prove they knowingly used stolen trade secrets with the intent to benefit a foreign government.

According to the indictment filed on December 4, investigators found a corporate charter in Ye's home "which states that the joint-venture will raise China's ability to develop super-integrated circuit design, and form a powerful capability to compete with worldwide leaders' core development technology and products in the field of integrated circuit design."

The indictment alsa said Zhong had a document in his home that states:". . . The Chinese Group of Experts are unanimous in thinking that: implementation of the Hangzhou Zhongtian Microsystems Ltd. project possesses tremendous significance with regard to both the autonomous Chinese development of an embedded CPU and for the basic development of system chips; the project will be extremely useful to the development of China's integrated circuit industry; and they suggest that every level of government offer their support toward the implementation of this project."