Court: Court of Appeals for the Sixth Circuit; February 19, 2002; Federal Appellate Court
Defendants Pin Yen Yang, Four Pillars Enterprise Company, Ltd., and Hwei Chen Yang were indicted on multiple counts, including thirteen counts of mail and wire fraud, three counts of money laundering, and one count of attempted theft of a trade secret and conspiracy under the Economic Espionage Act. Prior to trial's conclusion, the district court dismissed most fraud and all money laundering counts. On April 29, 1999, the jury convicted the Defendants of attempted theft of a trade secret and conspiracy, acquitting them of one fraud charge. The Defendants filed numerous pretrial and trial motions, including a Batson challenge and motions for mistrial, all of which were denied. In September 1999, they sought a new trial and renewed mistrial motions, which were also denied after an evidentiary hearing.
On January 5, 2000, the Defendants received a downward departure in their offense levels, while Four Pillars faced an upward departure with a maximum fine of $5 million. On appeal, the Defendants contested the denial of their motions and the fine imposed on Four Pillars. The Government appealed the downward departure for the Defendants. The appeal focused on several issues, including the legal impossibility of the crimes, the appropriateness of sentencing departures, and the validity of various pretrial and trial motions.
The court concluded that the defense of impossibility was not applicable, found sentencing errors for the Defendants, and determined that other claims lacked merit. It affirmed the convictions but vacated the sentences, remanding for further proceedings. The factual background included Yang's recruitment of Dr. Victor Lee, an employee of competitor Avery Dennison, to secretly provide confidential information, which underscored the theft of trade secret charges against the Defendants.
On August 8, 1989, Lee provided the Yangs with two confidential rheology reports from Avery, which they found helpful. Lee subsequently supplied additional confidential information that aided Four Pillars in developing a new acrylic adhesive. The Yangs shared adhesive samples with Lee, who compared them to Avery’s products. After the FBI learned of Lee's industrial espionage, he admitted his collaboration with the Yangs and Four Pillars, offering to assist in a sting operation against them.
In a meeting on September 4, 1997, Lee, with FBI consent for videotaping, shared confidential documents, including an Avery patent application, with Yang and Sally. Despite the documents being marked 'confidential,' the Yangs began to remove these markings. Following the meeting, they were arrested by the FBI while in possession of the confidential materials.
The legal analysis under 18 U.S.C. § 1832 outlines that individuals who intend to convert a trade secret for economic benefit, knowing it will harm the owner, may be fined or imprisoned. The defendants were convicted under § 1832(a)(4) and (5) for attempting and conspiring to steal Avery’s trade secrets. On appeal, they argued that the government should have been required to prove that the sought information was an actual trade secret, contesting the district court's reliance on United States v. Hsu, which stated that legal impossibility does not serve as a defense to attempt and conspiracy charges.
The court reviews the district court's definition of the offense elements, their meanings, and the applicability of the legal impossibility defense de novo. In Hsu, the Third Circuit addressed a claim similar to that of the Yangs, arguing that it was legally impossible for the defendants to attempt or conspire to steal a trade secret if the item in question was not an actual trade secret. The defendants sought access to the trade secret documents to support their defense, asserting that if those documents did not contain trade secrets, they could not be guilty of attempted theft.
Hsu, believing he was meeting a Bristol-Myers Squibb scientist cooperating with the FBI to sell corporate secrets, reviewed confidential documents and was subsequently arrested. He was charged with attempt and conspiracy under 18 U.S.C. § 1832, but not with actual theft. Hsu contended that the lack of a genuine trade secret made it legally impossible for him to be guilty of attempted theft.
The Third Circuit rejected this defense, noting that most circuits do not recognize legal impossibility, and its application in the Third Circuit has been significantly limited. The court referenced its prior ruling in United States v. Everett, which held that legal impossibility is not a defense for attempted distribution of a controlled substance. The court analyzed the legislative history of the Economic Espionage Act (EEA), emphasizing its comprehensive framework against corporate espionage and the abandonment of the legal impossibility defense at the time of its drafting.
The court concluded that allowing legal impossibility as a defense would lead to impractical results, such as requiring the government to use actual trade secrets in sting operations. Ultimately, the court stated that a defendant is guilty of attempting to misappropriate trade secrets if, with the required culpability, he takes substantial steps toward committing the crime based on his belief about the circumstances, rather than needing to prove the existence of an actual trade secret. The government need only show that the defendant believed the item to be a trade secret.
Legal impossibility is not a valid defense against conspiracy charges related to stealing trade secrets, as established by the Third Circuit. The essence of a conspiracy charge lies in the agreement to undertake an unlawful act, rather than the act's execution. Therefore, the illegality of the agreement does not hinge on whether the conspirators could realistically achieve their objective. Consequently, the government is not obligated to demonstrate that the information intended to be stolen was actually a trade secret.
The Sixth Circuit acknowledges this reasoning but does not require a determination on the recognition of legal impossibility as a defense within its jurisdiction. It references past cases indicating a potential acknowledgment of such a defense, while also affirming that impossibility is not a defense in cases involving federal drug laws. In United States v. Reeves, the court confirmed that an attempt conviction does not depend on the actual possession of illegal substances, emphasizing that mere intent and an overt act towards the crime suffice for conviction.
