United States v. Kolon Indus., Inc.
By Suzanne Van Arsdale – Edited by Sounghun Lee
United States v. Kolon Indus., Inc., No. 3:12-Cr-137 (E.D. Va. Aug. 21, 2012)
Indictment hosted by legaltimes.typepad.com
The Department of Justice brought a criminal indictment against South Korea-based Kolon Industries Inc. (“Kolon”) and five of its executives in the Eastern District of Virginia on one count of conspiracy to convert trade secrets, four counts of theft of trade secrets, and one count of obstruction of justice.
According to the indictment, filed on August 21, 2012, Kolon and its executives engaged in years of corporate espionage. The government accused Kolon of paying former and current employees of E. I. du Pont de Nemours & Co. (“DuPont”) and Teijin Ltd. and its subsidiaries (“Teijin”) to reveal confidential and proprietary information related to the manufacture of synthetic fiber, in violation of the Economic Espionage Act of 1996 (the “Act”). Economic Espionage Act of 1996, Pub. L. No. 104–294, 110 Stat. 3488 (codified as amended at 18 U.S.C. §§ 1831–1839 (2006)).
The Wall Street Journal and Reuters provide an overview of the indictment. Bloomberg Businessweek noted that Kolon’s alleged theft of trade secrets has already resulted in a jury verdict awarding DuPont nearly $920 million and a prison sentence for a former DuPont employee who pled guilty to theft of trade secrets.
The Act federally criminalizes theft or misappropriation of trade secrets for commercial or economic benefits, and applies to entities outside of the United States when the act leading to misuse of the trade secret occurred in the United States. The fine for violation of section 1832 is limited to five million dollars for corporate defendants, but section 1834 also requires forfeiture of any proceeds and property derived from the misuse.
The indictment describes trade secrets related to high-strength para-aramid fibers used in body armor, fiberoptic cables, tires, and other products, produced by DuPont as Kevlar and by Teijin as Twaron. The two brands were the only widely commercially available para-aramid fibers until Kolon began producing Heracron in 2005. “While DuPont disclosed basic concepts related to Kevlar manufacture in patents and trade journals, it treated the vast majority of technical information related to the commercial manufacture of Kevlar as confidential and proprietary,” according to the government. United States, indictment at 5.
The indictment seeks forfeiture of at least $225 million, which represents the approximate gross proceeds of the sale of Heracron from January 2006 through June 2012. Id. at 35. A court hearing has been scheduled for December 11, 2012.
The Department of Justice previously investigated Kolon in 2007, but did not prosecute the company. In 2009, DuPont sued Kolon for theft of trade secrets under the Virginia Uniform Trade Secrets Act, accusing it of misusing proprietary information about Kevlar. DuPont alleged that Kolon obtained the information by hiring Michael Mitchell, a former DuPont engineer and Kevlar marketing executive. Mitchell, also under investigation by the government, ultimately pled guilty to theft of trade secrets and obstruction and was sentenced to 18 months in prison in March 2010. The case against Kolon went to trial in July 2011, and on September 14, 2011, the jury awarded DuPont $919.9 million in damages. In an opinion of August 30, 2012, Judge Robert Payne in the Eastern District of Virginia issued a worldwide injunction barring Kolon Industries from producing, marketing, or selling any para-aramid fiber for 20 years. E.I. DuPont de Nemours & Co. v. Kolon Indus., Inc., No. 3:09-cv-00058 (E.D. Va. Aug. 30, 2012). On September 21, 2012, a split panel of the Fourth Circuit issued an order granting Kolon’s motion to stay the injunction while Kolon pursues appeals. E.I. DuPont de Nemours & Co. v. Kolon Indus., Inc., No. 12-1260(L) (4th Cir. Sept. 21, 2012).
The Department of Justice issued a press release, in which U.S. Attorney MacBride stated that “[t]his indictment should send a strong message to companies located in the United States and around the world that industrial espionage is not a business strategy.”
Jeff Randall, a lawyer for Kolon, responded in Business Wire with concerns about the purpose of the indictment, given that the Department of Justice previously opted not to prosecute Kolon, and that DuPont’s civil verdict is on appeal. Randall said, “[i]t is disturbing that the DOJ would bring charges that effectively assist DuPont in improperly extending its monopoly over aramid fiber technology beyond the limited term provided by the U.S. patent laws." In The Korea Times, Kolon further expressed that hiring competitors as consultants was part of corporate competition, not criminal activity.