4 minute read | September.03.2019
In January of this year, the DOJ indicted the Chinese telecom giant Huawei on counts of theft of trade secrets conspiracy, attempted theft of trade secrets, wire fraud, and obstruction of justice. On August 1, Huawei moved to dismiss the indictment for “selective prosecution.” Huawei contends that it is the “target of the politically motivated decision, at the highest levels of the U.S. government, to pursue the selective prosecution of Chinese companies and nationals for the alleged misappropriation of intellectual property.” In essence, it argues that the DOJ unconstitutionally seeks to punish Huawei because it is a large, successful Chinese company, not because of illegal behavior by the company or its agents.
The decision to prosecute may not be based on arbitrary classifications such as race, nationality, or religion, and selective prosecution based on such classifications is unconstitutional. To show “selective prosecution” Huawei must show (1) similarly situated persons of different national origin were not prosecuted, and (2) the prosecution is based on an impermissible motive—i.e., a discriminatory one.
To satisfy the first prong, Huawei (a) presented evidence (mostly in the form of public articles and DOJ press releases) of the federal government’s recent focus on enforcing intellectual property rights against Chinese parties, specifically calling out the China Initiative and noting that 90% of the DOJ’s economic espionage cases and 2/3 of cases involving theft of trade secrets are against Chinese nationals or companies; (b) pointed to three civil trade secrets misappropriation judgments against non-Chinese companies and noted that the DOJ failed to criminally prosecute those same companies; and (c) argued that it could not find another instance (besides this case) in which the DOJ brought a criminal proceeding against a defendant who lost a civil trade secrets case, but where willfulness was not found.
The DOJ responded by arguing that Huawei is a uniquely bad actor with a “virtually unmatched” history of “flagrant disregard for the rule of law,” citing Huawei’s history of trade secrets theft, corruption, fraud, bribery and its purported “formal program directing its employees to steal competitor information, with the promise of monetary awards tied to the sensitivity and value of the information stolen.” The DOJ further argued that despite the jury’s failure to find willfulness in the T-Mobile civil case, there is “overwhelming evidence that Huawei deliberately targeted T-Mobile’s technology, knowing that what it was doing was wrong.” The DOJ also distinguished the three cases Huawei relied on by explaining that, unlike Huawei, the defendants in those cases did not have a long history of illegal and fraudulent behavior, and further argued that three examples in a six-year span is insufficient to show selective prosecution. Finally, the DOJ explained that the many prosecutions against Chinese defendants in recent years is irrelevant because the selective prosecution inquiry is focused instead on the failure to prosecute similarly situated persons of different national origins.
To satisfy the second prong, Huawei argued that the DOJ’s decision to prosecute is contrary to its own guidelines (“The Justice Manual”) because the alleged misconduct is limited to misappropriation that occurred in connection with Huawei’s business partnership with T-Mobile rather than misappropriation perpetrated by the Chinese government, there is no evidence of economic injury to T-Mobile in light of the $0 damages award in the civil case, T-Mobile fully availed itself of civil remedies, and the conduct at issue ended years ago. It further argued that the decision to prosecute was a political calculation based primarily on Huawei’s status as a major Chinese tech company; it highlighted the purported intentional delay in prosecuting the case in addition to statements and actions by executive branch officials (including President Trump) in 2018 and 2019. In sum, it contended that Huawei has “become a pawn in the government’s 5G race and trade war with China” and this prosecution is being used as “leverage in trade discussions precisely because Huawei China is a major company of Chinese origin.”
The DOJ responded by arguing that the China Initiative is an appropriate response to the Chinese government’s “widespread campaign of intellectual property theft against the United States,” and is therefore not discriminatory, and noted that the Initiative was launched well after a decision had been made to charge Huawei. As to Huawei’s allegations of prosecutorial delay, the DOJ explained that it informed Huawei of its intention to prosecute in December 2017; it further explained that the indictment was filed in January 2019 because the government asked the Grand Jury to return an indictment by then (when the parties’ SOL tolling agreement was set to expire). Finally, the DOJ explained that contrary to Huawei’s representation, the jury in the T-Mobile civil case did in fact award damages—$4.8 million in unjust enrichment. Moreover, the DOJ suggested that the jury would have awarded additional damages had Huawei not been caught before it could fully reverse engineer and implement T-Mobile’s technology.
Huawei argued, in the alternative, that even if it fails to establish selective prosecution, it is nevertheless entitled to discovery pertaining to the government’s decision to prosecute. The DOJ opposed this request arguing that Huawei had not met the rigorous standard for obtaining such discovery and that its requests are overbroad and irrelevant.
While it seems highly unlikely, if Huawei convinces the court that the DOJ has selectively prosecuted the case based on Huawei’s nationality, such a ruling would undoubtedly open the door for other Chinese companies to challenge criminal charges on the same basis.
Trade Secrets Watch will continue to monitor this case and will provide updates periodically.