November 15, 2018 / 8:22 AM / 25 days ago

Exclusive: German prosecutors charge Chinese-born engineer in industrial espionage case

COLOGNE, Germany (Reuters) - German prosecutors are pressing criminal charges against a former employee of chemicals maker Lanxess (LXSG.DE) for allegedly stealing trade secrets to set up a Chinese copycat chemical reactor.

The headquarters of chemicals maker Lanxess are seen in Cologne, Germany November 15, 2018. REUTERS/Wolfgang Rattay

The case underscores fears among German officials and executives about industrial espionage in Europe’s largest manufacturing nation.

State prosecutors in the city of Cologne, where the company is headquartered, told Reuters they had brought criminal charges in June against a Chinese-born German national based on a complaint filed with police by Lanxess about two years ago.

There have been several reports in Germany of manufacturers with operations in China catching local staff doing work for copycat rivals. But the alleged data theft at Lanxess is a rare case in which a suspected leak has been identified at home.

German intelligence agency BfV in July warned companies in its annual report that China could resort to intellectual property theft as it aspires to become an exporter of high-tech products, adding that it is hard to distinguish between state and industrial espionage.

In the Lanxess case, which has not previously been reported, the 48-year-old engineer was fired when the company discovered the data theft related to a chemical reactor, prosecutors said.

A 40-year-old German associate, also of Chinese descent, who allegedly received the trade secrets via email and sought to commercially exploit them in China, is also being prosecuted, they added.

If convicted, the two face up to four years in prison. A third accomplice was allegedly also involved but prosecutors have no knowledge of his whereabouts.

Lanxess and the prosecutors’ office declined to disclose the names of the accused.

Criminal defence lawyer Martin Buecher of Birkenstock Rechtsanwaelte, the Cologne-based law firm that represents both defendants in the criminal case, said their clients would not comment on the accusations. He declined to identify them.

Buecher said the case was highly complex and the prosecution was relying on assertions from Lanxess staff. The defence will seek external expert witnesses to be heard to ensure objectivity, he added.

In an online synopsis of an earlier civil lawsuit heard in a Duesseldorf court in February 2017, which two sources said involved the same alleged infringement, the unnamed man denied that the emailed data amounted to trade secrets.

The court ruled that he should pay damages of about 180,000 euros. An appellate court lowered the amount to around 167,000 euros, but ruled that the defendant was liable to compensate Lanxess for any future fallout from the infringement.

In a statement to Reuters, Lanxess said a group of employees of Chinese origin stole confidential information about a new, innovative product several years ago and tried to exploit it commercially.

“The main culprit was a former employee, who abused a position of trust and access to confidential business information,” it said.

Slideshow (4 Images)

“Lanxess was able to secure evidence and is holding the perpetrators accountable in court. Lanxess therefore managed to avert damage from the business,” it added. The company declined to provide further details of the case.

RARE LEAK AT HOME

Lanxess is a 2005 spin-off from German drugs and pesticides maker Bayer (BAYGn.DE).

Court filings from the civil lawsuit in Duesseldorf show that the firm accused the defendants of working on a 400 tonne-per-year chemical reactor in China and promoting the copied product globally.

Facing mature markets at home, European chemical companies have relied on the booming Chinese economy for much of their growth over the past decade.

But strong rivals are emerging there in markets such as farming pesticides, caprolactam for engineering plastics or liquid crystals for flat screens.

Lanxess, which makes additives, pesticide ingredients, construction pigments and engineering plastics, derived 28 percent of almost 10 billion euros in sales from Asia last year.

The influential German industry group BDI, in a draft China strategy paper seen by Reuters last month, called on firms to consider reducing dependence on the Chinese market despite its outsized importance for many big German companies. [nL8N1XB6DO]

According to the prosecutors’ office, the employee gained access to large amounts of sensitive data as he moved up Lanxess’s corporate ladder, and not by deploying sophisticated technology.

In a senior technical role at Lanxess since February 2010, he sent Chinese-language emails in 2011 and 2013 to an external associate identified as “Mr U”, attaching information on a Lanxess-designed reactor and detailed instructions on how to operate it, court documents from the civil case show.

Within weeks, U replied by email with a proposal for a rival production site in China.

In 2016, the employee co-founded unspecified legal entities to produce and export the copied product from China and the business advertised its new capabilities online and in a press release, according to the documents.

The copycat company also touted itself as a future supplier to Lanxess’s customers at trade fairs, the prosecutors’ office said.

The defendants are not held on remand because personal circumstances suggest a low risk of absconding, it added.

A Cologne criminal court has yet to decide if and when the case will begin. According to the prosecutor’s office, the designated court chosen by prosecutors implies a non-suspended prison sentence of up to four years.

Cross-border theft of confidential business information carries a prison sentence of up to five years in Germany.

($1 = 0.8783 euros)

Additional reporting by Noah Barkin in Berlin; Editing by Mike Collett-White

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