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United States v. Shi

United States District Court, District of Columbia

December 17, 2019

UNITED STATES OF AMERICA,
v.
SHAN SHI, Defendant.

          MEMORANDUM OPINION

          CHRISTOPHER R. COOPER, UNITED STATES DISTRICT JUDGE.

         On July 29, 2019, a jury found Defendant Shan Shi guilty of Conspiracy to Commit Theft of Trade Secrets. Dr. Shi now moves for a judgment of acquittal, arguing that the evidence presented at trial was insufficient to convince a reasonable juror that he committed the crime. Finding ample evidence to support the conviction, the Court will deny the motion.

         I. Background

         The Superseding Indictment in this case charged Dr. Shan Shi and others with conspiracy to commit theft of trade secrets in violation of 18 U.S.C. § 1832 (Count 1); conspiracy to commit economic espionage in violation of 18 U.S.C. § 1831 (Count 2); and conspiracy to launder monetary instruments in violation of 18 U.S.C. § 1956(h) (Count 3). All three counts involved an alleged agreement to misappropriate trade secrets related to “syntactic foam”-a manufactured material consisting of small hollow spheres suspended in epoxy resin. Among other applications, syntactic foam is used in drill riser buoyancy modules (“DRBMs”). DRBMs are buoyant casings attached along conduits (or “risers”) that run from an off-shore oil or gas rig to the drilling equipment on the sea floor. They are necessary to prevent the weight of the risers from destabilizing the rig afloat on the surface.

         In 2014, Dr. Shi established a company in Houston-Construct Better Materials International (“CBMI”)-to develop syntactic foam for use in DRBMs and related products. Gov. Ex. 2 at 32252, 34574 (corporate overview presentation). CBMI was funded by a Chinese company-Taizhou CBM-Future New Materials Science and Technology Co., Ltd. (“CBMF”)- that had been tasked by the Chinese government to help develop the country's ability to manufacture marine engineering equipment. Id. at 32252-54, 34613; see also Gov. Ex. 40 (CBMI Articles of Incorporation listing CBMF as the sole shareholder). To advance this goal, the indictment charges that Shi and the two companies obtained trade secrets from Trelleborg Offshore US, Inc. (“Trelleborg”), a DRBM manufacturer also located in Houston.[1] They did so, the Indictment alleges, by hiring former Trelleborg employees, who in turn used and transferred Trelleborg's confidential manufacturing specifications and testing procedures to help CBMF develop syntactic foam in China.

         In addition to Shi and the two companies, the charged conspirators included Sam Ogoe and Gang Liu, both former Trelleborg employees who subsequently joined forces with CBMI; Uka Uche and Johnny Wayne Randall, two then-current Trelleborg employees who allegedly sent Trelleborg confidential information to Ogoe after he joined CBMI; Kui Bo, a CBMI employee involved in developing syntactic foam; and Hui Huang, a China-based employee of CBMF who allegedly directed some of CBMI's activities. Ogoe and Bo both pled guilty to one count of conspiracy to commit theft of trade secrets in violation of 18 U.S.C. § 1832, admitting that they obtained and/or used Trelleborg confidential information to help CBMF develop syntactic foam. Uche and Randall also pled guilty to the trade secret theft conspiracy, acknowledging that they provided confidential Trelleborg information to Ogoe. Liu managed to abscond prior to trial, Huang remained in China, and CBMF and CBMI never appeared, leaving Dr. Shi as the lone defendant at trial.

         The Indictment identifies seven alleged trade secrets that CBMI obtained from Trelleborg. To better understand the technology involved, a bit must be said about how the spheres contained in syntactic foam are made and tested. Dr. Kipp Carlisle, a materials engineer with Trelleborg, summarized the manufacturing process for the jury. He explained that the process begins by placing polystyrene pellets in a customized tumbler, akin to a cement mixer. Tr. 1266 (July 16, 2019 a.m.). As the tumbler spins, a syrupy liquid comprised of an epoxy and a hardening agent is added. Id. at 1261. A fibrous material is then introduced, with the mixture coating the pellets. Id. at 1263. The liquid eventually forms a hardened shell around the pellets, creating spheres or “beads.”[2]

         Trelleborg made spheres of different strengths. Various factors affect the strength of a sphere, including the number of coats applied to the surface, the type of fiber used in the coating mixture, and the ratio between the liquid and fiber in the mixture. Id. at 1263-65. Trelleborg used three different types of fiber: glass, wollastonite, and carbon, each with different structural properties and costs. Id. at 1247. Stronger, higher-density spheres are used in deeper water to withstand the higher pressures to which they are subjected. Id. at 1242. Trelleborg also made different sized spheres depending on the application for which they were intended. Id. at 1247-48.

