U.S. v. Hsu

• Citation: 982 F.Supp. 1022
• Decision Date: 27 October 1997
• Docket Number: Criminal Action No. 97-323.,Criminal Action No. 97-323-01.,Criminal Action No. 97-323-02.
• Parties: UNITED STATES of America v. Kai-Lo HSU a/k/a James Hsu Chester Ho.
• Court: U.S. District Court — Eastern District of Pennsylvania

Page 1022

982 F.Supp. 1022

UNITED STATES of America v. Kai-Lo HSU a/k/a James Hsu Chester Ho.

Criminal Action No. 97-323.

Criminal Action No. 97-323-01.

Criminal Action No. 97-323-02.

United States District Court, E.D. Pennsylvania.

October 27, 1997.

Richard Goldberg, Asst. U.S. Atty., Philadelphia, PA, for the Government.

Norman Greenspan, Blank, Rome, Comisky & McCauley, Philadelphia, PA, Stephen LaCheen, Philadelphia, PA, for Kai-Lo Hsu.

Thomas Suddath, Montgomery, McCracken, Walker & Rhoads, LLP, Philadelphia, PA, William E. McDaniels, Williams & Connolly, Washington, DC, for Chester Ho.

MEMORANDUM

DALZELL, District Judge.

A Government motion for a protective order prompts our inquiry here into difficult issues that the Economic Espionage Act of 1996 raise regarding the disclosure of allegedly confidential trade secrets to defendants in criminal prosecutions brought under that recent statute.¹

Introduction

This case arises out of a two-year "sting" operation in which an undercover FBI agent, posing as "John Mano", allegedly offered to sell to the defendants the formulae and processes for the manufacture of an anti-cancer drug, Taxol ("Taxol technology"), which Bristol-Myers Squibb Company ("Bristol-Myers") manufactures. The sting operation culminated in a June 14, 1997 meeting at which the defendants, Kai-Lo Hsu a/k/a James Hsu ("Hsu") and Chester Ho ("Ho"), were arrested.

The defendants are charged, inter alia, with violating the Economic Espionage Act of 1996, 18 U.S.C. § 1831-39 ("the EEA" or "the Act"). Specifically, the defendants are charged under 18 U.S.C. § 1832(a)(4),(5) with the inchoate offenses of attempted receipt/possession of a trade secret and conspiracy to receive/possess a trade secret, as well as with the completed offense of unauthorized conveyance of a trade secret under 18 U.S.C. § 1832(2). See Counts 10-11 of Indictment.

The Government now seeks a protective order pursuant to 18 U.S.C. § 1835² and Fed.R.Crim.P. 16(d)(1) to prevent the defendants from reviewing Bristol-Myers's Taxol technology documents because the Government contends that many of the documents contain confidential trade secrets. See Government's Motion, p. 1. While recognizing their duties to disclose information to the defendants under Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963) and Fed.R.Crim.P. 16(a), the Government proposes that we enter a protective order whereby all of the requested documents would be reviewed in camera, with redactions made to those documents that we determine contain confidential trade secrets. See Government's Motion, p. 1-4.

In response, the defendants propose a less restrictive protective order. Under the defendants' proposed protective order, we would restrict the disclosure of materials the Government designates as "confidential" only to those individuals — such as the defendants' attorneys, outside experts and prospective witnesses — who would need to use the documents solely for defense purposes. Furthermore, each person given access to the documents would be required to sign an agreement binding the individual to the terms of the Order. In addition, the defendants' proposed protective order provides that any Bristol-Myers documents used throughout the case will be filed under seal or submitted to the Court for in camera inspection. Finally, defendants propose that we resolve any questions regarding the use of any of the confidential material at pretrial, trial, or post-trial hearings, with the documents being returned or destroyed when the case is over.

After extensive briefing, the Government has essentially raised four major arguments in support of its proposed protective order. First, the Government argues that it has a legitimate interest in protecting the integrity and confidentiality of trade secrets and business information. See Government's Motion p. 5-7. Second, it contends that in the absence of in camera review and redaction, the defendants will receive information that is irrelevant and immaterial to their defense. See Government's motion at p. 8-9. Third, the Government raises the specter of "gray-mail," which occurs when defendants press for the release of sensitive information and then threaten publicly to disclose the information in an attempt to force the Government to drop its charges. See Government's Motion p. 7-8. Fourth, the Government claims that the documents the undercover FBI agent brought to the June 14, 1997 meeting are immaterial because even if those documents had been blank or contained "dummy" formulas, the defendants still could have committed a crime. See Government's Reply Brief, p. 3. This fourth argument raises the distinction between the defense of legal impossibility and factual impossibility.

