Sun, Jan 09, 2000 page2

• Trade secrets not to be taken lightly

  INDUSTRIAL ESPIONAGE The recent sentencing of executives from the Taiwan company Four Pillars for receiving `confidential' documents has spotlighted the fact that using the excuse of cultural differences is of little help in international business

  • By Irene Lin / STAFF REPORTER
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  Differences between cultures is often used to explain away international business disputes. While culture may play a part, Taiwan businesses are finding that in the international arena, companies are more than willing to play hardball when it comes to protecting themselves from industrial espionage, according to a number of legal professionals.

  A US federal judge on Jan. 5 handed down sentences on two officials of the Taiwan-based Four Pillars Enterprise Ltd (四維企業) for industrial espionage. Yang Pin-yen (楊斌彥), president of Four Pillars, was sentenced to six-months' confinement in his US home, and fined US$250,000. His daughter, Sally Yang (楊慧-s), also an executive at the company, was put on one-year probation and fined US$5,000.

  In addition, the judge has also ordered the company to pay the maximum fine allowable under the Economic Espionage Act -- US$5 million.

  According to press reports in the US, Yang Pin-yen apologized for his actions immediately after being sentenced on Thursday. Officials of Four Pillars and the company's legal counsel in Taian, however, said the same day that accusations against the Yangs of attempting to steal trade secrets from the California-based adhesive manufacturer, Avery Dennison were false.

  They claimed the Yangs' convictions under the Act could put all Taiwan businessmen who have formed -- or who are thinking of forming -- business relationships with US companies in danger.

  The fear is that this is a test case of the Espionage Act and further prosecutions could be forthcoming.

  The legal councilors said they believe that cultural differences had not been seriously taken into account during the judicial process.

  "They don't understand the Eastern way of doing business," said Pun Jin-fang (潘正芬), an attorney representing Four Pillars in Taiwan. "The boundaries are not always that clear. When someone, especially a friend, offers us something, it's just very natural for us to read it without any suspicion. Who would expect that it could turn out to be an entrapment?"

  When Avery Dennison officials learned in 1996 that Victor Lee, a research engineer at the company, was passing company secrets to Four Pillars, they informed the FBI, who then arrested the engineer.

  Lee later agreed to work undercover to help snare the Yangs. He lured them to a Cleveland hotel room and offered them confidential documents.

  The FBI secretly videotaped the meeting between Lee and the Yangs, in which Sally Yang cut the stamp marked "confidential" off the documents. Her father then instructed Lee to dispose of the clipping, the tape showed.

  The videotape thus became key evidence in the criminal case against the Yangs.

  Pun argued, however, that simply watching the videotape of the incident does not tell the whole story.

  "Do not forget Four Pillars and Avery Dennison had close contacts with each other for a period of seven years since 1987. The hotel meeting is just a small part of the whole story," Pun said.

  Prior to the Yangs' arrest in 1997, another Taiwan company was caught under the Economic Espionage Act.

  Both Taiwan nationals, Hsu Kai-lo (徐3芞?/CHINESE>), a technical director for Taiwan-based Yuen Foong Paper Company (永?餘紙業), and Chester S. Ho (|?p台), a biochemist and professor at a Taiwan university were arrested by the FBI in June 1997 for alleged attempts to steal trade secrets from the Bristol-Myers Squibb Company involving the production of the anti-cancer drug Taxol.

  Initially, Taxol required the use of the bark of the Pacific Yew tree, in which the active ingredient of Taxol occurs naturally. However, that tree has now been placed on the endangered species list and can no longer be harvested.

  This promoted Bristol-Myers to spend several hundred million US dollars to develop a method of producing large quantities of Taxol through genetic engineering. The trade secrets in question relate to this substitute production process.

  An FBI sting operation resulted in the arrest on June 14, 1997, of Hsu and Ho, with a Bristol-Myers executive posing as a corrupt in-house scientist willing to sell Taxol production secrets to the pair.

  In fact, at no time did the defendants receive either the details of the secret production method or the cell lines used to grow Taxol cultures.

  Prosecutors from the US Justice Department dropped the charges against Ho in January last year. Hsu, who pleaded guilty after exhausting all defense strategies, was put on a two-year supervised release and fined US$10,000 by the US District Court, Eastern District of Pennsylvania in July of the same year.

  In February 1998, only months after the arrests of executives of the Yuen Foong Paper Company and of Four Pillars in 1997, another Taiwan company, Nan Ya Technology Corp (南亞科?THORN>), was reported to have been involved in an industrial espionage case in South Korea.

  Seoul-based Korea Semiconductor Technology Corp, a small IC design house that was co-developing DRAMs with Nan Ya Corp, allegedly stole memory technology from two local DRAM companies and transferred it to the Taiwan company.

  Fortunately, Nan Ya was able to distance itself from the espionage charge by showing a contract it had previously signed with the South Korean company, which specially requested that it should not use confidential information from other companies or individuals.

  From the two cases tried under the Economic Espionage Act to today's growing number of international disputes over industrial espionage, legal advisors said these cases have demonstrated a need for Taiwan businesses to take intellectual property rights seriously and to take cautious steps in the course of making technology transfers.

  They believe, however, cultural differences, useful excuse as it might sometimes be, is not able to save the companies or individuals from legal actions taken against them by their international business competitors.

  "The lesson Taiwan businessmen should learn from these cases is that there is no such thing as a free meal," said Wu Ching-yuan (吳景源), a Taiwan High Court judge.

  "They should either pay for what is given or make everything clear on paper about matters of technology transfer.

  "Cultural differences are used as an excuse all the time. But after all, it is not as persuasive as concrete evidence, such as written documents," Wu said.
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