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Peter Toren | Experienced Intellectual Property Lawyer

DOJ’s “China Initiative”: An Upate

2020 was the two-year anniversary of the Department of Justice’s “China Initiative,” which was intended to increase the focus on the investigation and prosecution of trade secret theft and economic espionage with a Chinese connection under the Economic Espionage Act (“EEA”). According to the DOJ, it charged three economic espionage cases under 18 U.S.C. sec. 1831 (in which the trade secret was intended to benefit the Chinese government, bringing the total to five since the initiative was first announced. In addition, the DOJ has charged more than 10 cases in which the trade secret has some alleged nexus to China and three defendants pleaded guilty in those cases over the past year.

A report by the Center for Strategic & International Studies indicates that 57% of the cases under the EEA through August of 2019 involved defendants who were members of the Chinese military or Chinese government employees, 36% were private Chinese citizens and 7% were non-Chinese actors (usually U.S. persons). The U.S. government also closed the Chinese consulate in Houston, Texas which according to Secretary of State Mike Pompeo “was a hub of spying and intellectual property theft.” FBI Director, Christopher Wray stated that there are more than 1,000 investigations pending involving China’s attempted theft of U.S. based technology.

In one example, in July 2020 the government announced charges against two Chinese nationals, Li Xiaoyu and Dong Jiazhi, in the Eastern District of Washington for hacking the computer networks of 13 United States and 12 international companies in industries ranging from high tech manufacturing and medical device engineering to solar energy and pharmaceuticals between September 2009 and July 2020. The indictment also accuses the Chinese government of supporting and facilitating the hacking through its Ministry of State Security. The allegedly stolen trade secrets included proprietary pharmaceutical chemicals, technology design, source code, manufacturing processes, and testing methods and results. In February, the head of a Houston-based company, Shan Shi, that was the subsidiary of a Chinese company that developed trade secrets was sentenced to 16 months in prison and ordered to forfeit over $342,000. A jury had convicted the defendant of conspiracy to commit economic espionage under 18 U.S.C. sec. 1831 in July 2019. In the most recent example, a Chinese national pled guilty on December 10, 2020, in the Southern District of Ohio to conspiring to steal trade secrets from a children’s hospital where he worked as a researcher along with his wife, who also pled guilty to the similar charges a number of months ago.

The government has also indicated that academia is one of the areas of concern because of its “traditions of openness and the importance of international exchanges to the free flow of ideas leave it vulnerable to PRC exploitation.” In one example, the government charged the chair of Harvard University’s chemistry department, Charles Lieber alleging that he made materially false and fraudulent statements to the Department of Defense and National Institutes of Health regarding his role as a “Strategic Scientist” at China’s Wuhan University of Technology and his participation in China’s Thousand Talents Plan. He pleaded not guilty.

The crackdown on Chinese scientists especially in academia is not without its critics, who are concerned that DOJ’s strategy is ineffective against combatting security threats and are harmful to the Asian American Community and has also damaged American leadership in science and international collaboration on basic research. Finally, at least one defendant of Chinese descent sued the U.S. government after being charged with theft of trade secrets claiming that he was charged because of anti-Chinese bias. The defendant alleged that his prosecution was based on “an unjustifiable standard such as race religion, or other arbitrary classification,” as set forth by the Supreme Court.

Although it is not clear whether the Biden administration will continue the China initiative, its head, John Demers stated that “[t]here is no turning back the clock to an era when free-market liberal democracies turned a blind eye to the PRC’s theft of intellectual property ….”