Engineer Becomes First Sentenced Under Economic Espionage Act

SAN JOSE, Calif. – An engineer who admitted he tried to sell fighter-pilot training software to the Chinese Navy was sentenced Wednesday to 24 months in federal prison, in the first sentencing for a newly defined intellectual property crime.

Xiaodong Sheldon Meng, 44, was sentenced on the rare charge of committing economic espionage against the U.S. It's the most serious crime under the Economic Espionage Act of 1996 and involves stealing trade secrets to benefit a foreign government.

Only five cases have been filed under the law, three of them in Silicon Valley, which authorities say is fertile ground for trade secret thieves looking to make a quick buck or bolster the technological and military development of foreign nations.

Meng didn't speak during the half-hour hearing in U.S. District Court in San Jose. He stood with his hands clasped and head down as Judge Jeremy Fogel handed down a sentence in line with the U.S. Attorney's Office's recommended punishment and Meng's plea agreement.

Fogel commended Meng's attempts to turn around his life following his arrest in 2004 but said Meng's crime hurt United States national security and deserved prison time.

"This is a case where the court has to be merciful but it has to be very firm," Fogel said.

Meng had faced a maximum sentence of 25 years in prison after pleading guilty to two felony counts: economic espionage and exporting controlled military technologies. Because of his lack of a criminal record before this case, prosecutors agreed to seek a far shorter sentence.

Outside court, Assistant U.S. Attorney Mark Krotoski said it was Meng's focus on profits, not a foreign allegiance, that drove him to steal the trade secrets and try to sell them to the highest bidder. As such, Meng's crime shouldn't be punished as harshly as someone convicted of spying on the U.S., he said.

Meng is a Chinese national with Canadian citizenship who lives in Cupertino, about 45 miles south of San Francisco.

"People have this image of a spy, but you can cause a lot of harm without being a spy — you can damage national security," Krotoski said in an interview.

Meng's defense lawyer, Manuel Araujo, said he believed the punishment for his client was still too severe. He described Meng's actions as "stupid" but said his client has undergone a "profound metamorphosis."

"For him as an individual it was too harsh," Araujo said. "He's a good man who got caught up in the fast and loose trading of trade secrets. The sentence might open the eyes of people who don't realize the consequences of these actions."

Investigators say Meng went around giving sales pitches to Asian military officials for software stolen from his former employer, San Jose-based Quantum3D Inc.

He was indicted in December 2006 on 36 felony counts alleging he attempted to sell the purloined programs to the Royal Thai Air Force, the Royal Malaysian Air Force and the Navy Research Center in China.

Authorities have declined to say whether any of the secrets were successfully sold. Krotoski said officials in China apparently didn't know Meng was trying to sell them stolen trade secrets — just that they were dealing with a program of high value to the U.S.

In addition to serving the prison sentence, Meng is to pay a $10,000 fine.
Meng left the courthouse without commenting to reporters. He has until August 18 to begin serving his sentence.

Economic espionage cases are hard to prove, so even in cases in which investigators believe secrets were sold, prosecutors may only seek a lesser charge of theft of trade secrets — without the foreign government element.

Prosecutors say the economic espionage cases that have been filed highlight the ease with which rogue employees can abscond with valuable intellectual property and shop it around in foreign countries, where advanced U.S. technologies can fetch huge sums.

Two other Silicon Valley engineers have also pleaded guilty to economic espionage charges.
Fei Ye, a U.S. citizen from China, and Ming Zhong, a permanent resident of the U.S. from China, admitted to stealing confidential microchip blueprints from their employers and attempting to smuggle them to China to start a microprocessor company.

Their sentencing is set for June 23.

In a separate case, Silicon Valley engineers Lan Lee and Yuefei Ge were indicted in September for allegedly stealing computer chip designs and trying to launch a microprocessor startup with a Chinese venture capital firm with ties to the Chinese military.

Their trial date hasn't been set.

In Southern California, Chinese-American engineer Dongfan "Greg" Chung, who worked at Boeing Co. and space shuttle-builder Rockwell International, was indicted in February for allegedly stealing trade secrets regarding the space shuttle, a military transport plane and a rocket on behalf of China.

He has pleaded not guilty.

The first economic espionage case was filed in 2001 in Ohio.

Two medical researchers were accused of stealing DNA and other genetic samples used to study Alzheimer's disease and providing it to a government-affiliated research center in Japan.

One defendant, Takashi Okamoto, is still a fugitive, according to the Justice Department. The other defendant, Hiroaki Serizawa, pleaded guilty to a lesser charge of making false statements and was sentenced to three years of probation.