Kolon Finally Served With Criminal Summons in Korea, Subsequently Settles for $360 Million

3 minute read | May.15.2015

On April 30, 2015, Kolon Industries finally resolved two long-standing disputes regarding its alleged misappropriation of trade secrets related to DuPont Co.’s bullet-proof Kevlar Material.  The settlement resolved a six-year civil dispute with competitor DuPont, as well as an Economic Espionage Act criminal indictment that had been pending for three years. According to the terms of the plea agreement filed with the court, Kolon will pay $275 million in restitution to DuPont and $85 million to the government in fines.

As previously reported here, the civil battle between Kolon and DuPont was long and hard-fought.

The criminal matter between the government and Kolon was similarly heated and involved an extremely lengthy battle just to get Kolon to appear in United States District Court of New Jersey for arraignment.  It would take over two years to properly serve the foreign company and its five criminally indicted officers in South Korea.  Why all this trouble?  When it comes to whether and how the federal government can serve a criminal summons on a foreign company, courts are split as to how it should be done, if it can be done at all.

In this case, the Department of Justice Intellectual Property Task Force investigated the matter and, in August 2012, the government obtained an indictment against Kolon.  U.S. Attorneys and the DOJ subsequently served summons on various Kolon entities in October.  Those served included the attorney representing Kolon in the civil case filed by DuPont, Kolon’s last known address in New Jersey, Kolon USA, Inc. (Kolon’s U.S. subsidiary), the government of Korea, and the New Jersey Secretary of State.  Shortly after the indictment and summons were issued and purportedly served, however, Kolon moved to quash on grounds that Kolon—a foreign South Korean Company—had not been properly served under the Federal Rules of Criminal Procedure.

Kolon had a legitimate dispute.  Rule 9 requires that warrants and summons issued pursuant to an indictment must be executed and served in compliance with Rule 4, which, in turn, provides that a summons is served on an organization when it is delivered to an officer or managing, general or appointed agent of an organization.  It further provides that a copy of the summons must also be mailed to that organization’s last known address within the district or to its principal place of business in the United States.

Many foreign companies, including Kolon, have argued that the so-called mailing requirement can never be satisfied because there is no last known address for the foreign corporation in the district or a principal place of business elsewhere in the United States.  Certain courts have agreed, finding this to be a strict requirement and quashing summons against foreign companies on that basis.

Other courts, including in California, Massachusetts, and Georgia have found that the mailing requirement can be satisfied—even for a foreign company—by sending a copy of the summons to an “alter-ego” of the foreign company, typically a U.S. subsidiary.

Still, other courts have found that the mailing provision is not a requirement for service at all and that the government need only serve an officer or agent of the organization to effectuate service.
The Kolon Court adopted the view that the mailing requirement was not a requirement for purposes of service.  However, the Court found that the DOJ had not properly served an officer, managing or general agent, or another agent appointed or legally authorized to receive service of process as required by Rule 4.  It quashed the subpoena on that basis.

Ultimately, more than two years after the original summons was issued, the government was finally able to properly serve Kolon with the help of the South Korean government through a Mutual Legal Assistance Treaty (MLAT).  The Court denied a final motion to quash by Kolon in December 2014, finding that service through the MLAT was sufficient.  Four months later, before the defendants appeared for arraignment, Kolon and the DOJ entered into a plea deal resolving both DuPont’s civil and criminal claims.