United States v. Xue

• Decision Date: 22 September 2020
• Docket Number: CRIMINAL ACTION NO. 16-22
• Parties: UNITED STATES OF AMERICA v. YU XUE, et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

UNITED STATES OF AMERICA v. YU XUE, et al., Defendants.

CRIMINAL ACTION NO. 16-22

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

September 22, 2020

OPINION

Slomsky, J.

TABLE OF CONTENTS

I. INTRODUCTION .............................................................................................................. 2

II. BACKGROUND ................................................................................................................ 3

A. Factual and Procedural History ...................................................................................... 3

B. Evidentiary Hearing on Loss ........................................................................................ 10

C. Post-Hearing Memorandums ........................................................................................ 26

III. ANALYSIS ................................................................................................................... 27

A. United States Sentencing Guidelines ............................................................................ 27

B. Offense Level Enhancement for Loss Pursuant to Section 2B1.1 of the Sentencing Guidelines ........................................................................................ 28

C. Loss Pursuant to Section 2B1.1 of the Sentencing Guidelines is $0 ............................ 38

IV. CONCLUSION ............................................................................................................ 45

I. INTRODUCTION

This case involves a serious offense: theft of trade secrets from a large corporation that manufactures products for the benefit of humankind. The company invests a considerable amount of money to create products and have them patented. It does not want its proprietary information misappropriated. But the issue now before the Court is not whether trade secrets were stolen; that issue has already been resolved. Defendants Yu Xue and Tao Li (together "Defendants") pled guilty to conspiring to commit the thefts. Instead, the unique challenge posed here is to determine the dollar amount of loss to the victim, GlaxoSmithKline LLC ("GSK"), a global healthcare and pharmaceutical research company, under provisions of the United States Sentencing Guidelines.¹

The parties in this case have submitted wildly varying loss figures. The Government, relying on a theory of "intended loss," submits the loss is greater than $550 million. Defendants assert that the loss in this case is $0.

The disparity arises from competing interpretations of Section 2B1.1(b)(1) of the United States Sentencing Guidelines, its Application Notes, and related case law. The Government interprets the Guidelines to permit the Court in this case to use the cost of developing the stolen information and its fair market value as the intended loss figure. In contrast, Defendantsinterpret the Guidelines to require, as a prerequisite to any intended loss valuation, that the Government prove that they purposefully sought to inflict the loss amount on the victim, GSK.

Although the outcome here may seem discomforting, reasoned application of the law mandates that the loss amount under the Sentencing Guidelines is $0. To establish intended loss, the Government must show that its proffered figure reflects the loss Defendants purposefully intended the victim to suffer. The Government made no such showing here. Instead, the Government attempted to prove only the development cost of the stolen information and its fair market value, not the loss Defendants intended GSK to suffer.² And while the Court may draw reasonable inferences to find intended harm, the Government provided no facts from which such inferences could reasonably be drawn to support their theory on the loss amount. Thus, because the Court is bound to follow the law applicable under the Sentencing Guidelines, the loss in this case is $0.

II. BACKGROUND

A. Factual and Procedural History

On December 29, 2015, the Government filed a Criminal Complaint against Defendants and three other alleged co-conspirators, charging them with conspiracy to commit wire fraud in violation of 18 U.S.C. § 1349. (Doc. No. 1.) That same day, arrest warrants were issued by aUnited States Magistrate Judge. On January 5, 2016, Defendants were arrested, and on January 20, 2016, a grand jury returned a forty-three count Indictment charging them and other alleged co-conspirators with conspiracy to commit wire fraud, conspiracy to steal trade secrets, conspiracy to commit money laundering, and substantive counts of wire fraud and theft of trade secrets. (Doc. No. 24.)

On May 24, 2017, a forty-five count Superseding Indictment was returned against Defendants and the alleged co-conspirators. (Doc. No. 125.) Defendants were charged with:

• Conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349 (Count 1);

• Conspiracy to steal trade secrets, in violation of 18 U.S.C. § 1832(a)(5) (Count 2);

• Conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h) (Count 3);

• Wire fraud, in violation of 18 U.S.C. § 1343 (Counts 4-19); and

• Theft of trade secrets, in violation of 18 U.S.C. § 1832(a) (Counts 22, 28, 31, 34, 37).

