United States v. Yu Qin

• Decision Date: 20 July 2012
• Docket Number: No. 12–1015.,12–1015.
• Citation: 688 F.3d 257
• Parties: UNITED STATES of America, Plaintiff–Appellant, v. YU QIN and Shanshan Du, Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

688 F.3d 257

UNITED STATES of America, Plaintiff–Appellant,

v.YU QIN and Shanshan Du, Defendants–Appellees.

No. 12–1015.

United States Court of Appeals, Sixth Circuit.

July 20, 2012.^*

ON BRIEF:Kathleen Moro Nesi, United States Attorney's Office, Detroit, Michigan, for Appellant. Frank D. Eamon, Frank D. Eamon PLLC, Detroit, Michigan, Robert M. Morgan, Detroit, Michigan, for Appellees.

Before COLE and DONALD, Circuit Judges; and SARGUS, District Judge. ^**

OPINION

BERNICE BOUIE DONALD, Circuit Judge.

On July 21, 2010, Yu Qin and his wife Shanshan Du (collectively, “Defendants”) were indicted for, among other related charges, conspiring to possess and possessing stolen trade secrets and wire fraud. Upon receiving notice of the government's intent to introduce evidence under Rule 404(b) of the Federal Rules of Evidence, Defendants moved to exclude the evidence. On December 9, 2011, the district court granted the motion. The government timely appealed. For the reasons assigned herein, we affirm.

I. BACKGROUND

From 1985 to 2005, Yu Qin (pronounced “Chin”) worked as an electrical engineer in Troy, Michigan, for Controlled Power Company (“CPC”), a company that designs and manufactures electrical power equipment and systems. From 1997 until his termination on August 30, 2005, Qin held the position of Vice President of Engineering and Research and Development at CPC. Qin's wife, Shanshan Du, also worked as an electrical engineer for CPC until some time in 2000. Thereafter, Du began working for General Motors (“GM”) as an engineer in its Advanced Technology Vehicles Group. At GM, Du worked on various software engineering projects related to hybrid vehicle technology and was responsible for some of the motor control code used in GM's hybrid electric motor controller cards. These cards constitute proprietary information owned by GM. During the course of their employment, both Qin and Du signed documents in which they agreed to protect the confidential and/or proprietary information belonging to their respective employers. Du further agreed to return “all documents and other materials containing any GM business or technical information or other proprietary information created or obtained in the course of [her] service [ ]” at GM.

On January 30, 2005, Du's supervisor at GM, apparently dissatisfied with Du's job performance, offered Du a severance agreement in return for her resignation. Du accepted the offer in writing on March 14, 2005. During Du's exit interview on March 17, 2005, Du certified in writing that she had “returned all GM Records in printed (copies or reproductions), electronic or other tangible form including secret and confidential information in [her] possession or under [her] control, located in [her] office, home or any other off-site location.” Du also acknowledged that her “obligation not to disclose secret or confidential information [would] continue[ ] after the termination of [her] employment.”

By summer 2005, CPC's Vice President of Operations, Christian Tazzia, had become suspicious that Qin was engaging in outside business activities. Tazzia soon discovered through another CPC employee that Qin owned and operated a business known as Millennium Technologies International, Inc. (“MTI”). Qin had been operating this business unbeknownst to CPC since at least 2000. Based on MTI's website, the business appeared to be in direct competition with CPC, promoting products that CPC's own Research and Development Department—of which Qin was Vice President—had been developing for years.