Furthermore, both circuits agree that the statutory purpose guides the interpretation of laws. The Economic Espionage Act (EEA) aims to empower law enforcement against trade secret theft. Accepting the defendants' position would undermine the act's effectiveness, limiting the government's ability to utilize informants and potentially exposing trade secrets to those suspected of theft, thereby hindering enforcement efforts.
A defendant is guilty of attempting a crime under the Model Penal Code if he purposefully takes a substantial step towards committing the offense, regardless of whether the act ultimately results in the crime. To establish an attempt, the government must prove the defendant's intent to commit a crime and that he engaged in overt acts towards that crime. In the case of the Yangs, they believed they were stealing trade secrets from Avery and took substantial steps, such as meeting with Lee in a hotel room, which constituted violations of 18 U.S.C. § 1832(a)(4) and (5). Their belief about the nature of the information they were attempting to steal is irrelevant; the conspiracy was valid because they had a mutual agreement and took overt actions toward it. The concept of conspiracy hinges on the mutual understanding of the unlawful plan, regardless of the actual legality of the intended object. The district court affirmed that legal impossibility is not a defense under the relevant statutes.
Regarding sentencing, the district court made several departures from the sentencing guidelines: it reduced the offense level for the defendants by fourteen levels but then imposed the maximum fine of $5 million on Four Pillars. Four Pillars' motion for correction of sentence was denied. The court's ability to depart from guidelines is based on aggravating or mitigating circumstances not considered by the Sentencing Commission, as outlined in the U.S. Sentencing Guidelines Manual. Review of these departures for abuse of discretion includes ensuring the legal permissibility of the factors used for departure, with no deference given to the district court's legal interpretations. The sentencing court must assess whether any potential departure factors are permissible, encouraged, or discouraged by the Sentencing Commission.
A sentencing court must provide a detailed statement of reasons for any departure from sentencing guidelines to enable review of its reasonableness. In this case, the district court justified a fourteen-point departure for three Defendants primarily based on Avery’s involvement in the prosecution. The court noted that Avery played a significant role, claiming that no victim had been as directly involved in a prosecution. However, the court criticized Avery for using the criminal case as a tool for personal vengeance and for attempting to influence the sentencing through loss calculations. Despite these claims, the court failed to provide specific examples of Avery's alleged manipulation or control over the trial and did not explain how Avery’s role diminished the Defendants' culpability or the crime's seriousness. Moreover, the court did not establish that Avery's participation constituted an aggravating or mitigating circumstance not adequately considered by the Sentencing Commission, which likely did not factor in a victim's prosecution involvement. The text underscores that victim participation in prosecution is irrelevant to the determination of a defendant’s guilt or sentencing severity. While a court cannot categorically exclude non-prohibited factors from consideration for downward departures, any such departures must be rare and based on a comprehensive understanding of the guidelines. The relevant statutory provisions do not support considering victim participation in sentencing decisions.
Subsections 994(c) and (d) outline factors for the Commission to consider when categorizing offenses and defendants for sentencing guidelines. These factors must be relevant to the offense or offender, but none pertain to the victim's role in prosecution. The district court failed to explain the relevance of the victim’s participation to the case, leading to a determination that it was an improper basis for downward departure. The Supreme Court's ruling in Koon emphasizes that the relevance of a factor must be assessed within the context of the specific case facts. The district court's downward departure of fourteen levels was deemed an abuse of discretion, as it primarily relied on the victim’s involvement and perceived overcharging by the Government without justifying how these factors are relevant to the sentencing. Furthermore, the court acknowledged that the defendants were not convicted on overcharged counts, yet still considered this conduct relevant in determining offense levels. The inconsistency in using the same conduct to justify both the sentence calculation and the downward departure raised questions about the court's rationale. Additionally, the Presentence Reports did not include the grounds ultimately relied upon for the departure, and the district court's failure to notify the parties of its intent to depart was identified as an error. Ultimately, despite the substantial downward departure, the court imposed a fine of $5,000,000 on Four Pillars, well above the calculated amounts based on the adjusted offense level.
The court denied Four Pillars' motion to correct its sentence, citing USSG § 5E1.2(d)(1) and 5E1.2 cmt. n. 4, stating that the Guideline maximum was inadequate for punishment, deterrence, and to reflect the crime's seriousness. The district court's justification for the extent of the upward departure was deemed insufficient, lacking specific facts and circumstances to support the $5,000,000 fine. The court criticized the inconsistency between a fourteen-level downward departure in offense level and the subsequent upward departure needed to justify the fine. Consequently, the court vacated the sentences of all Defendants and remanded for resentencing.
Additionally, the Defendants raised several procedural errors, including the denial of a motion to suppress video and audiotapes from a hotel meeting, a Batson challenge to jury composition, and motions for mistrial and a new trial based on prosecutorial misconduct and newly discovered evidence. They also contested the jury instructions on 'theft' and the sufficiency of evidence for their convictions, but the court found no merit in these claims.
