Legal and Criminal Issues

November 23, 2008

Silicon Valley Engineers Sentenced For Economic Espionage

Two Engineers from China have been sentenced to a year in prison after pleading guilty to economic espionage against the United States. The two men – Fei Ye, a citizen of the U.S., and Ming Zhong, a permanent U.S. resident – were facing a maximum of 30 years in prison after confessing to stealing microprocessor designs from their Silicon Valley employers in 2006. They had planned to smuggle the designs to China to launch a government-sponsored startup company there. Their guilty pleas were the first convictions for the most serious crime under the 1996 Economic Espionage Act. Prosecutors asked for a lenient sentence because the men cooperated with investigators – both apologized in court.

Unlike traditional industrial espionage economic espionage means that someone acted to benefit a foreign government and is a more serious crime. Only a few economic espionage cases have been resulted in convictions, mostlybecause it’s difficult to prove a person was acting to benefit a foreign nation. The case against Ye and Zhong began seven years ago, when they were arrested at San Francisco International Airport while attempting to board a flight to China. Their luggage was allegedly full of sensitive documents on chip designs taken illegally from four Silicon Valley tech firms who had employed the engineers. The companies include NEC Electronics Corp., Sun Microsystems Inc., Transmeta Corp. and Trident Microsystems Inc. Both had worked at Transmeta and Trident, while Ye had also worked at Sun and NEC. Other documents seized by authorities allegedly demonstrate the engineers were attempting to solicit money from Chinese government agencies to fund a startup firm.

Prosecutors say the documents showed that Ye and Zhong were promoting the startup as something that would elevate China’s chip-making capabilities, however, the documents do not confirm the Chinese government was aware that the chip designs were stolen.

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August 15, 2008

California gets most Internet fraud complaints

As reported in Legal Newsline:

Californians are the most frequent victims of Internet crime and
complaints according to a new Federal Trade Commission report that
stems from data provided by the attorney general’s office.

collected 8,622 individual complaints on Internet-related fraud in
2007, according to a story first reported by the San Jose Mercury News.
The amount of complaints far exceeds all other states, including
runner-up New York that had slightly more than half the number of
complaints as California.

According to data from the California
attorney general’s office, complaints were filed over a diverse number
of reasons including identity theft, spam, disputes with service
providers and e-mail scams designed to discover personal information.

2007, the FTC report said nearly a quarter of a million complaints were
lodged nationwide, the Center for Democracy and Technology said.

states have neglected to bring significant cases as a result of these
complaints, the press release states, with most of the cases brought by
attorneys general focused on sexual enticement of minors and child

“These numbers are startling, but they may even
understate the problem,” said Reece Rushing, director of regulatory and
information policy at the Center for American Progress. “Consumers are
often unaware, and thus may not report, when they are victimized by
online threats such as spyware or phishing. We must take action against
these threats to protect consumers and preserve confidence in Internet

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May 19, 2008

Craigslist charges eBay with corporate espionage

Two California-based Internet icons- Craigslist and eBay have become involved in a bitter legal dispute. Ebay, which owns about 28 percent of Craigslist, fired the first salvo by filing suit in Delaware state court that that accused Craigslist of discriminating against eBay as a shareholder and using “clandestine meetings” to dilute eBay’s ownership stake. Craigslist has now filed a countersuit charging that eBay used its position to gather competitive information that was used to help lauch Kijiji, which many consider to be a direct competitor to Craigslist. The complaint charges that eBay code-named this its “Craigslist killer” in internal strategy discussions. Craigslist’s also alleges a plot by eBay to use its position as a minority shareholder and its position on the board to pressure Craigslist into a full-scale acquisition deal by eBay. “In the months leading up to the launch of its competing Kijiji site … eBay used its shareholder status to plant on Craigslist’s board of directors the individual responsible for launching and/or operating Kijiji,” the suit alleges. “Using the pretext that the information was necessary for Craigslist board-related matters, eBay made constant demands for confidential information in excess of what was required for that purpose”.

