April 30, 2015

Kolon Industries Inc. Pleads Guilty for Conspiring to Steal DuPont Trade Secrets Involving Kevlar Technology

WASHINGTON—Kolon Industries Inc., a South Korean industrial company, pleaded guilty this morning in federal court in Alexandria, Virginia, to conspiracy to steal trade secrets involving E.I. DuPont de Nemours & Co.’s (DuPont) Kevlar technology. The company was sentenced to pay $85 million in criminal fines and $275 million in restitution.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Dana J. Boente of the Eastern District of Virginia and Special Agent in Charge Adam S. Lee of the FBI’s Richmond, Virginia, Division made the announcement.

Kolon Industries Inc., appearing through two successor entities—Kolon Industries Inc. and Kolon Corporation (collectively, Kolon)—pleaded guilty to one count of conspiracy to convert trade secrets before U.S. District Judge Anthony J. Trenga of the Eastern District of Virginia.

“Protecting the trade secrets of American businesses sustains the integrity and competitiveness of the American economy, and encourages the development of new products, including advanced technologies,” said Assistant Attorney General Caldwell. “The Criminal Division is committed to ensuring that foreign companies, like Kolon Industries, cannot escape the reach of the criminal justice system when they have conspired to steal the results of American ingenuity and our companies’ intellectual property.”

“Research and development are pillars of our economy, and we cannot allow anyone to obtain by theft what innovators develop through effort and ingenuity,” said U.S. Attorney Boente. “Today’s outcome confirms that we will aggressively investigate and prosecute intellectual property crimes, regardless of whether the perpetrators are foreign or domestic, corporations or individuals. There are no safe harbors for those who seek to steal trade secrets in the Eastern District of Virginia.”

“Protecting American companies from the theft of their trade secrets is a high priority for the FBI,” said Special Agent in Charge Lee. “Each year, billions of U.S. dollars are lost to foreign competitors who pursue illegal commercial short cuts by stealing valuable advanced technologies. This case demonstrates the FBI’s ability to penetrate these highly sophisticated criminal schemes and bring their perpetrators to justice. Its outcome should send a clear message to foreign commercial actors who seek to illegally exploit American companies and steal our nation’s innovation and technology.”

According to the statement of facts filed with the plea agreement, from June 2006 to February 2009, Kolon conspired with former DuPont employees and others to steal DuPont’s trade secrets for making Kevlar, a high-strength, para-aramid synthetic fiber. Kevlar, a trademarked name, is one of DuPont’s most well-known products and is used is a wide range of commercial applications such as body armor, fiber optic cables, and automotive and industrial products. Kolon admitted that it was attempting to improve the quality of its own para-aramid fiber known as Heracron.

Kolon personnel met repeatedly with former DuPont employees, including Edward Schulz, 72, of Brownstown, Pennsylvania, and Michael Mitchell, 58, of Chesterfield, Virginia, to obtain confidential and proprietary DuPont information about Kevlar. Schulz pleaded guilty to conspiracy to steal trade secrets in September 2014 and is scheduled to be sentenced on June 26, 2015. Mitchell pleaded guilty to theft of trade secrets and obstruction of justice in December 2009 and was sentenced to 18 months in prison.

Kolon admitted that it obtained technical and business documents regarding Kevlar, including instructional materials that described DuPont’s “New Fiber Technology,” documents on polymerization, and a detailed breakdown of DuPont’s capabilities and costs for the full line of its Kevlar products and DuPont’s Kevlar customers.

According to the statement of facts and Mitchell’s admissions at his guilty plea, Mitchell exchanged numerous telephone calls and e-mails with Kolon personnel. On more than one occasion, Mitchell advised Kolon personnel that some of the information they sought was proprietary and that DuPont considered such information to be trade secrets. Mitchell also coordinated a meeting at a hotel in Richmond, at which Kolon personnel were introduced to a cooperating witness who pretended to be a disgruntled scientist from DuPont. During the Richmond meeting, Kolon personnel indicated that they would only be comfortable communicating with the cooperating witness in a manner that was confidential and that would not leave an evidentiary trail.

In February 2009, DuPont filed a civil lawsuit against Kolon in the Eastern District of Virginia, alleging theft of trade secrets. Thereafter, certain Kolon personnel attempted to delete files and e-mails related to Mitchell, Schulz and outside consultants hired to improve Kolon’s para-aramid fiber, and urged other Kolon personnel to search for such materials and mark them for deletion.

Kolon also admitted that certain employees approached a former employee of an American subsidiary of Teijin Ltd. – a Japanese company that makes the para-aramid fiber called Twaron—in an unsuccessful effort to obtain information about Twaron.

This case represents the first time that foreign corporations with no direct presence in the United States were found to be successfully served with U.S. criminal process, over their objections, based on service pursuant to an international treaty. In December 2014, the district court found that both of the successor companies were properly served, and ordered them to appear for arraignment. In February 2015, the Fourth Circuit Court of Appeals denied Kolon’s petition for extraordinary relief seeking reversal of the district court’s order.

Five former Kolon executives and employees, all of South Korea, were charged in an August 2012 indictment filed in the Eastern District of Virginia: Jong-Hyun Choi, 58, a senior executive who oversaw the Heracron Business Team; In-Sik Han, 52, who managed Kolon’s research and development related to Heracron; Kyeong-Hwan Rho, 49, the head of the Heracron Technical Team; Young-Soo Seo, 51, the general manager for the Heracron Business Team; and Ju-Wan Kim, 42, a manager on the Heracron Business Team.

None of these individuals has appeared in the United States to face the charges. The charges contained in an indictment are merely accusations, and a defendant is presumed innocent unless and until proven guilty.

The case was investigated by the FBI’s Richmond Division. The case is being prosecuted by Assistant U.S. Attorneys Kosta S. Stojilkovic and Matthew Burke of the Eastern District of Virginia, Trial Attorney John W. Borchert of the Criminal Division’s Fraud Section and Senior Counsel Rodolfo Orjales of the Criminal Division’s Computer Crime and Intellectual Property Section. The Criminal Division’s Office of International Affairs has provided valuable assistance.