Friday, February 10, 2012

About that US Criminal Indictment Alleging Industrial Espionage by China

I have an article up today on Asia Times about an indictment of US and Chinese companies for industrial espionage and theft of DuPont’s trade secrets for the manufacture of titanium dioxide.

This will quite probably turn into a big deal in US-Chinese relations, because it’s a big deal for DuPont and DuPont is a big deal in American industry and politics.  

Titanium dioxide delivers hundreds of millions of dollars each year to DuPont’s bottom line, in large part because of DuPont’s unique know-how in operating a particularly filthy and dangerous piece of chemistry and also, allegedly, because the fact that the technology is very closely held offers opportunities to set up a pricing cartel with the few other Western manufacturers who have mastered the process.

I expect the Chinese will claim that their advances in titanium dioxide technology reflect their own indigenous achievements and any DuPont documentation that came over the transom was peripheral to their own accomplishments.  Maybe so, but maybe US courts, politicians, and public opinion will draw the opposite conclusion, especially in an election year during which Chinese job-poaching perfidy will be at the top of the political agenda.

As an amusing sideline, one of the top Google hits for the piece was on, a site which, as you might expect, promotes strip clubs in Allentown, PA, previous home base for the Bethlehem Iron & Steel behemoth and now a piece of post-industrial fodder for Billy Joel ballads and the sex service industry.

I realized that the good people in Allentown had picked up on the piece because I had substituted “XXX” for the names of people named in the indictment.  It is one of the melancholy privileges of the Internet and social media to be able to look at the personal Christmas pictures of somebody facing decades in jail on a charge of industrial espionage, and imagine his honor, his reputation, and his future evaporating before one’s eyes.  So, I decided, let somebody else strip away his last veneer of privacy.  Maybe my pity was misplaced; we’ll see.  

Here’s an excerpt from the piece:

Jinzhou Titanium Industry Company, in Liaoning Province in Northeast China, is the proud operator of two 15,000 tpy chloride process titanium dioxide lines.

In 2010, it held a seminar for the trade to advertise its achievements:

For more than two decades' persistent and dauntless struggle, Jinzhou Titanium Industry Co, Ltd, has overcome multiple technique difficulties, making the whole process operate smoothly. The company continuously optimized the process and the key equipment, obtaining high level achievement which was never reached before. With excellent application properties, the CR serial titanium dioxide products developed by the company are continuously replacing some imported products in Chinese market ... [1]

Those achievements are now under a cloud. Jinzhou Titanium Industry Co, before it was spun off in 2010, was a subsidiary of Pangang Group, the Chinese corporation named in the criminal indictment for conniving at the theft of DuPont's trade secrets. The indictment lists three contracts involving the misappropriation of DuPont technology: a 1998 $5 million transaction with Chengde Iron & Steel Corporation, a second-tier mill in northern China whose transaction appears to have vanished into the mists of time; a $6 million deal in 2005 involving the 30,000 tons of capacity at Jinzhou; and a $17.8 million contract in 2009 for a 100,000 tpy titanium dioxide project in Chongqing for Pangang Group.

According to the indictment, about $13 million monies under the 2009 contract had been paid out. Pangang Titanium's website showed a picture of the June 8, 2010 groundbreaking and stated:

The technologies are from Jinzhou TiO2 [the chemical symbol for titanium dioxide] Pigment plant, Pangang has the certain share in this plant ... It's planned to commission the plant in the end of 2012. [2]

While embroiled in the civil suit, the principal of USAPTI labored to demonstrate that the services he provided to China had been generated without DuPont knowhow.

However, the indictment paints a picture of a relationship over 13 years between USAPTI and a retired DuPont engineer; proprietary documents - including a 407-page Basic Data document for DuPont's titanium dioxide plant in Kuan Yin, Taiwan - with various DuPont stamps and confidentiality instructions getting passed around; and the retired engineer providing photographs and technical assistance to USAPTI to scale the Kuan Yin documentation up to the capacity envisioned for the Pangang plant.


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