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May 10, 2008

Long Beach customs agents seize 18,560 pairs of fake shoes

U.S. Customs and Border Protection officers discovered 18,560 pairs of fake Nike sneakers inside two shipping containers that arrived from China, Associated Press has reported. The ship’s manifest listed the containers as holding drainage pipeline fittings, but when officers at the Port of Long Beach opened them they found the shoes instead. “The average consumer who walks into a store I think would be fooled by them,” said Bonnie Lemert, U.S. Customs and Border Protection acting port director for the Los Angeles/Long Beach Seaport. So far this year, the customs agency has seized at least eight containers of footwear, mostly the Nike brand, said the federal agency’s spokesman Mike Fleming. Last year, agents seized $20.6 million dollars of counterfeit merchandise, and 80 percent of the fakes come from China, authorities said.

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April 8, 2008

Two arrested for attempting illegal camera exports from LAX

Two men stopped from boarding a plane to China were charged with trying to illegally export sensitive infrared cameras that authorities say are restricted because of their potential military uses. As reported in the San Francisco Chronicle:

Beijing residents Zhi Yong Guo, 49, and Tah Wei Chao, 52, were named in a criminal complaint alleging they knowingly exported or attempted to export restricted items without a license, the U.S. attorney’s office said.

Prosecutors said both men were a flight risk and asked that they be held without bail. Both were scheduled to be arraigned on April 28. Chao’s attorney Richard Goldman said he did not yet know how his client planned to plead. “I believe in the presumption of innocence,” Goldman said..

Guo and Chao each face up to 20 years in federal prison if convicted. The men were arrested Saturday at Los Angeles International Airport after they tried to board a plane to China with 10 thermal imaging cameras in their luggage without the proper export licenses, the government said.

The cameras, which are primarily used by law enforcement, fire departments and the military, are carefully controlled for national security reasons, and are treated as munitions under the International Trafficking in Arms Regulations. They produce heat-based images invisible to the naked eye.

Federal authorities had been investigating the men since last August, when an Oregon-based company informed them of an order for three of the cameras from a new customer — Printing Plus Graphics of San Gabriel, Calif., according to an affidavit from Special Agent Steve Huerta of the Department of Commerce. The company, Flir Systems of Wilsonville, Oregon, repeatedly warned the customers that they could not export the cameras without a license, and shared Chao’s e-mail address and other documents with authorities.

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March 4, 2008

Tech Worker admits stealing trade secrets for foreign sale

As reported in Sacramento Business Journal:

An El Dorado Hills technology worker accused of stealing trade secrets with military applications and offering them to foreign buyers for six figures in cash entered a guilty plea in Sacramento Friday, prosecutors said. Allen Cotten, 53, pleaded guilty to theft of trade secrets in U.S. District Court and admitted to a two-year scheme to steal and sell microwave technology, the local U.S. Attorney’s office said in a news release. He faces up to 10 years in prison and a $250,000 fine.

Assistant U.S. Attorney Anne Pings said Cotten worked for Genesis Microwave Inc. in El Dorado Hills, and admitted that beginning in February 2004 he began to steal plans, designs, parts and specifications for components known as logarithmic video amplifiers. The technology has military applications for radar jamming, guidance, countermeasures and locating enemy signals during combat.

Cotten sold trade secrets and offered them for sale to foreign governments and foreign military contractors through February 2006, prosecutors said; evidence and Cotten’s statements indicated he sold or was seeking to sell parts and information for a total amount of $250,000. The case was the product of an investigation by the FBI and the U.S. Department of Commerce’s Bureau of Industry and Security.

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February 13, 2008

EU raids Intel’s German office

European regulators raided the German office of Intel Corp. as part of antitrust investigation into possible anticompetitive practices, according to a report in Silicon Valley / San Jose Business Journal. Santa Clara-based Intel said the EU raided its offices in Munich, and said it is cooperating with the investigation. The Wall Street Journal reported that German conglomerate Metro AG confirmed that the EU also raided its computer sales businesses Media Markt and Saturn Holding GmbH. In July, the EU charged Intel with conducting illegal competition against rival Sunnyvale-based Advanced Micro Devices Inc. by offering computer hardware manufacturers rebates, discounts and cash. The Journal said AMD has a separate case against Media Markt that accuses the retailer of only selling Intel-based PCs. Intel is due to appear in Brussels for a hearing on the issue in March, and the company also faces a similar probe in New York by the State Attorney General’s office.