         Carlisle testified that Trelleborg developed manufacturing specifications for its spheres over time based on research and empirical analysis. Tr. 1163-67 (July 15, 2019 p.m.). These specifications included calculations for density and pressure resistance at various sea depths for spheres of different diameters and fiber compositions. While Trelleborg disclosed some of these specifications in its marketing and bid materials, the complete specifications remained proprietary. Tr. 1250-51 (July 16, 2019 a.m.). Allen Burgess, Trelleborg's President, added that pressure and density specifications, when combined with corresponding depth ratings, were not publicly available and that it would be “foolhardy” to provide that information to a competitor. Tr. 1956-58 (July 18, 2019 p.m.). Production engineers on Trelleborg's shop floor were given laminated print outs of the specifications for use in the manufacturing process. Tr. 1240 (July 16, 2019 a.m.).

         To ensure that the manufactured spheres performed as designed, Trelleborg subjected them to testing. The lab technicians who performed the tests were given the same specifications that the production engineers used to make the spheres. Id. One of the tests-called a hydrostatic burst pressure test-involved subjecting a sample of spheres to pressure to determine if they met pre-determined acceptance criteria. If more than a certain percentage of the spheres remained intact under the pressure, the batch passed the test. Carlisle testified that Trelleborg's design team developed the acceptance criteria and testing protocol over time based on trial and error and did not share them with its competitors. Id. at 1256-58.

         With that primer, the seven alleged trade secrets can be summarized as follows: Trade Secret 1 is a series of Excel charts reflecting production specifications for various types of Trelleborg spheres at specified depths. Gov. Exs. 21, 21A, 21B, 21C. Trade Secret 2 is another set of charts showing the target densities for particular types of spheres at specified depths. Gov. Ex. 23A. Trade Secret 3 is Trelleborg's standard operating procedure for conducting the hydrostatic burst pressure test described above. Gov. Exs. 25, 26. Trade Secret 4 is another set of Excel spreadsheets showing sphere specifications, as well as information about the manufacturing process like the type of hardener used and the ratio of fiber to coating material. Gov. Ex. 28A. One of the worksheets within Trade Secret 4 is labeled “Reference - Trelleborg.” Id. Trade Secret 5 is the formulation that Trelleborg used to make its syntactic foam, with some of the ingredients specified by brand name. Gov. Ex. 31. Trade Secret 6 is another spreadsheet showing the number of coats that Trelleborg applied to various types of spheres at specified depths. It too is labeled “Reference - Trelleborg.” Gov. Ex. 32A. Finally, Trade Secret 7 is a chart showing bulk prices for the raw materials that Trelleborg used in its syntactic foam. Gov. Ex. 33A. It is labeled “Reference - Trelleborg” as well. Id.

         All told, the jury heard ten days of argument and evidence. Twenty-one witnesses testified and some 250 exhibits were admitted. After three days of deliberation, the jury returned a guilty verdict on Count 1 alleging conspiracy to commit theft of trade secrets, and not guilty verdicts on Counts 2 and 3 alleging conspiracies to commit economic espionage (essentially, stealing trade secrets to benefit a foreign government) and money laundering. Verdict Form, ECF No. 260.

