A few months ago, I posted about a trade secrets prosecution involving Eli Lilly employees. There have been some interesting developments over the last few months.
In 2013, the government accused Guoqing Cao and Shuyu Li of stealing trade secrets from their former employer, Eli Lilly. The government indicted the two men on several counts of trade secrets theft, aiding and abetting and conspiracy. The case is in the Southern District of Indiana.
Mr. Cao and Mr. Li’s attorneys have been hard at work. They have attacked the government’s case at every step.
And—against all odds—it’s working.
Under the government’s initial theory of the case, Mr. Cao shared several of Eli Lilly’s pharmaceutical trade secrets with a person referred to as “Individual #1.” Individual #1 also worked for Eli Lilly until he left in 2008 for a position with one of Eli Lilly’s Chinese competitors Jiangsu Hengrui Medicine Company (“Hengrui”).
In its first indictment, the government alleged that Mr. Cao sent Individual #1 several emails with test results, data sets, and gene identifications. In addition, the indictment alleged, Individual #1 told Mr. Cao which other secrets would benefit Hengrui. Mr. Cao then supposedly contacted Mr. Li, who replied with emails disclosing each of the desired secrets. In return, Hengrui hired Mr. Cao for a lucrative position in China.
As a general matter, pre-trial detention in white collar case is rarer in white collar cases than in violent or drug crimes. It’s worth reading 18 U.S.C. § 3142 to understand the basics of pre-trial detention and release.
It’s also worth checking out the U.S. Attorney’s Manual on the topic.
The two primary factors the court will consider are (1) whether the defendant is dangerous; and (2) whether he is a flight risk. Most white collar defendants aren’t dangerous in a traditional sense—they have not hurt anyone physically. And they can usually show they are not a flight risk since they have deep ties in the United States and a stable background.
The court can also consider “the weight of the evidence against the person.”
Consider that last sentence some masterful foreshadowing…
The Defendants’ Pretrial Detention Hearing
Once Mr. Cao and Mr. Li had been charged, the government moved to detain both defendants on the grounds that they were both a serious risk of flight and danger to the community. Though he did not agree that Cao and Li were a danger to the community, the magistrate judge found that they still posed a risk of flight and ordered them detained without bond.
First Motion for Independent Review
Undeterred, the defendants’ lawyers submitted a motion for an independent review of the magistrate judge’s order under 18 U.S.C. § 3145(b). Under 18 U.S.C § 3145(b), the court considers both defendant-centric factors and non-defendant-centric factors to determine the appropriate level of detention.
The defendant-centric factors seemed to support the government’s position. Both defendants had extensive familial ties and contacts with the People’s Republic of China, a country that lacks any extradition treaty with the United States. Moreover, the defendants have both liquid assets and specialized information that could be very valuable if (illegally) sold to a third pharmaceutical company. Finally, the court seemed particularly concerned that because Mr. Cao’s father in law was ill, Mr. Cao may visit him in China if released.
However, the court concluded that the non-defendant-centric factors cut the opposite way. For example, the court considered the supposed danger of “harm to the community.” The court was persuaded by the defendants’ argument that if the government’s allegations were true, the damage had been done. While Mr. Cao and Mr. Li may have posed some economic danger to Eli Lilly in the past, there was no future danger. They had already passed secrets along to Hengrui and were prohibited from contacting either Hengrui or any other pharmaceutical company.
But even more important were the concerns that defense lawyers raised with respect to the nature and circumstances of the defendants’ offenses. They highlighted many weaknesses in the government’s case by arguing that the information that Mr. Cao and Mr. Li allegedly passed on to Hengrui was not actually secret, but rather was information that existed in the public domain. (It probably goes without saying but if information is public, it’s not a trade secret.)
This is where it gets fun.
The court officially reserved judgment on the weight of the defendant’s arguments, but went on to say that defense counsel had “poked sufficient holes in the government’s case” to merit a revision of Mr. Cao and Mr. Li’s detention arrangement.
When’s the last time you heard a judge that that defense counsel had “poked holes” in the government’s case?
As a result of the hearing, the two men were installed in a Volunteers of America facility on “lockdown status.” This facility is like a halfway house—it is a residential re-entry facility. Not much fun, but lots better than your standard federal prison camp.
Second Motion for Independent Review (aka “It’s a Whole New World”)
Shortly after the detention hearing, the government filed a superseding indictment that substantially changed the charges against the two defendants.
Most critical, the superseding indictment dropped any mention of trade secrets. Given that trade secrets had been the focus of the first indictment, this is a fairly stunning turnaround. It moves the case from a newspaper-headline kind of case into a fairly straightforward wire fraud case.
Mr. Cao and Mr. Li are now being charged with wire fraud, aiding and abetting, and conspiracy to commit wire fraud. While wire fraud can have more serious penalties than trade secrets, the change signals a serious loss of confidence on the part of the government as to its primary theory of the case.
Defense counsel made a subsequent motion to modify the conditions of the defendants’ release given the allegations in the superseding indictment. The court granted this motion, allowing Mr. Cao and Mr. Li to return to their homes subject to GPS monitoring and several other minor conditions of detention.
This outcome changes everything. From a practical standpoint, the two defendants can meet much more freely with their lawyers—which will help their defense immensely. This is invaluable in such a technical case. Plus, the defendants are with their families—a benefit that, frankly, cannot be quantified.
Trial is set for January 2015. It will be interesting to see if they get that far or if the government’s whole case will crumble by then.
For the record, Mr. Cao is represented by Fox Rothschild LLP (Alain Leibman and Matthew Adams) and Pence Hensel LLC (David Hensel and William Barkimer). Mr. Li is represented by Scott Newman of Indianapolis.
Congratulations to all of you. Keep up the good work.