In addition, Defendant Xue was named as a defendant in the following counts:

• Theft of trade secrets, in violation of 18 U.S.C. § 1832(a) (Counts 20-21, 26-27, 29-30, 32-33, 35-36, 38-43, 45).

Defendant Li was named as a defendant in another count:

• Theft of trade secrets, in violation of 18 U.S.C. § 1832(a) (Count 44).

(Id.)

The Superseding Indictment alleges that from 2010 to 2016 Defendants conspired to steal confidential and trade secret³ information from GSK. (Id. at 1.) GSK specializes in the research, development, and production of biopharmaceutical products aimed at fighting cancer and other diseases. (Id. at 1-2.) From June 2006 to January 2016, Defendant Yu Xue was employed as a research scientist at a GSK research facility in Upper Merion, Pennsylvania. (Id. at 4.) She worked on various biopharmaceutical products, including HER3 monoclonal antibody design,⁴ and had access to a multitude of GSK trade secrets and confidential information. (Id. at 5, 6.) The Superseding Indictment alleges that, while working for GSK,Defendant Xue stole a number of documents containing confidential and trade secret information by emailing them to her personal account and then forwarding the documents to her co-defendants. (Id.) She also allegedly downloaded documents containing confidential and trade secret information onto a thumb drive and distributed this information to her co-defendants. (Id.) These actions contradicted clear company policy prohibiting employees from copying, distributing, and storing GSK information on personal devices, and using company information for personal and business reasons unrelated to GSK. (Id. at 3.)

The Superseding Indictment further explains that on July 16, 2012, Defendant Xue, Defendant Li, and another co-defendant created a corporation in the United States named Renopharma Inc., and two other offshore companies in China (referred to collectively as "Renopharma"). (Id. at 8.) Defendants advertised Renopharma as a research and development company that "specialized in providing products and services to support drug discovery programs at pharmaceutical and biotech companies." (Id.) But according to the Government, in reality, Defendants planned to use Renopharma to market, sell, and profit from the trade secret information described in the stolen GSK documents. (Id.)

The Superseding Indictment lists thirty-six different misappropriated documents that allegedly contain trade secrets or confidential information. (See Doc. No. 125 at 10-23.) The documents are in various forms, including PowerPoint presentations, internal GSK reports, and internal GSK memoranda. (See id.) Their content also varied, and included information about HER3 monoclonal antibodies; three GSK development platforms, namely, the (1) a monoclonal antibody platform ("mAb"); (2) a domain antibody platform ("dAb"); and (3) an antibody drugconjugate platform ("ADC"); and details about specific GSK products under development, including Investigational New Drugs⁵ ("INDs").⁶ (See id.; see also Doc. No. 271 at 10.)

On August 31, 2018 and September 14, 2018, respectively, Defendants Xue and Li pled guilty to one count of conspiracy to steal trade secrets, in violation of 18 U.S.C. § 1832(a)(5).⁷,⁸(Doc. Nos. 234, 235.) In exchange, the Government agreed to dismiss all other counts of the Superseding Indictment, including all substantive counts for theft of trade secrets, and to limit the sentence to no more than seven years for Defendant Li and no more than ten years for Defendant Xue. (Doc. Nos. 234, 235.) However, while Defendants agreed to resolve criminal liability through the plea agreements with limits on a sentence of imprisonment, they did not agree on the amount of loss, if any, to GSK under the federal Sentencing Guidelines. (Doc. Nos. 234, 235.) As noted, the Government contends that the loss applicable to Defendants is greater than $550 million. (Doc. No. 271 at 2.) Defendants dispute that figure and submit that the loss amount is $0. (Doc. Nos. 292 at 7.) Given the disparity, Defendants and the Government ceded to the Court the decision on the amount of loss. (Doc. Nos. 234, 235.)

A date for an evidentiary hearing on the issue of loss was scheduled. On April 29, 2019, prior to the hearing, the Government submitted a Memorandum on the loss calculation, contending that the loss amount for Sentencing Guideline purposes exceeds $550 million.⁹ (Doc. No. 271.) As noted, the Government contends that under the Sentencing Guidelines, intended loss is calculated by using the fair market value of the stolen property and/or the cost of development. (Id. at 3.) The Government avers that its approach yields a loss amount above $550 million. (Id.)

The Government's Memorandum also previewed testimony and exhibits it was going to offer to...