China syndromeFirst conviction under the Economic Espionage Act of 1996

In 1992 Ross Perot, the cranky presidential candidate, said that if the North America Free Trade Agreement (NAFTA) were enacted, we would hear a “giant sucking sound” as hundreds of thousands of well-paying job would leave the United States for Mexico. These days there is another giant sucking sound — the sound created by the thousands of industrial secrets and pieces of technological information and intellectual property (to say nothing of military secrets) being systematically and methodically stolen from Western companies and governments through a wide-ranging, patient, and coordinated campaign by the Chinese intelligence services . The purpose: The hasten the rise of China to a position of economic and strategic hegemony and, at the same time, weaken competitors. Here is one more case in point: Xiaodong Sheldon Meng, 44, a software engineer born in China and currently a resident of Cupertino, California, was sentenced this week to a term of twenty-four months by Jeremy Fogel, U.S. District Court Judge in San Jose, and was also ordered to serve a three-year term of supervised release following his prison term; pay a fine of $10,000, and forfeit computer equipment seized in the case. The sentence was the first handed down for a violation of the Economic Espionage Act of 1996 (18 USC Section 1831). On 1 August 2007 Meng pleaded guilty to two national security violations: one count of violating the Economic Espionage Act and one count of violating the Arms Export Control Act and the International Traffic in Arms Regulations. Meng’s conviction was the first involving military source code under the Arms Export Control Act and marked the second case in which there was a conviction under the Economic Espionage Act for misappropriating a trade secret with the intent to benefit a foreign government.

According to court records, Meng committed economic espionage by misappropriating a trade secret, known as “Mantis 1.5.5,” from his former employer, Quantum3D, Inc., with the intent to benefit a foreign government, specifically the People’s Republic of China (PRC) Navy Research Center in Beijing. He did so by using the Mantis 1.5.5 trade secret as part of a demonstration project in attempting to sell products of his new employer, Orad, Hi-Tec Systems Ltd., which was a direct competitor of Quantum3D. The trade secret at issue, known as “Mantis,” is a Quantum3D product used to simulate real world motion for military training and other purposes. In addition, Meng violated the Arms Export Control Act by knowingly and willfully exporting to the People’s Republic of China (PRC) a defense article on the United States Munitions List (defense article viXsen) without authorization from the United States. The product viXsen is a Quantum3D visual simulation software program used for training military fighter pilots who use night visual sensor equipment, including thermal imaging.

According to court documents, the investigation established that Meng had, in fact, misappropriated two defense articles (specifically nVSensor, in addition to viXsen described above), at least six source code products which were also trade secrets, and more than one hundred materials and utilities belonging to his former employer, Quantum3D. Many of these misappropriated Quantum3D products were intended primarily for military purposes. For example, nVSensor is a Quantum3D product used to provide night vision simulation and is exclusively used in military applications for precision training and simulation applications. The investigation also established that defendant Meng was assisting in developing two separate military proposals for two separate Air Forces in Southeast Asia involving visual simulation equipment and source code. Copies of two F-16 Full Mission Simulator proposals involving two different countries were found on Meng’s laptop. Joseph Russoniello, U.S. Attorney for the Northern District of California, stated:

In this case, a Silicon Valley trade secret was used in a demonstration project in Beijing with the intent to benefit the PRC Naval Research Center. Source code for military visual simulation programs to train military fighter pilots and restricted defense articles were also willfully exported outside the United States. We will continue to enforce the criminal laws against those who violate export restrictions and misappropriate our trade secrets. Many of the systems we protect are designed to safeguard our men and women in harm’s way and compromising them significantly adds to the perils that they face in defending us. It is imperative that we vigilantly protect the intellectual property developed in the Silicon Valley and elsewhere in the country so as to maintain as our nation’s military defense advantages, and to deter acts of aggression against vital American interests.