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February 11, 2008

Federal Authorities Raid San Fernando Valley firm

More than 100 U.S. Immigration and Customs Enforcement agents raided a printer supply manufacturer in the San Fernando Valley on Thursday, taking into custody about 120 employees for being in the country illegally and arresting eight on federal criminal charges, according to a report in Associated Press. The raid at the offices of Micro Solutions Enterprises began around 3:30 p.m., said Virginia Kice, an ICE spokeswoman, who said the basis for the criminal warrant that led to the raid was under seal. The eight people were arrested for allegedly providing fraudulent information to get their jobs, Kice said. All of the 120 people taken into custody for illegal immigration status were interviewed for what Kice called “humanitarian issues.” About 40, including the elderly and those with children, were released to await a hearing before an immigration judge, Kice said.

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Anonymous poster does not have to reveal identity

A California appeals court on Wednesday said an anonymous Internet poster does not have to reveal his identity after being sued for making “scathing verbal attacks” against executives at a Florida company on a Yahoo message board, according to a report in ZDnet. The Sixth Appellate District in Santa Clara County reversed a trial court ruling that would have allowed a former executive at SFBC International to subpoena Yahoo for the names of her critics. The appeal was filed by a poster whose screen name includes a Spanish expletive but who is known as “Doe 6″ in the lawsuit filed by former SFBC Chairman and COO Lisa Krinsky in 2006. Krinsky accuses Doe 6 and nine other Yahoo Finance posters of libel, fraud, and other claims arising from posts they made about her while she was a company officer. The appellate court concluded that while Doe 6′s messages were “unquestionably offensive and demeaning,” they could not be counted as defamation since they could not be considered assertions of fact. Without a cause of action, Krinsky could not overcome Doe 6′s First Amendment right to speak anonymously on the Internet, the court said. The decade-old controversy over pseudonymous posting in chat rooms took a major twist last July when the U.S. regulators revealed that Whole Foods Market CEO John Mackey had been posting in Yahoo Finance under a fake name for several years. His messages boosted his own company’s strategy and denigrated those of rival supermarket chain Wild Oats, which Whole Foods later sought to acquire.

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January 2, 2008

Applied Materials sues Chinese chip-equipment maker

InfoWorld reports:

Advanced Micro-Fabrication Equipment (AMEC), of Shanghai, was sued in California by Applied Materials, which claims the company misappropriated its trade secrets. But lawyers for the Chinese company asked the judge to dismiss the suit, arguing the U.S. court has no jurisdiction over AMEC’s activities. AMEC’s motion for dismissal will be heard by Judge James Ware of the U.S. District Court for the Northern District of California, on Feb. 11.

Applied’s lawsuit, filed in October and amended last month, claims AMEC used its trade secrets to develop etch and CVD (Chemical Vapor Deposit) tools that are used to make chips. AMEC’s tools will compete against similar products from Applied, which cost millions of dollars each. Applied is seeking an injunction from the court to prevent the misappropriation of its trade secrets and wants punitive damages as well as a declaration that it owns patent applications recently filed by AMEC….

In response, AMEC’s motion to dismiss argues that the U.S. court has no jurisdiction over the Chinese company. “In this case, there is no jurisdiction over AMEC Inc., because the allegations of the (amended complaint) relate exclusively to actions that took place in China. None of Applied’s claims arises out of allegations concerning contact with California,” the motion said, adding any legal action by Applied against AMEC should be heard in a Chinese court instead.

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December 14, 2007

Silicon Valley businessman gets two years for selling night vision equipment to the Chinese

A Silicon Valley businessman was sentenced Monday to two years in prison for helping broker the sale of a night vision camera to a research institute linked to the Chinese military, according to an AP report. Philip Cheng, 60, pleaded guilty in October of last year to violating a U.S. law forbidding the export of military-related items to China. Cheng was originally charged in 2004 with six felonies, including conspiracy, money laundering and brokering the illegal export of defense-related equipment. A 2006 trial ended in a mistrial when the jury couldn’t reach a verdict, and he later agreed to plead guilty to one count. The indictment alleges Cheng and a business partner didn’t get the required State Department approval before selling a military-grade “Panther I” infrared camera to the North China Research Institute for Electro-Optics for $65,000. They also were accused of entering a contract with the Chinese military to mass-produce night vision equipment in China. Cheng is scheduled to begin serving the prison sentence on Feb. 12, and he has also been ordered to pay a $50,000 fine.

