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Chinese TiO2 Firm Fights Spy Charges

Tuesday, April 3, 2012

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One of China’s largest titanium dioxide suppliers is fighting a U.S. indictment alleging that it conspired with former DuPont employees to steal TiO2 secrets from DuPont, the world’s leading producer of the pigment.

The Pangang Group Co., based in Sichuan Province, and several related Pangang companies have filed a federal-court motion in San Francisco to dismiss an indictment charging them with conspiring to buy and/or steal trade secrets to benefit the Chinese government.

 Titanium dioxide
“The People’s Republic of China publicly identified the development of chloride-route titanium dioxide (TiO2) production as a scientific and economic priority,” the indictment says.

“The People’s Republic of China publicly identified the development of chloride-route titanium dioxide (TiO2) production”—a process developed exclusively by DuPont—“as a scientific and economic priority,” says the indictment.

Indeed, the case is the first in the U.S. to essentially indict a foreign country for stealing trade secrets from a U.S. company.

Production Secrets

The Pangang companies include Pangang Titanium, which claims to have “the largest integrated titanium complex in China” and to be one of the country’s largest titanium pigment producers. Other Pangang companies produce steel and aluminum.

The U.S. government alleges that the companies contracted with a California couple and several former DuPont employees of Chinese ethnicity to steal production secrets from their longtime employer. Over many years, the government says, DuPont developed a proprietary production process for TiO2 that was more efficient and more environmentally friendly than the conventional process being used in China.

DuPont supplies about one-fifth of the world’s $12 billion TiO2 market. The pigment, used in many paints and coatings, is in short supply worldwide.

In a recent filing in U.S. District Court in San Francisco, the Pangang companies argue that the indictment against the company should be dismissed because the summons was not delivered correctly.

Summons Challenged

The U.S. government “delivered summonses to an uncharged U.S. corporation that is not authorized to accept service on their behalf,” the company’s lawyers contend.

The summons for Pangang was delivered to a New Jersey company called Pan America Inc., which Pangang argues is a “separate and distinct legal entity” and was thus not a valid proxy for Pangang.

 Pangang Titanium offers views of its titanium dioxide factories on its website.

Pangang Titanium

Pangang Titanium offers views of its titanium dioxide factories on its website.

On its website, Pan America Inc. identifies itself as “a subsidiary of Pangang Group Ltd., which is one of the largest iron and steel conglomerats [sic] in southwest of China.”

Pan America specializes in “import and export of steel products and related commodities and services,” the site says.

Pleas, Contracts

Last month, a 36-year DuPont titanium dioxide research scientist pleaded guilty to participating in the scheme, and he is now cooperating with prosecutors in the case.

In his guilty plea, Tze Chao, 77, of Newark, DE, said CCP officials personally appealed to his ethnic Chinese pride in sharing DuPont information that he knew to be—and had sworn to keep—secret. The officials, who were also company officials of Pangang, told Chao that he should “work for the good of the PRC.”

The Pangang companies signed nearly $30 million in contracts with California businessman Walter Liew and others to establish TiO2 projects in China using DuPont’s exclusive “chloride-route” process, the indictment says.

407 Pages of Plans

Prosecutors say the plot dates to at least 2003, when the Pangang companies decided to build a new TiO2 factory featuring the chloride-route technology.

In 2004, they said, the companies recruited Chao, who had retired from DuPont and started his own consulting firm. Chao then contacted Liew, who had already offered to sell his services to Pangang, and Chao and Liew then flew to China to meet with Pangang officials about building the new factory.

Both agreed to provide information they had obtained from DuPont, and Chao agreed to recruit other former DuPont employees. One of them was Robert Maegerle, who agreed to turn over 407 pages of plans for a new TiO2 factory DuPont was then building in Taiwan, prosecutors say. Maegerle, now 76, of Harbeson, DE, has also been indicted in the scheme.

Another DuPont employee accused of working with Liew was engineer Timothy Spitler, of Reno, NV, considered a TiO2 expert. Spitler was not indicted in the case, but he was identified in Chao’s guilty plea and was expected to be a government witness. Spitler, however, he took his own life in January, reports said.

The U.S. Attorney’s office has not yet responded to the Pangang motion. The company has requested a hearing June 7.

   

Tagged categories: DuPont; Pigments; Raw materials; TiO2; Titanium dioxide

Comment from peter gibson, (4/4/2012, 12:56 PM)

It is astounding ,that a big corporation like Dupont ,does not take steps to control their trade secrets. We all know how devious the Chinese are.How come,Dupont is so oblivious,especially regarding scarce Ti02. DuPont deserves to be ripped off.


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