Three Charged With Stealing Lucent Secrets for Chinese Firm
Two Lucent Technologies scientists in New Jersey and a partner were arrested Thursday on charges that they stole the company’s software “jewels” and sold them to a Chinese state-owned telecommunications firm.
The three men were allegedly hoping to turn their joint venture into a computer networking giant that would become “the Cisco of China,” federal prosecutors said. San Jose-based Cisco Systems is a rival of Lucent’s.
Allegations of espionage between the United States and China have been a source of rising tensions between the two nations even before last month’s emergency landing of a U.S. Navy surveillance plane on Hainan Island in China.
Experts warned that new allegations of industrial spying could further strain that relationship.
“This smells like a classic case of corporate espionage. The problem is that in the current climate it’s going to get caught up in all this ‘China is up to no good’ sentiment, and it’s going to reinforce that snowballing impression,” said Robert A. Manning, a former State Department official and director of Asian studies at the Council on Foreign Relations.
A spokesman for the Chinese Embassy here, citing the case of fired nuclear scientist Wen Ho Lee, said in an interview that such sleuthing allegations against China often prove to be “a lot of hot air.”
The spokesman, Y.Y. Zhang, said: “We’ll let the [Lucent] investigation handle itself. And if they’re found guilty, the law will decide what to do with them.”
The three men--Lucent employees Hai Lin, 30, of Scotch Plains, N.J., and Kai Xu, 33, of Somerset, N.J.; and their alleged accomplice, Yong-Quing Cheng, 37, of East Brunswick, N.J.--were each charged with conspiracy to commit wire fraud. Each faces up to five years in prison if convicted.
The two employees are Chinese nationals. Cheng is a Chinese-born U.S. citizen.
After a brief appearance in U.S. District Court in Newark, N.J., the three were detained pending a bail hearing.
A spokesman for Lucent said Lin and Xu, both working at the company on business visas, had access to sensitive corporate data. Earlier this year, the company suspected that its corporate security had been breached.
“We guard our intellectual property very closely. It’s our lifeblood, and as soon as we found out about [the possible breach], bang, we were on top of it,” said John Skalko, a Lucent spokesman.
The FBI executed search warrants Thursday and discovered computer hardware that was believed to have been stolen, according to a law enforcement official familiar with the case who asked not to be identified.
In a criminal complaint, federal prosecutors alleged that the three men devised a scheme to steal the source codes for Lucent’s PathStar Access Server, a system that allows Internet providers to offer inexpensive voice and data services.
Lucent spent years and billions of dollars researching and developing the system, and PathStar now commands 93% of the market and generated more than $100 million last year for the company, U.S. authorities said. Although Lucent discontinued the system this year, before the suspected theft, federal prosecutors said its technology is likely to form the building block of networking products for several generations.
The corporate espionage case is the latest in a string of bad news for Lucent, the world’s largest maker of telecommunications equipment, based in Murray Hill, N.J. Lucent is scrambling to raise cash after posting big losses because of a dramatic slowdown in demand for telecommunications equipment. Lucent’s shares, among the most widely held in the world, have nose-dived 84% in value since last year.
Prosecutors alleged that Cheng met last year in Beijing with officials of Datang Technology, a government-owned telecommunications company. The three defendants then allegedly embarked on a joint venture with Datang, developing Internet data and voice transmission products in exchange for a $1.2-million investment from Datang in their start-up.
The defendants allegedly delivered all or part of the voice-transmission source codes to the Chinese, and they appear to have received at least part of the promised $1.2 million, federal prosecutors said. But the product they were providing was stolen, prosecutors alleged.
“They pirated Lucent’s PathStar technology,” said Robert Cleary, U.S. attorney for the Newark district. “In short, Lin and Xu came to Lucent as scholars, but in reality, they were nothing more than sleuths.”
Based on statements the defendants made in confiscated e-mail, “they wanted to be the Cisco of China, and it was clear what that meant: They were in it for the money. . . . There was no indication of patriotic loyalty that drove them,” said Assistant U.S. Atty. Scott Christie.
Christie said federal law enforcement authorities are trying to determine whether officials at Datang knew that the information they were getting may have been stolen.
“At this point, there’s no indication they were complicit in the criminal conduct,” he said.
One area of potential concern to U.S. national security officials is whether the technology transferred to Beijing could be used by the Chinese military.
In the last several years, American officials have become increasingly convinced that the Chinese have gained widespread access to U.S. nuclear and military secrets. China has denied the charges, countering that Chinese Americans have been wrongly persecuted.
More than a year ago, the U.S. arrested Lee, a Chinese American nuclear scientist fired from the Los Alamos National Laboratory on suspicion of passing top-secret nuclear data to the Chinese, and jailed him for nine months on 59 felony charges. But the case against him largely collapsed, and he was freed last year after pleading guilty to a single count of mishandling classified information.