We will now address each of these arguments in turn.

I. Legitimate Government Interest

The Government first argues that it has a legitimate interest in protecting the integrity and confidentiality of trade secrets and business information. See Government's Motion p. 5-7. In support of this position, the Government cites several cases, both civil and criminal, where courts determined that in camera review and redaction of documents was necessary to protect confidential business information. See id. Furthermore, the Government points to the language of the EEA itself to argue that the unnecessary disclosure of trade secrets is precisely the harm Congress sought to avoid when it adopted the Act. See Government's Motion, p. 8. In essence, the Government contends that it should not be required to turn over the very trade secrets that the defendants were allegedly trying to steal in the first place. See Government's Motion, p. 10.

We find that we cannot issue the Government's requested protective order because if we were to grant such relief we would effectively be relieving the Government of the burden of proving one of the essential elements of its case: the existence of a trade secret. It is well-settled that the Government must convince the trier of fact of all of the essential elements of guilt upon proof beyond a reasonable doubt. See United States v. Gaudin, 515 U.S. 506, 511, 115 S.Ct. 2310, 2314, 132 L.Ed.2d 444 (1995) ("The Constitution gives a criminal defendant the right to demand that a jury find him guilty of all the elements of the crime with which he is charged."); In re Winship, 397 U.S. 358, 364, 90 S.Ct. 1068, 1073, 25 L.Ed.2d 368 (1970) ("the Due Process Clause protects the accused against conviction except upon proof beyond a reasonable doubt of every fact necessary to constitute the crime with which he is charged.").³

The defendants here are charged with theft and attempted theft of trade secrets. See 18 U.S.C. § 1832(a). The Government must prove under the plain language of the statute that a "trade secret" existed within the meaning of the Act. The statute states, in relevant part, that

[w]hoever, with intent to convert a trade secret, that is related to or included in a product that is produced for or placed in interstate commerce or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will, injure any owner of that trade secret ... [(listing various methods)] ... shall, except as provided in subsection(b), be fined under this title or imprisoned not more than 10 years, or both.

18 U.S.C. § 1832(a). In addition, the statute defines "trade secret" as

all forms and types of financial, business, scientific, technical, economic, or engineering information.. [where] (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.

18 U.S.C. § 1839(3). The existence of a "trade secret" is, therefore, an essential element of the crime and thus is a question of fact which the defendants have the right to have a jury decide. See Gaudin, 515 U.S. at 510-24, 115 S.Ct. at 2314-20 (holding that materiality' was an essential element of the Government's case under 18 U.S.C. § 1001 and that the defendant had a constitutional right to have the jury, rather than a judge, decide).

In fact, the Government's own prosecution manual stresses that the existence of a "trade secret" is an essential element of the crime and a question of fact for the jury. In the Department of Justice's Manual entitled "Federal Prosecution of Violations of Intellectual Property Rights" (May 1997) ("the Manual"), the sample language for jury instructions regarding 18 U.S.C. § 1832 makes clear that the Government must prove as one of six elements of its case "that the information was in fact a trade secret." See Chester Ho's Response, Exhibit A. Furthermore, the Manual states that "the sine qua non of information constituting a trade secret is that it is not publicly known" and "[w]hether the information was secret before it was obtained by the defendant is a question of fact." See Chester Ho's Response, Exhibit C, at internal p. 75.

We are also troubled by the reality that if we were to restrict the defendants' access to the Taxol technology documents by giving them redacted documents during discovery, we would interfere with their Sixth Amendment right to cross-examination at trial. See Greene v. McElroy, 360 U.S. 474, 496, 79 S.Ct. 1400, 1413, 3 L.Ed.2d 1377 (1959) ("[T]he evidence used to prove the Government's case must be disclosed to the individual so that he has an opportunity to show that it is untrue."). Indeed, the very fact of redaction would connote to the jury that important trade secrets indeed lurked in these papers.

With the passage of 18 U.S.C. § 1832, which first criminalized the theft of trade secrets, and the passage of 18 U.S.C. § 1835, which encourages protective orders for prosecutions under the EEA, Congress has created an...