IP Law Daily, TRADE SECRETS—6th Cir.: Chinese spy loses appeal in GE Aviation trade secret case, (Aug 8, 2024)

By George Basharis, J.D.

A federal appeals court rejected arguments from Yanjun Xu that his conviction for attempting to steal aviation trade secrets was based on flawed charges and an unreasonable sentence calculation.

The U.S. Court of Appeals for the Sixth Circuit has upheld the conviction and 20-year prison sentence of a Chinese intelligence officer who attempted to steal trade secrets from GE Aviation, rejecting arguments that the charges were flawed and the sentence was unreasonable. The decision, unsealed August 7, affirms a significant prosecution of economic espionage by the Chinese government (U.S. v. Xu, No. 22-4020 (6th Cir. July 24, 2024)).

Yanjun Xu, a Chinese citizen and member of China’s Ministry of State Security (MSS), was convicted in 2021 of conspiracy to commit economic espionage, conspiracy to steal trade secrets, attempted economic espionage, and attempted theft of trade secrets. The charges stemmed from Xu’s efforts between 2013 and 2018 to obtain aviation technology from multiple companies, including GE Aviation.

Prosecutors alleged that Xu, using an alias, invited aviation experts from foreign companies to give presentations in China, with the goal of stealing proprietary information. His efforts culminated in an attempt to obtain composite fan-blade technology from a GE Aviation engineer, David Zheng, who was cooperating with the FBI. Xu was arrested in Belgium in 2018 while attempting to meet with Zhen.

Xu raised several arguments in his appeal to the Sixth Circuit. Xu claimed that the conspiracy counts in the indictment were duplicitous, meaning they improperly charged multiple offenses in single counts. He argued this violated his Sixth Amendment right to a unanimous jury verdict.

Xu also contended that testimony from government expert James Olson, a former CIA officer, violated Federal Rule of Evidence 704(b) by improperly opining on Xu’s mental state. Moreover, Xu challenged both the procedural and substantive reasonableness of his 240-month prison sentence, particularly the method used to calculate the intended loss amount.

The Sixth Circuit rejected Xu’s argument that the conspiracy charges were duplicitous. The court found that each count alleged a single overarching conspiracy based on an agreement between Xu and his co-conspirators, even though the overt acts spanned several years and targeted multiple companies.

Regarding the expert testimony, the court held that Olson did not improperly opine on Xu’s intent. Instead, Olson explained how Xu’s actions were consistent with intelligence-gathering operations based on common tradecraft principles. The court also noted that even if any error occurred, it was cured by the district court’s limiting instructions to the jury.

A significant portion of the court’s opinion focused on Xu’s challenge to his sentence calculation, particularly the method used to determine the intended loss amount for purposes of the Sentencing Guidelines.

The district court had calculated an intended loss of $50,094,000, resulting in a 22-level increase to Xu’s offense level under the Guidelines. This calculation was based on an estimate of GE Aviation’s potential loss in market share if Xu had successfully stolen and shared the targeted trade secrets.

The Sixth Circuit found this calculation method reasonable, citing its recent decision in United States v. You, 74 F.4th 378 (6th Cir. 2023), which endorsed the use of hypothetical lost profits to estimate intended loss in trade secret cases. The court noted approvingly that the district court had used a conservative approach, assuming only a one percent loss in market share over a single year.

The appeals court also rejected Xu’s argument that his sentence was substantively unreasonable compared to other trade secret cases. It found that the defendants Xu cited were not similarly situated, as they were company insiders rather than foreign intelligence officers engaged in long-term espionage operations.

The Case is No. 22-4020.

Judge: Davis, E.

Attorneys: Kevin Koller, Office of the U.S. Attorney, for the U.S. Justine Harris (Sher Tremonte LLP) for Yanjun Xu.

Companies: GE Aviaton

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