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December 13, 2007

Ebay sued by Tiffany for not controlling counterfeiting

Tiffany & Co., the world’s second- biggest luxury jeweler, said EBay Inc. is a “rat’s nest” for counterfeiting and urged a judge to rule that the biggest online auctioneer was liable for infringement according to a report in Bloomberg. Tiffany assailed EBay in a legal brief filed Dec. 7 to U.S. District Judge Richard Sullivan in Manhattan, as the companies await his ruling in a trademark infringement trial. EBay said in its brief that it’s a “model citizen” in the fight against counterfeiting. At issue is whether EBay must pay damages for failing to make adequate efforts to block sales of counterfeit silver jewelry. New York-based Tiffany and other retailers claim online sales of counterfeit clothes, bags and jewelry cost them about $30 billion a year.

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November 27, 2007

LAPD scraps plans for a “Muslim map”

The Los Angeles Police department has scrapped a plan to map the city’s Muslim population – a project they said was necessary to identify potential hotbeds of extremism. The mapping project set off howls of protest from Muslim groups and civil libertarians who called it “religious profiling”. Others noted that it would be almost impossible to create such a map, since the Muslim community is spread out and integrated through the area, and census data is forbidden by law from recording religious affiliation. In a statement, Mayor Antonio Villaraigosa said that “while I believe the department’s efforts to reach out to the Muslim communities were well intentioned, the mapping proposal has created a level of fear and apprehension that made it counterproductive.” LAPD officials stressed for that the mapping program was not a form of profiling or targeting but rather a way to better understand the Muslim community. They have subsequently been reaching out to Muslim activists, some of whom who said they would welcome greater involvement by the LAPD in their communities.

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November 14, 2007

Yahoo settles lawsuit over jailed Chinese journalists

Yahoo got absolutely lambasted in Congress last week for its role in helping the Chinese government arrest and imprison Chinese journalists. “While technologically and financially you are giants, morally you are pygmies,” House Foreign Affairs Committee Chairman, and holocaust survivor Tom Lantos, D-Calif., said in an angry statement at that hearing.

The case involved Shi Tao who was jailed for allegedly providing state secrets to foreigners after he sent an e-mail that contained notes about government media restrictions, and Wang Xiaoning who was arrested in 2002 in connection with anonymous e-mails and other political writings he posted online. Both journalists were arrested after Yahoo turned over information about their online activities and both were given harsh 10 year prison terms. Family members of Shi and Wang in April sued Yahoo and the Chinese company, which took over Yahoo’s mainland China operations in 2005.

In a dramatic moment during the hearing, Yahoo Chief executive Jerry Yang and General Counsel Michael Callahaner were prompted to apologize to Shi’s mother, who was sitting behind them, and both turned to her and bowed deeply. “After meeting with the families, it was clear to me what we had to do to make this right for them, for Yahoo and for the future,” Yang said later in a statement. “We are committed to making sure our actions match our values around the world.” Yang also said the company also was establishing a “human rights fund to provide humanitarian and legal aid to dissidents who have been imprisoned for expressing their views online.”

Let’s hope that is sincere- it sounds like it is. Yahoo was born here in California- and while we wish them great success in all their foreign ventures, we hope they don’t forget that they are an American company Now it is up to the Chinese authorities to release Shi Tao and Wang Xiaoning, and anyone else who has been jailed on such ridiculous charges. This will be a thorn in U.S. China relations, and an unnecessary one that alienates the very people likely to be most friendly towards China.

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October 31, 2007

Gap scrambles to contain damage from sweatshop allegations

California clothing retailer, Gap, Inc., is reeling from a report in Britain’s Observer newspaper that found children as young as 10 making clothes for the Gap in a squalid factory in New Delhi. The children said they had been working for up to 15 hours a day and had never been given promised wages for embroidering sequins onto the flowing saris worn by Indian women. An AP report said the children were packed into a filthy room, sleeping on the same floor where they sewed all day. Gap responded by saying the factory was being run by a subcontractor who was hired in violation of Gap’s policies, and none of the products made there will be sold in its stores. “We appreciate that the media identified this subcontractor, and we acted swiftly in this situation,” Gap spokesman Bill Chandler told an AP reporter. “Under no circumstances is it acceptable for children to produce or work on garments.”