         II. Legal Standards

         On a motion for acquittal under Federal Rule of Criminal Procedure 29, the Court must consider the evidence in the light most favorable to the government and determine whether the evidence “is sufficient to permit a rational trier of fact to find all of the essential elements of the crime beyond a reasonable doubt.” United States v. Harrington, 108 F.3d 1460, 1464 (D.C. Cir. 1997) (citing Jackson v. Virginia, 443 U.S. 307, 319 (1979)). Because the Court owes “tremendous deference to a jury verdict, ” United States v. Long, 905 F.2d 1572, 1576 (D.C. Cir. 1990), it “must presume that the jury has properly carried out its functions of evaluating the credibility of witnesses, finding the facts, and drawing justifiable inferences, ” United States v. Campbell, 702 F.2d 262, 264 (D.C. Cir. 1983). Further, the Court must “accord[] the government the benefit of all legitimate inferences.” United States v. Weisz, 718 F.2d 413, 437 (D.C. Cir. 1983). The standard for “clear[ing] the bar for [a] sufficiency of evidence challenge” is “very high, ” and the evidence to support a conviction does “not need to be overwhelming.” United States v. Pasha, 797 F.3d 1122, 1135 n.9 (D.C. Cir. 2015). Granting a motion for judgment of acquittal after a jury verdict is appropriate only where “a reasonable juror must necessarily have had a reasonable doubt as to the defendant['s] guilt.” Weisz, 718 F.2d at 437.

         III. Analysis

         Dr. Shi moves for a judgment of acquittal on Count 1. He attacks the sufficiency of the evidence supporting his conviction in three main respects. First, he maintains there was no evidence from which a reasonable juror could have found that he conspired to steal Trelleborg trade secrets. Second, he argues there was no evidence to support a finding that he “knew or reasonably believed” that any of the seven alleged trade secrets were trade secrets, as required for a conviction. Third, he insists there was no evidence that he knew or believed that Trelleborg had taken reasonable measures to protect any of the seven alleged trade secrets, which the jury was also required to find.

         A. Trial Evidence

         The Court begins by cataloging some, but not all, of the trial evidence bearing on Dr. Shi's evidentiary challenges before turning to his arguments for why the evidence cannot support his conviction.

         In December 2013, Dr. Shi visited Trelleborg's Houston facility with two senior employees of CBMF. Tr. 1661-63 (July 17, 2019 p.m.) (testimony of Kui Bo). Trelleborg's Director of Human Resources, Jerolyn Jones, testified that at the time of Shi's tour, Trelleborg had in place a number of visible physical security measures to protect its confidential business information. For example, the Houston production facility was fenced and monitored by security guards and video cameras around the clock, at a cost of $500, 000 to the company. Tr. 1503-04 (July 17, 2019 a.m.). Visitors, such as Dr. Shi, were logged in and out and given badges while present at the facility. Id. at 1505-06, 1511. They were also escorted and told not to take photographs of the facility. Id. at 1511-12. Particularly sensitive areas such as the testing facility and R&D lab were locked with coded keypads and only certain employees had access to them. Id. at 1507-08.

         Ms. Jones also described a number of measures that Trelleborg took to protect its electronically stored data. For example, it followed its parent company's worldwide IT policy. Id. at 1513-14. Employees had to enter a log-in ID and a password to access the company's computers and network. Id. And employee access to the company's computer files was restricted on a need-to-know basis. Id. at 1522.

         Dr. Shi incorporated CBMI in 2014 for the purpose of assisting CBMF enhance its syntactic foam manufacturing capabilities. Gov. Ex. 12A (April 12, 2014 cooperation agreement between Shi and CBMF to work together to develop marine buoyancy materials). CBMF viewed the production of syntactic foam and related products as important to China's efforts to catch up with the western nation's deep-sea drilling technology. E.g., Gov. Ex. 4 at 35006 (CBMF marketing proposal explaining that “[a]lthough our country has conducted the related research in this field for many years, it's still left behind the advanced level overseas in terms of the performance of the solid buoyancy materials for deep submersible applications.”); Gov. Ex. 40 (CBMI Articles of Incorporation dated March 21, 2014 listing Shi as a Director and CBMF as the sole shareholder). As part of their collaboration, CBMI and CBMF agreed that the two companies would protect their technology as trade secrets and that CBMI would not disclose their technical information without CBMF's consent. Gov. Ex. 12A at 35020. Additionally, Dr. Shi indicated to CBMF that he intended to recruit employees from competitors to assist in developing the foam. See Gov. Ex. 12A (As ...


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