Composition of a Chinese Trade Secrets Theft Enterprise: A Family Affair –UPDATE-1

In January 2016, U.S. federal prosecutors (Department of Justice-DOJ) in Pennsylvania indicted five people for allegedly stealing trade secrets from UK pharmaceutical company GlaxoSmithKline (GSK).

Two of the accused were scientists at GSK’s U.S. facility in Pennsylvania. A third was the twin-sister of one of the GSK scientists, and another was the husband of the other GSK scientist.

According to the DOJ press release the theft occurred in order to benefit a Chinese company.

The following five (5) defendants were charged with trade secrets theft:

• YUE XUE; (GSK scientist)
• TIAN XUE (her twin-sister)
• LUCY XI (GSK scientist)
• YAN MEI; (her husband)
• TAO LI

A key figure in this conspiracy is former GSK scientist: YU XUE, a/k/a “Joyce.”

Here is a quote from the complaint,

“YU XUE (“Joyce”) e-mailed … from her GSK e-mail account to her personal account and then forwarded that intellectual property to her conspirators … also used her GSK computer to download a substantial amount of intellectual property from GSK’s network, apparently onto a thumb drive or other portable storage device, to send this information to her conspirators.”

***I discussed this case in five (5) consecutive posts on my blog in October 2018, titled, “Composition of a Trade Secrets Theft Enterprise-Case Study, Parts 1-5”

NEW SPIN—ACCUSED # 6

Just this week there was an additional action taken by the U.S Department of Justice (DOJ) that puts another twist on this case.

As it turns out, not only was “Joyce’s” sister involved in the conspiracy, but “Joyce’s” brother was involved as well.

According to recent press reports, GONGDA XUE, the “Joyce’s” brother worked at a drug company in Switzerland during the time of the conspiracy in which he’d received stolen GSK trade secrets from his sister (“Joyce”) and used the Switzerland drug company’s facility to perform tests. The results of the tests were then passed onto to conspirators in China.

FAMILY CRIMINAL CONSPIRACY

As I highlighted in my third post of the series, this was a genuine family criminal conspiracy. As I mentioned above, not only was a husband and wife theft team involved, and “Joyce’s” twin-sister, but now we learn that “Joyce’s” brother was one of the thieves as well.

It gives us a sobering view of the depth and structure of an alleged China-supported family trade secrets theft enterprise.

PROFILE OF A TRADE SECRETS THIEF

So, here is the profile of a potential “International Trade Secrets Thief” as detailed in Trade Secrets Asset Management 2016 by IP attorneys R. Mark Halligan and Richard F Weyland:

• Born in a foreign country
• May be either naturalized U.S. citizen or foreign national on a work or student visa
• May be male or female, married or single, with or without children, of almost any age
• Often a group effort, such as a husband and wife team
• Usually from China, France, Israel, India, Japan or Russia
• Has close family remaining in the birth country, often parents
• Retains close ties to the birth country, traveling there often
• Intelligent
• Highly educated, often with a PhD. in a technical field
• The theft is sponsored by a government agency, university, or technology company in the birth country
• Ultimately will return to the birth country and work for the sponsor
• Steals primarily product technology
• Theft may be through a front company, which shields the sponsor
• Motive: Nationalism

*In the “Pretrial Detention Order” concerning defendant-“Joyce,” the U.S.  Attorney made the following point: “The defendant has substantial ties to China.”

ADDITIONAL BACKGROUND

I have extracted the main points from each of my 5 previous posts to provide some additional context to consider.

LAUNCH OF INVESTIGATION

This FBI criminal investigation was initiated like so many others–somebody heard the criminal directly or indirectly brag about what they were doing.

Here’s essentially a quote from the criminal complaint:

“Informant #1 stated that “Joyce’s” twin sister bragged about being hired by a Chinese pharmaceutical company and stated she was being paid very generously.

“Informant #1 also stated that “Joyce” and twin sister’s mother, who resides in the People’s Republic of China, was also being paid approximately $165,000. a year from a Chinese pharmaceutical company.

“Joyce’s twin sister bragged to Informant #1 that a ‘big payday’ was coming in the future from the Chinese pharmaceutical company.”

Although we don’t know how this informant came to the FBI’s attention from a review of public court records, it appears the informant overheard, or, had a conversation with “Joyce’s” twin sister. But, regardless of where it occurred, we cannot overstate the fundamental importance of employees in such trade-secrets-packed companies to pay attention to what others say around them.

“If you hear something, say something.”