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October 23, 2007

Yahoo accused of lying to Congress

A Yahoo Inc. executive has been accused of giving false testimony to Congress last year regarding the company’s role in the arrest of a Chinese journalist, according to a report in the San Francisco Chronicle. A House committee wants Yahoo CEO Jerry Yang and general counsel Michael Callahan to clarify at a Nov. 6 hearing the testimony Callahan gave Congress in February 2006. “Our committee has established that Yahoo provided false information to Congress in early 2006,” Rep. Tom Lantos, D-San Mateo and chair of the House Foreign Affairs Committee, said in a statement. “We want to clarify how that happened and to hold the company to account for its actions both before and after its testimony proved untrue. And we want to examine what steps the company has taken since then to protect the privacy rights of its users in China.” Rep. Chris Smith, R-N.J., while not naming Callahan directly, said in a statement that a Yahoo executive, “in sworn testimony … testified that the company knew nothing ‘about the nature of the investigation’ into Shi Tao, a pro-democracy activist who is now serving 10 years on trumped-up charges. “We have now learned there is much more to the story than Yahoo let on, and a Chinese government document that Yahoo had in their possession at the time of the hearing left little doubt of the government’s intentions.”

Shi was arrested at his home after posting material about a government crackdown on media and democracy activists on an overseas Web site. Police in Beijing found him, Lantos’ committee said, after Chinese authorities asked Yahoo to provide information about his e-mail account, including his IP address, log-on history and the contents of his e-mail over several weeks. He was sentenced to 10 years in prison in 2005.

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October 16, 2007

Peace Activist jailed in Iran back in California

Ali Shakeri, an Iranian-American peace activist who spent four months in a Tehran prison has returned home after posting bond with Iranian authorities. Shakeri was arrested in May and charged with endangering national security, along with three other Iranian-Americans. He was released in late September, at the same time that Iranian President Mahmoud Ahmadinejad was in New York to attend the U.N. General Assembly. Shakeri is a founding board member of the University of California, Irvine’s Center for Citizen Peacebuilding. He was detained after traveling to Iran to visit his ailing mother. Shakeri has given speeches and radio interviews advocating democracy in Iran and has written occasionally for Payam-E-Ashena, a pro-democracy Persian magazine based in Laguna Hills. His son told reporters that he was allowed to leave the country after posting a property deed for about $110,000 and may have to return to Iran to answer the charges against him, but that the family has little information about the legal process there, or even the exact charges he faces.

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Porn spammers get jail term

The Business Journal of Phoenix reports that a federal judge in Arizona sentenced two men to more than five years in prison for an international pornographic spamming business that grossed more than $1 million. Jeffrey A. Kilbride, 41, of Venice, Calif., was sentenced to 72 months and James R. Schaffer, 41, of Paradise Valley, was sentenced to 63. Kilbride received a longer sentence based on the court’s finding that he had obstructed justice by attempting to prevent a government witness from testifying at the trial. The trial in was the first to include charges under the CAN-SPAM Act of 2003, a law designed to crack down on the transmission of pornography in commercial bulk unsolicited electronic mail messages.

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October 15, 2007

Apple and AT&T sued over iPhone restrictions reports:

Apple and AT&T are being sued for $1.2 billion (£590 million) over the Apple iPhone. The complaint was filed in a Californian district court by law firms Folkenflik & McGerity and Hoffman & Lazear on behalf of Apple iPhone owners. The lawsuit claims that Apple’s decision to offer the Apple iPhone on just one mobile network is illegal under US antitrust laws and California’s unfair trade practice laws. The lawsuit claims that Apple iPhone users are being restricted to using only AT&T’s mobile network and Apple applications on their devices.

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October 3, 2007

Sempra Wins $172M in dispute with Argentine gas companies

The International Centre for Settlement of Investment Disputes in Washington, D.C., has awarded Sempra Energy $172 million according to a report in the San Diego Business Journal. The award was to settle a 2002 dispute involving the company’s 43 percent ownership in two Argentine natural gas holding companies. “We hope that the government of Argentina will honor its legal obligations as we seek immediate enforcement of the award,” said Javade Chaudhri, executive vice president and general counsel for Sempra. Sempra had the interest in Sodigas Pampeana and Sodigas Sur. In a statement, Sempra says the dispute involved its efforts to recover the utilities’ diminution in value that occurred as a result of measures taken by the Argentine government in 2002.

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