Pretrial Motions in Silicon Valley Spy Case

In November 2001, two men were arrested at San Francisco International Airport with tickets to China and, prosecutors allege, suitcases packed with trade secrets swiped from high-tech companies.

Today, in San Jose, U.S. District Judge James Ware was scheduled to hear pretrial motions in the case against Fei Ye and Ming Zhong, who were charged with stealing corporate secrets and conspiracy.

Moreover, prosecutors allege they stole the secrets to help their China-based company -- a violation of the 1996 Economic Espionage Act.

The act comprises two broad criminal categories -- trade secret theft, which is generally acknowledged to be rampant, and economic espionage, which is more difficult to prosecute because it requires federal authorities to find evidence that a foreign government was involved in the theft

The indictments do not name the Chinese government, but they do allege Ye’s and Zhong’s company was at least partially funded by the Chinese city of Hangzhou. Prosecutors also say the men were seeking funding through a Chinese government research and development program.

Al Santoli of the American Foreign Policy Council said the case against Ye and Zhong could be the “tip of the iceberg” of espionage in Silicon Valley.

“There was a period of time in the ‘90s when practically none of these cases were prosecuted,” said Santoli, who edits the China Reform Monitor for the nonpartisan think tank. “People felt they were impervious to prosecution -- that’s why we’ve seen so many cases in recent years. We could see a lot more.”

Federal officials are investigating three dozen cases of economic espionage. Prosecutors hope a successful prosecution of Ye and Zhong could help erase the stigma for victim companies and persuade them to be more cooperative in investigations.

The four companies from which Ye and Zhong allegedly swiped secrets -- Sun Microsystems Inc., NEC Electronics Corp., Transmeta Corp. and Trident Microsystems Inc. -- all participated in the investigation, officials said.

Ye and Zhong, who have pleaded not guilty, have deep ties to the United States, including houses and family members still living here. The two have been living in their Silicon Valley homes since their arrest, when their combined bail was set at $700,000.

According to prosecutors, the men intended to use stolen data on integrated circuit design to start a company called Hangzhou Zhongtian Microsystems Co. The men allegedly recruited engineers and hoped to develop a microprocessor in China, and they possessed confidential technical information about Transmeta’s intranet and information related to the company’s computer-aided design scripts.

Court documents characterize Hangzhou Zhongtian Microsystems as a joint venture between the men and the Chinese city Hangzhou. Other documents tie the business to China’s Zhejiang University.

The Chinese government wrote in documents found at the men’s homes that their project would be “extremely useful to the development of China’s integrated circuit industry,” according to court files.

Hangzhou officials could not be reached for comment. China’s Foreign Ministry said it knew nothing about the case, and China’s Consulate General in San Francisco said there was “no link or connection” between the men and the Chinese government.

“Nobody from the U.S. government even informed us of the hearing,” said Wu Jian, vice counsel at the Consulate General. “This is an independent case that has nothing to do with us.”