155 F.3d 189 (3rd Cir. 1998), 97-1965, United States v. Hsu

Docket Nº:97-1965.
Citation:155 F.3d 189
Party Name:47 U.S.P.Q.2d 1784 UNITED STATES of America v. Kai-Lo HSU, a/k/a James Hsu. UNITED STATES Of America v. Chester S. HO. United States of America, Appellant.
Case Date:August 26, 1998
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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155 F.3d 189 (3rd Cir. 1998)

47 U.S.P.Q.2d 1784



Kai-Lo HSU, a/k/a James Hsu.



Chester S. HO.

United States of America, Appellant.

No. 97-1965.

United States Court of Appeals, Third Circuit

August 26, 1998

Argued June 10, 1998.

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[Copyrighted Material Omitted]

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Michael R. Stiles, Walter S. Batty, Jr., Richard W. Goldberg (Argued), Louis D. Lappen, Office of the United States Attorney, Philadelphia, PA, for Appellant.

William E. McDaniels (Argued), Paul Mogin, Williams & Connolly, Washington, DC; Thomas H. Suddath, Jr., Montgomery, McCracken, Walker & Rhoads, LLP, Philadelphia, PA, for Appellee, Chester S. Ho.

Norman E. Greenspan, Ian M. Comisky, Blank Rome Comisky & McCauley LLP, One Logan Square, Philadelphia, PA, for Appellee, Kai-Lo Hsu.

Before: STAPLETON, COWEN, and RENDELL, Circuit Judges.


RENDELL, Circuit Judge:

In this appeal we explore for the first time the relationship between the confidentiality provisions of the newly-enacted Economic Espionage Act of 1996, 18 U.S.C. § 1831, et seq., and principles of criminal law regarding discovery and disclosure of material evidence. The district court ordered the government to disclose alleged corporate trade secrets based upon a theory that we find does not apply. It also held that the defense of legal impossibility does not pertain to the attempt and conspiracy crimes with which the defendants are charged. We will affirm the court's holding regarding the applicability of the defense of legal impossibility, but will reverse its discovery order and remand for a review of other asserted defenses to the crimes in the indictment.


  1. The Government's Sting Operation

    On July 10, 1997, a federal grand jury indicted Kai-Lo Hsu, Chester S. Ho, and Jessica Chou (collectively, "the defendants") for their involvement in an alleged conspiracy to steal corporate trade secrets from Bristol-Myers Squibb. The indictment alleges that the defendants sought to obtain the

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    processes, methods, and formulas for manufacturing Taxol, an anti-cancer drug produced by Bristol-Myers and regarded by the company as a highly valuable trade secret. 1

    According to the indictment, the defendants' conspiracy began on June 7, 1995, when Chou, the Manager of Business Development for Yuen Foong Paper Company in Taiwan ("YFP"), requested information about Taxol from John Hartmann, an undercover FBI agent whom Chou mistakenly believed to be a technological information broker in the United States. From August 28, 1995, until January 12, 1996, Chou allegedly contacted Hartmann repeatedly to obtain information about Taxol manufacturing techniques and distribution. These contacts led to a meeting in Los Angeles on February 27, 1996, between Hartmann and Hsu, the Technical Director for YFP's operations. Hsu purportedly told Hartmann at that meeting that YFP wanted to diversify into biotechnology and to introduce technology from advanced countries into Taiwan. When Hartmann responded that Bristol-Myers would be unlikely to share its secret technology with YFP, Hsu allegedly responded, "We'll get [it] another way," and told Hartmann to pursue paying Bristol-Myers employees for the confidential Taxol formulas.

    The indictment asserts that Hsu and Chou then "communicated many times" with Hartmann over the next fourteen months to discuss the transfer of Taxol technology and to negotiate a specific price for the acquisition of Bristol-Myers's trade secrets. In response, Hartmann told the defendants that a corrupt Bristol-Myers scientist would be willing to sell Taxol information to YFP. The "corrupt" scientist was actually a Bristol-Myers employee cooperating with the FBI. Intrigued by such a prospect, Chou allegedly sent an e-mail to Hartmann on March 13, 1997, outlining the "core technology" that YFP would need to complete a deal, including:

    "1. The design and assembly of bioreactor with an agreed scale

    2. Light requirement

    3. Media requirement for growth and production

    4. Operating mode for the process, such as batch or continuous

    5. Yield, such as cell density, titers, taxane constitution

    6. Duration of culture to reach the maximal yield

    7. Scientific names of yew species which are applicable to the bioreactor.

    8. Cell lines excluded!!!"

    Chou also allegedly told Hartmann that she would offer $400,000 in cash, stock, and royalties to the Bristol-Myers scientist in exchange for his disclosure of the Taxol secrets. In addition, Chou and Hsu purportedly began making arrangements for a 1997 meeting between the parties, the purpose of which was for YFP to establish the authenticity of the "corrupt" scientist and to determine whether Hartmann really could produce the Taxol trade secrets that Chou and Hsu had requested.

