Issue Date: February 13, 2012
Stealing Trade Secrets
Federal prosecutors have unveiled charges that over a period of years, five people and a Chinese company—all acting in concert and at the behest of the Chinese government—stole DuPont’s technology to manufacture the white pigment titanium dioxide.
Two of the people charged were longtime DuPont employees. An industry analyst says that the firm’s superior process has led it to be a global leader in TiO2 production.
“The theft of America’s trade secrets for the benefit of China and other nations poses a substantial and continuing threat to our economic and national security,” Lisa Monaco, assistant attorney general for national security at the Justice Department, said while announcing the charges.
Thomas L. Sager, DuPont’s general counsel, said the firm is “disappointed that former DuPont employees working together with certain companies allegedly stole our proprietary technology.”
On Feb. 7, U.S. Justice Department officials revealed that a San Francisco federal grand jury had indicted the Chinese-government-controlled company Pangang Group on charges that it stole DuPont’s chloride-process technology and planned to use it to build a 100,000-metric-ton-per-year TiO2 plant in Chongqing, China.
The indictment names ex-DuPont employees Tze Chao, who worked for the company for 36 years until 2002, and Robert Maegerle, a process engineer who worked for DuPont for 35 years until 1991. One Pangang Group employee was charged.
Also named in the conspiracy are Walter Liew and his wife, Christina Liew. Their California-based company, USA Performance Technology, was used to orchestrate the theft, prosecutors say. In a bid to stop Walter Liew’s release from federal custody at a bail hearing on Feb. 1, prosecutors charged that he had acted on behalf of Chinese Communist Party officials. Justice Department officials filed a complaint against both Liews at the end of July 2011. DuPont filed a civil complaint against Walter Liew and others in April 2011 (C&EN, April 11, 2011, page 20).
Several global companies, including Huntsman, Tronox, Kronos, and Cristal, also produce TiO2 by the chloride process. But DuPont, thanks to deep operating and proprietary knowledge, is the most profitable, says David McCoy, managing consultant at TZ Minerals International. DuPont commanded a 20% share of the $17 billion global TiO2 market in 2011, McCoy says.
Jinzhou Titanium Industry’s plant in Jinzhou City, with an annual capacity of 30,000 metric tons, is China’s only producer of the pigment via the chloride route, according to McCoy. The firm claims to have its own patented technology, but McCoy says the Jinzhou plant “is believed to have originated from DuPont technology in the early 1990s.”
Including those making TiO2 via the older sulfate process, Chinese companies account for 26% of global TiO2 production, McCoy says. The sulfate route is generally considered more complicated and costly than the chloride route.
Citing growing demand for TiO2 in uses such as paint, paper, plastics, inks, and ceramics, DuPont announced plans in 2005 to build a 200,000-metric-ton-per-year plant in Dongying, China. So far, however, the firm has not broken ground. The industry rumor is that the plant has been delayed because of intellectual property concerns and problems in obtaining environmental permits.
McCoy says his view is that DuPont won’t start construction on the China plant until the second half of this decade, if at all. At an industry conference last year, Peter S. O’Sullivan, global market leader for DuPont Titanium Technologies, said the company expects to get an operating license in China after 2015.
Concerns over intellectual property security are not behind the delay in China, a DuPont spokesman says, declining to provide further details. The company is already heavily invested in China and thus has reasons to avoid antagonizing Chinese officials. According to Sager, DuPont has 7,300 employees in 39 wholly owned businesses and joint ventures in China.
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