Charges filed in theft of Lucent intellectual property

The FBI arrested and charged three men yesterday with stealing source code and software from Lucent Technologies with the intent to pass the information to a Chinese government-owned company in Beijing.

Two of the men, Kai Xu of Somerset, N.J., and Hai Lin of Scotch Plains, N.J., are Chinese scientists that work for Lucent in Murray Hill, N.J. on business visas; the third, Yong-Qing Cheng of East Brunswick, N.J., is a naturalized Chinese-American working as vice president of Village Networks, an optical networking vendor. The Lucent employees are experts in source code, software and the Lucent PathStar system design.

Each defendant was charged with conspiracy to commit wire fraud. In addition, New Jersey-based ComTriad Technologies was charged with the same complaint. The defendants founded the company in January 2000.

The source code and software is from Lucent’s PathStar Access Server, which manages voice and data traffic on Internet-based communications networks. According to a criminal complaint filed in U.S. District Court, the men allegedly intended to develop an identical product via a joint venture with Chinese equipment manufacturer Datang Telecom Technology.

The Datang board of directors approved the Datang-ComTriad joint venture, named DTNET, in October 2000, and funded the company with $1.2 million in exchange for a 51% stake in the company, according to intercepted e-mails obtained during the investigation. The three men and ComTriad intended to go public in a joint venture with Datang via IPOs of stock in the U.S. and China.

The investigation has been under way since February. The discovery of the alleged theft of intellectual property was a result of Lucent’s internal security, a Lucent spokesman said. “The security systems that we have in place work,” he said. “But it just points out the need to be continually diligent. We have to be very careful as to how we treat intellectual property.”

Each defendant could receive up to five years in prison and a $250, 000 fine on the charge of conspiracy to commit wire fraud.

Lucent stopped production of the PathStar product in January because of the weak financial state of the product’s primary users, small communications companies. It generated about $100 million in revenue for Lucent in 2000.

The PathStar functionality has been transferred to other products the company is offering, a Lucent spokesperson said.

“Our intellectual property and trade secrets are our lifeblood and we go at great length to protect them,” said a Lucent spokesman. “When we feel that intellectual property has been compromised in any way, we move swiftly to shut it down.”