On August 30, 2005, CPC confronted Qin about these activities, and Qin initially denied any involvement in MTI business. Later that day, CPC employees discovered a bag belonging to Qin hidden in a co-worker's office. The bag contained a large quantity of electrical components later identified as CPC property and a large external hard drive determined to be Qin's personal property. Tazzia reviewed the contents of the hard drive and discovered a directory titled “Shanshan” that contained many electronic documents that appeared to be the property of GM. CPC subsequently advised GM of its discovery of these documents, whereupon GM conductedits own forensic analysis of the hard drive. GM's analysis revealed that the “Shanshan” directory contained 16,262 individual files, the majority of which were confirmed to be the property of GM. The forensic analysis also indicated that all 16,262 files had been copied to the hard drive on February 2, 2005, three days after GM offered Du a severance package. The files contained numerous confidential GM documents, including at least four pieces of GM intellectual property essential to GM's hybrid motor controller card. Most of this intellectual property was information that Du would have had no legitimate reason to possess during the ordinary course of her employment with GM. In fact, even Du's former supervisor did not have access to some of this information, nor would he have had any legitimate need to access it. Other confidential information located in the “Shanshan” directory included detailed specifications for the power transistors used by GM in its hybrid motor inverters; GM's requirements for its hybrid electric vehicle drive train, including the motor, inverter, and controller card; a complete user manual for GM's proprietary suite of engineering and design software used in the development of its hybrid electric vehicles; and documents that detailed GM's E67 engine controller mechanization. According to GM, there was no legitimate need for Du in her capacity as a GM employee to access or possess the vast majority of this information.

This discovery prompted further investigation into MTI's business activities, which showed that MTI had been marketing power control products for the hybrid electric vehicle market. CPC uncovered evidence that Qin had directed subordinate CPC employees to perform engineering work for MTI on CPC company time as well as evidence that MTI was engaged in a project to develop a hybrid electric vehicle with Chinese automobile manufacturer Chery Automobile. Qin's hard drive also contained evidence indicating that he had misappropriated CPC resources and information and used them to further his MTI business. In particular, CPC found documents related to its development of a three-phase uninterruptible power system, including source code, circuit board schematic drawings, and marketing materials. All of these materials had been modified, however, such that “CPC” had been replaced with “MTI” as the owner of the intellectual property.

On July 22, 2010, Defendants were charged with one count of conspiring to obtain trade secrets from GM pertaining to motor controls for hybrid vehicles, two counts of unlawfully possessing those trade secrets with intent to provide them to third parties, one count of wire fraud, and, as to Qin only, one count of obstruction of justice. None of the conduct charged in the indictment related to Qin's possession of parts, resources, intellectual property, or other confidential information belonging to CPC.¹

On November 1, 2011, the government provided Defendants' counsel with notice of its intent to offer evidence at trial pursuant to Federal Rule of Evidence 404(b). The evidence consisted of “proof that defendant Qin appropriated resources of his employer ... for the benefit of MTI.” On November 15, 2011, Defendants filed a joint motion to exclude the 404(b) evidence. They argued that Qin had many defenses to CPC's allegations and, therefore, that introducing those allegations in the criminal proceedings would not only be inappropriate, but would be unduly burdensome, essentially resulting in a trial within a trial. Defendants also argued that the evidence would be more prejudicial than probative under Rule 403, particularly as to Du, to whom CPC did not attribute any of the underlying conduct forming the basis of CPC's civil complaint. The government responded on November 29, 2011, arguing that the evidence was relevant to show Defendants' specific intent to commit the charged offenses, their participation in a common scheme or plan, and the absence of mistake, all of which are at issue by virtue of the elements of the criminal charges.

On December 6, 2011, the district court held a hearing in which it granted Defendants' motion to exclude the proffered evidence. In support of this ruling, the court stated:

[What] you are talking about here [is] stealing trade secrets.... When I look at what the Government has outlined here, ... it shows that Defendant—at least Defendant Qin is setting up this business, working this business. They obviously have a business. I don't think that's an issue that they have a business.

Using CPC documents, I mean, they substituted ... MTI into wherever it said CPC, this is something, I don't know whether it is more of a generic form as ... the defense is trying to say or a form that is used that could be modified, but is that stealing? I mean, I don't see it. I don't see it as a substantially similar circumstance. I think what it goes to show is that these individuals or at least Mr. Qin is setting up this business. Was he doing it while he was working at CPC? Clearly he was doing it while he was working at CPC, but does that show that he was stealing things outside of perhaps time, which I don't think is necessarily relevant....

I simply don't think there is ... substantially enough relevance to this and that it could be way more prejudicial than probative because to me its weight only goes to showing that they were, in fact, setting up a business and doing so on CPC time, so the Court is not going to allow [the evidence].

This interlocutory appeal followed, and proceedings in the district court were stayed pending resolution of the issue now before us.

II. ANALYSIS

A. Standard of review

We review a district court's ruling on the admissibility of evidence for abuse of discretion. United States...