Regarding Sally Yang's motion to suppress the FBI tapes, the court determined that a warrant was not needed as Lee consented to the videotaping, and the Yangs had no reasonable expectation of privacy during the meeting. The brief periods of taping when Lee was absent did not warrant suppression, as the prosecutors arranged for redaction of unauthorized segments, which were not used in the prosecution. The district court found no bad faith in the government's actions.
The Yangs allege that the Government's use of peremptory challenges violated the Equal Protection Clause by discriminating against jurors based on race and gender, specifically by excluding three women, two of whom were black. Under the Batson framework, the Yangs must establish a prima facie case of discrimination, prompting the Government to provide race- or gender-neutral justifications for its challenges. The Government cited an "attitude problem," unemployment, and lack of necessary background as reasons for striking the jurors, which the district court found legitimate and non-discriminatory. The jury ultimately consisted of nine women and five men, leading to the conclusion that the Yangs did not demonstrate purposeful discrimination or illogical reasoning from the Government.
Additionally, the Yangs challenged the district court's denial of their motion to prevent prosecutors from allegedly coaching witnesses. The court has discretion in such matters, and the Yangs were able to cross-examine the witnesses and address the coaching in their closing arguments, which was deemed adequate to mitigate any negative effects. Lastly, the Yangs sought a mistrial due to alleged prosecutorial misconduct, claiming a prosecutor inappropriately influenced a juror through non-verbal cues. However, the district court's decisions on these motions were upheld, indicating no abuse of discretion.
Misconduct allegations against the prosecution included inappropriate head gestures during a witness examination and vouching for witness credibility, as well as improper comments regarding evidence and attacks on defense counsel's character. The district court denied the Yangs' motion for a mistrial, stating the situation had been exaggerated and declined to hold a Remmer hearing since the Yangs did not demonstrate actual juror bias from alleged unauthorized juror contact. The court found no evidence that such contact had the potential to affect the verdict, thereby rejecting claims of improper jury contact. Prosecutorial conduct must be evaluated in context, and non-flagrant misconduct typically does not constitute reversible error unless specific conditions are met: the evidence against the defendant must not be overwhelming, opposing counsel must object, and the district court must fail to give a curative instruction. The court concluded there was no abuse of discretion in denying the mistrial, noting that jurors were repeatedly instructed to consider only the evidence presented and not the attorneys' statements. Even if the comments were deemed improper, they were not flagrant and did not prejudice the trial outcome. The Yangs also sought a new trial based on newly discovered evidence regarding Lee's admission of document alteration and his mental health issues, which arose post-arrest. Lee had provided the FBI with documents from his correspondence with the Yangs, some of which were incomplete due to his removal of incriminating pages, and later acknowledged this alteration during a civil trial.
The Yangs possessed original letters from Lee, which Lee had previously sent them, and the district court ruled on the Yangs' claims regarding evidence Lee had altered. The court determined that the withheld evidence was not newly discovered and could have been found by the Yangs with due diligence. It ruled that this evidence, pertaining to fraud counts on which the Defendants were acquitted, was not material to the trade secret counts and unlikely to lead to an acquittal. Additionally, the court found that Lee's mental health records contained no exculpatory information and that their absence did not compromise the fairness of the trial. Consequently, the court denied the Yangs’ motion for a new trial, concluding there was no Brady violation by the Government. On appeal, the Yangs needed to demonstrate that new evidence met specific criteria regarding its discovery, materiality, and potential to impact the trial's outcome. The district court's findings that the altered evidence was cumulative and that Lee's discredited testimony would not change the trial's result were upheld. The jury instructions were also found adequate, with no plain error. Lastly, regarding the sufficiency of evidence related to the trade secret and Sally Yang’s involvement in the conspiracy, the court stated it would review the evidence in favor of the prosecution to determine if reasonable jurors could find the essential crime elements beyond a reasonable doubt.
The interstate commerce nexus is established in the record, as per Section 1832(a), which requires the trade secret to be associated with products produced for interstate or foreign commerce. The patent application linked to Avery involved products generating sales of $75-$100 million and was related to products sold in the U.S. and Canada. Testimony indicated that Avery operates internationally, supporting the jury's reasonable conclusion regarding its global sales.
Sally's claim of non-involvement in a conspiracy is undermined by evidence of her receiving confidential information from Lee and compensating him for his services. This, coupled with her actions in a hotel, allowed a jury to infer her knowledge of the conspiracy to steal Avery's trade secrets. Claims of insufficient evidence were dismissed.
Judgments of conviction were affirmed, while sentences for the Defendants were vacated and remanded for resentencing. The court rejected the Defendants' arguments regarding variance and vagueness in their indictment concerning the attempted theft of trade secrets. It clarified that the statute does not require the targeted information to be established as trade secrets for a valid indictment. The vagueness challenge was also rejected since the statute clearly defines prohibited conduct, and ordinary individuals would understand that attempting to steal information perceived as a trade secret is illegal. Additionally, the court noted insufficient findings for the fourteen-level downward departures in sentencing, impacting the review of their reasonableness.
