Lucent Scientists Arrested, Charged with Stealing Tech
Secrets for Joint Venture with
China-controlled Company
May 3, 2001
NEWARK, N.J. - Two Chinese nationals working in high-level technical positions
at Lucent Technologies Inc. in Murray Hill were charged today with conspiring
to steal source code and software associated with an industry-leading Internet
server developed exclusively by Lucent, and to transfer it to a Chinese state-owned
company, U.S. Attorney Robert J. Cleary announced.
The two Chinese nationals - both of whom were working at Lucent on business
visas - and a third co-conspirator, a naturalized Chinese-American, sought
to use the stolen technology to create the leading data networking company
in the People's Republic of China - "the Cisco of China" - according
to a criminal complaint filed today in U.S. District Court.
Arrested at their homes this morning by Special Agents of the FBI were Lucent
employees Hai Lin, 30, of Scotch Plains, and Kai Xu, 33, of Somerset. Also
arrested was Yong-Qing Cheng, 37, of East Brunswick, a naturalized American
citizen and vice president of Village Networks, an optical networking vendor
in Eatontown. Cheng was arrested at Village Networks.
Simultaneous to the arrests, the FBI executed search warrants at the defendants'
homes.
"This was a grave intrusion upon American business and technology,"
Cleary said. "In the information age, it is difficult to imagine anything
more dangerous to a company's business interests."
"Today's arrests represent the evolving nature of crime in the United
States in the 21st century," said Kevin Donovan, Special Agent in Charge
of the FBI in Newark. "The tools are different now - computers and information
technology - but the profit motive is the same."
Cleary thanked Lucent Technology for its extensive cooperation during the
investigation.
An affidavit with today's criminal complaint describes electronic mail obtained
by the FBI via search warrant and court order. In the emails, the defendants
and representatives of the Chinese-owned company allegedly plan the theft
and transfer of Lucent's technology to create a server identical to Lucent's
PathStar Access Server.
Until today, Lin and Xu were both Lucent employees designated as Distinguished
Members of the company's technical staff, according to the complaint. Both
men were experts in the source code, software and entire design of Lucent's
PathStar system - the highly advanced and profitable technology Lin, Xu and
Cheng allegedly conspired to steal and transfer out of the United States.
Each of the defendants was charged with conspiracy to commit wire fraud.
Charged in the same complaint was ComTriad Technologies, Inc., a New Jersey
corporation which was founded in January 2000 by the defendants. Beginning
with a July 2000 trip by Cheng to Beijing, ComTriad started negotiations for
a joint venture with Datang Telecom Technology Co. of Beijing, a company that
is majority-owned by the Chinese government.
Subsequent to that trip, according to the complaint, the defendants and representatives
of Datang exchanged electronic mail and visited in China and the U.S. to negotiate
the joint venture. Ultimately, the Lucent technology - the PathStar source
code and software - was stored in its entirety on a password-protected website
created by ComTriad and established with a web-hosting company.
The source code and software were stored on that website - www.comtriad.com.
The defendants transfered the data earlier this year to Datang for use in
developing a ComTriad system - the CLX 1000 - that was identical to Lucent's
PathStar Server, according to the complaint.
The Datang-ComTriad joint venture, funded with $1.2 million from Datang,
was named DTNET, and was approved by the Datang board of directors on or about
October 28, 2000, according to intercepted emails described in the complaint.
Datang is engaged in the development, manufacture and sale of telecommunications
products in the People's Republic of China, including computer hardware and
software to facilitate voice transmissions over the Internet, according to
the complaint.
The PathStar system is recognized as a unique product in the industry, designed
to facilitate low-cost voice and data services over the Internet. In the market
for telephony and packet networking integration, the PathStar system commands
a 93-percent share, according to the complaint, and generated revenue of approximately
$100 million for Lucent in fiscal year 2000.
Lin, Xu, Cheng and ComTriad planned to go public in a joint venture with
Datang through initial public offerings of stock in the United States and
China, according to the complaint.
Among the allegations related in the complaint:
. that source code recovered from the ComTriad website was prefaced by explicit
language reflecting that the information was proprietary, unpublished intellectual
property of Lucent.
. that on Jan. 21, 2001, Lin sent an email advising that the "bare src"
- allegedly referring to a portion of the PathStar source code - had been
transferred to the ComTriad password-protected website, and that more source
code would follow.
. that an email was circulated among the co-conspirators and a Datang representative,
laying out a business plan for the joint venture, including that the joint
venture would be 51 percent owned by Datang and that it endeavored to become
"the Cisco of China."
Each of the defendants faces a maximum penalty of five years in prison and
a $250,000 fine on the charge of conspiracy to commit wire fraud.
The charge is merely an accusation. All defendants are presumed innocent
unless and until proven guilty beyond a reasonable doubt.
It is expected that the matter will be presented to a grand jury.
Cleary credited Special Agents of the FBI, under the direction of Special
Agent in Charge Kevin Donovan, in Newark.
The government is represented by Assistant U.S. Attorney Scott S. Christie.
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