Don’t immediately dismiss absurd sounding comments–as absurd. Often criminals cannot help telling others how smart they think they are.

Trade secrets protection “mindfulness” is key.

INVESTIGATIVE STEPS

• FBI served search warrants on Google for personal e-mail account information from at least five of the six defendants which was subsequently provided
• Search warrants were issued to search the work areas of the two GSK employee-defendants to include their computers
• GSK scientists assisted the FBI in identifying proprietary GSK trade secrets embedded in the defendants’ emails
• The FBI also retained an independent expert (not associated with GSK) who came to the same conclusion

SAMPLES OF THE STOLEN TRADE SECRETS

• GSK powerpoint presentation
• Research paper with GSK letterhead on each page
• The document clearly identified as being GSK information and clearly marked, “CONFIDENTIAL”
• GSK documents with the email instruction from one of the GSK employees, “Please do not spread.”
• GSK powerpoint presentation and training lecture           

HOW WOULD THE CRIMINALS PROFIT?

The defendants planned to profit in multiple ways:

• They planned to sell the GSK trade secrets as their own research
• They intended to use GSK trade secrets to secure lucrative consulting contracts
• They intended to do additional research to finalize and perfect GSK products still in development
• They intended to patent some GSK products
• They intended to use GSK products to bolster their personal business entities reputation

MONEY LAUNDERING

To hide the profits, “Joyce” titled her interest in her personal business entity and the proceeds of the crime in the names of family members and other associates.

Here’s a quote from the criminal complaint, “YU XUE (a/k/a “Joyce”) instructed two of the other defendants to hide the proceeds of the fraud scheme in the name of her twin sister in an attempt to prevent the criminal conduct from being traced back to “Joyce.”

MANNER AND MEANS

The following is essentially the “Manner and Means” the six defendants used to carry out their crimes as described in the indictment:

The two GSK employees stole GSK trade secrets and would typically do the following:

• “Joyce” would e-mail the trade secrets from her work e-mail account to her personal e-mail account
• She then emailed the trade secrets from her personal e-mail account to the personal e-mail accounts of the other defendants (including her sister and brother)
• The other GSK scientist emailed the stolen information to her defendant-husband

And the cycle would repeat itself, over and over again.

In one of many telling email exchanges “Joyce” had with her co-conspirator twin sister, the twin sister asked, “…is ok you sent this plan from your company email?”

            And “Joyce” assured her, “it is ok.”

DEFENDANTS CRIMINAL BUSINESS STRUCTURE

The following is the business structure of the trade secrets theft enterprise as described in the indictment:

Three of the six defendants formed three corporations (one in Delaware–the other two were off-shore entities) to market, sell, and ultimately profit from the stolen GSK information.

STATUS OF THE SIX DEFENDANTS

• YU “Joyce” XUE and TAO LI pled guilty and are awaiting sentencing
• One is scheduled for a plea hearing
• One went to trial but the judge recently approved the defendant’s motion for a postponement until after the other defendants are sentenced
• Joyce’s brother is fighting extradition from Switzerland to the U.S. 
• Unable to determine the status of the sixth defendant

LESSONS LEARNED

This case reminds us of two fundamental trade secrets protection strategies:

1.  Establish and maintain a vigorous company email monitoring program; and
2.  Conduct periodic background checks of employees who have access to complex and valuable trade secrets.

(See the below screenshot of the company registered by the defendants–to facilitate their theft operation–publicly listed on the Delaware, Department of State, Division of Corporations site. “RHENOPHARMA.”)

When you consider the potential impact these two basic IP protection strategies could’ve have had in disrupting this trade secrets theft enterprise sooner, similar companies–going forward–should zealously implement those actions.

Instead, the thieves were able to disseminate countless trade secrets from 2012 until on or about November 3, 2015.

Terminating this scheme should not have depended on one informant (as important as informant development is) overhearing or being bragged to. That was an exceptional opportunity (in this case) that companies cannot rely on.

TRADE SECRETS THEFT ENDEMIC

Last week a software engineer (XUDONG YAO) was accused of stealing trade secrets (3,000 files and soft code) from his former company in Chicago and taking the data to China.

Bad actors will go to almost any lengths to steal your IP to avoid a massive commitment to research and development ( R&D) themselves.

As an IP protection and investigations consultant and blogger, I am always interested in learning more about how different trade secrets theft conspiracies work. Uncovering the mechanics of these operations teach us how to more effectively defend against it, and help minimize exposure.

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