    Hartmann agreed to a meeting, and on June 14, 1997, he and the Bristol-Myers scientist met with three representatives from YFP, including Hsu, Ho, and another unidentified scientist, at the Four Seasons Hotel in Philadelphia. Ho was a professor of biotechnology and the Director of the Biotechnology Innovation Center at the National Chiao Tung University in Taiwan, and he had apparently been asked to evaluate the Taxol technology at the meeting as a favor to YFP.

    The indictment alleges that the bulk of the June 14 meeting consisted of detailed discussions regarding the manufacturing processes for Taxol. The Bristol-Myers scientist explained the background and history of Taxol production, and displayed copies of Bristol-Myers documents outlining specific technological processes and scientific data pertaining to the manufacture of the drug. According to the indictment, these documents

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    contained trade secrets and were "clearly marked with Bristol-Myers identification as well as the block stamped word 'CONFIDENTIAL.' " Hsu, Ho, and the other YFP employee reviewed the documents during the meeting and purportedly asked the Bristol-Myers scientist "numerous" questions regarding specific areas of Taxol technology. Finally, after Hartmann and the Bristol-Myers scientist left the room, the FBI rushed in and arrested Hsu and Ho at the hotel. 2

    The indictment returned by the grand jury charged Hsu, Ho, and Chou with six counts of wire fraud in violation of 18 U.S.C. § 1343, one count of general federal conspiracy in violation of 18 U.S.C. § 371, two counts of foreign and interstate travel to facilitate commercial bribery in violation of 18 U.S.C. § 1952(a)(3), one count of aiding and abetting in violation of 18 U.S.C. § 2, and, most importantly for our purposes, two counts of criminal activity under the Economic Espionage Act of 1996 ("the EEA"), including attempted theft of trade secrets, and a conspiracy to steal trade secrets, in violation of 18 U.S.C. §§ 1832(a)(4) and (a)(5).

  2. The Government's Motion to Maintain the Confidentiality

    of the Bristol-Myers Trade Secrets

    Shortly after the indictment was returned, the defense requested in discovery a copy of the Bristol-Myers documents disclosed to Hsu and Ho at the June 14 meeting. However, on August 12, 1997, the government filed a motion pursuant to 18 U.S.C. § 1835 and Fed.R.Crim.P. 16(d)(1) for a protective order to prevent the disclosure of the Bristol-Myers trade secrets allegedly contained in those documents. 3 The government proposed that the district court enter an order under which the trial judge would review the documents and the proposed redactions by Bristol-Myers in camera, and would then permit redactions of proprietary secret information. The documents as redacted would be used at trial. The gravamen of the government's contention was that the defendants had no need for the actual trade secrets themselves, because they had been charged only with attempt and conspiracy to steal trade secrets, rather than with the actual theft of trade secrets, under the EEA.

    The defendants maintained, though, that unique constitutional and procedural requirements of criminal prosecutions dictated full access to the documents shown to them during the investigation. The defendants also contended that they needed the documents to establish the defense of legal impossibility, arguing that they could not be convicted of attempting to steal trade secrets if the documents did not actually contain trade secrets. Therefore, they proposed an order under which the proprietary information in the Bristol-Myers documents would be disclosed, but only to select members of the defense team, such as the defendants' attorneys and trial experts, and under which the documents would be filed under seal and returned or destroyed at the end of the case.

    The district court agreed with the defendants and adopted their version of the proposed protective order. See United States v. Hsu, 982 F.Supp. 1022 (E.D.Pa.1997). The court held that legal impossibility is not a viable defense to the crime of attempted theft of trade secrets under the EEA, and it thus rejected the defendants' argument that they needed the documents to establish that claim. Id. at 1028-29. Nevertheless, it ordered the government to divulge the alleged trade secrets, because it found that the existence of a trade secret is an essential element of the crime of the theft of trade secrets, and that the existence of a trade secret in that prosecution is "a question of fact which the

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    defendants have the right to have a jury decide." Id. at 1024. Believing the defendants to be charged both with actual theft and attempted theft of trade secrets, the court concluded that "if during discovery we deny to the defendants complete access to the Taxol technology, we inhibit their constitutional right to effective cross-examination as well as their right to have a jury, rather than a judge, determine whether a 'trade secret' exists." Id. at 1025. Therefore, the court...

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