March 1, 2012 / 8:57 PM / 5 years ago

China firm to challenge US reach in espionage case

SAN FRANCISCO, March 1 (Reuters) - Lawyers for a Chinese steel company will challenge the ability of U.S. prosecutors to bring a criminal case against the company for trying to steal business secrets from chemical giant DuPont , a U.S. magistrate judge said on Thursday.

A Northern California grand jury indicted Pangang Group last month for conspiracy to commit economic espionage and other crimes including conspiracy to steal trade secrets, according to court documents.

Pangang, which was a state-owned steel manufacturer in Sichuan province, and its subsidiaries worked with a California businessman and others to obtain several valuable trade secrets from DuPont, the indictment alleged.

The United States has identified industrial spying as a significant and growing threat to the nation's prosperity. However, some advocates have argued that Chinese targets are attractive for law enforcement in an election year, due to concerns about being called soft on China.

At a hearing in a San Francisco federal court on Thursday, two U.S. lawyers appeared for Pangang and its subsidiaries.

However, U.S. Magistrate Judge Nathaniel Cousins referred to a letter the two attorneys had sent to the court specifying that their appearance was limited to a jurisdictional challenge to the prosecution.

California businessman Walter Liew has already been in custody for several months on witness tampering charges related to the DuPont allegations. Liew and his wife, Christina, also face charges of conspiracy to commit economic espionage and other counts in the latest indictment handed up last month.

An additional defendant in the case, Tze Chao, pleaded not guilty on Thursday morning, but he is scheduled to change his plea later in the day, according to a court calendar.

At the morning hearing, Assistant U.S. Attorney John Hemann told Cousins that Chao, a U.S. citizen, was "providing cooperation" to the government.

Cousins agreed to release Chao without bail. An attorney for Chao declined to comment. (Reporting By Dan Levine; Editing by Steve Orlofsky)

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