Silhouette shadows of business people talking in office - trade secret theft concept

In an August 2, 2022, decision by the 3rd Circuit Court of Appeals, the court found that two defendants who admitted to stealing intellectual property and trade secrets from London-based pharmaceutical company GSK plc did not intend to cause the company a financial loss. The court upheld a sentence of time served.

A three-judge panel affirmed the Pennsylvania trial court’s refusal to impose enhanced sentences and addressed the application of Federal Sentencing Guidelines regarding actual loss versus intended loss.

Third Circuit’s Decision in United States vs. Xue

Defendants Yu Xue and Tao Li were indicted in 2016 for conspiracy to commit fraud and stealing confidential information from GSK, the multi-national pharmaceutical and biotechnology company headquartered in London. The defendants stole intellectual property and confidential information about GSK’s procedures for researching, developing, and manufacturing medicines and shared it with a Chinese company called Renopharma, Ltd., a drug development company founded by Xue and her co-conspirator Li in 2012, which they later used to market and sell the stolen trade secrets.

In 2018, the defendants pleaded guilty to a single count of conspiring to steal trade secrets. Xue and Li admitted that they provided stolen GSK information to Renopharma but argued that they should be sentenced to time served because GSK did not suffer an actual pecuniary loss. According to an attorney for Xue, "Most of these materials were never even accessed or reviewed after they left GSK; they sat unopened on their computers for years."

Even though GSK did not suffer any actual pecuniary loss from the stolen trade secrets, prosecutors argued that the judge should apply enhanced sentencing guidelines based on a $1 billion intended loss, which prosecutors claimed reflected the value of the stolen trade secrets.

U.S. District Court Judge Joel Slomsky was unpersuaded, finding that the defendants did not intend to cause such a loss, and sentenced the defendants to time served. Xue was sentenced to 8 months in jail, while Li was sentenced to 59 days. Prosecutors had sought ten years for Xue and seven years for Li.

Third Circuit Chief Judge Michael Chagares agreed with Slomsky, writing, “[A]bsent evidence of a defendant's purpose to inflict a pecuniary loss equal to the stolen information's cost of development or its fair market value, a district court cannot find that intended loss equals these amounts."

Actual Loss Vs. Intended Loss in Federal Sentencing Guidelines Regarding Theft of Trade Secrets

In cases involving allegations of theft of trade secrets, the Federal Sentencing Guidelines provide for a sentence enhancement based on the value of the loss attributable to a defendant’s conduct. The offense level, which is used to calculate a recommended range of imprisonment, increases in proportion to the resulting loss caused by the offense. The government bears the burden of establishing the amount of loss under §2B1.1 by a preponderance of the evidence. Notably, the Guidelines do not require a finding of a loss greater than $0.

Under the Guidelines, the district court calculates financial harm based on the greater of the actual or intended loss. In the case of Xue, there was no dispute that GSK’s actual loss was $0 from the trade secret theft. The court, therefore, was required to calculate the intended loss, which is defined as “the pecuniary harm that the defendant purposely sought to inflict.” Commentary to Guideline §2B1.1 makes clear that “‘pecuniary harm’ includes only ‘harm that is monetary or that otherwise is readily measurable in money,’ and not ‘non-economic harm,’” and identifies six factors that should be used to calculate the value of the intended loss. The two factors at issue in this case were the fair market value of the stolen information and the cost of developing the information.

On appeal, the 3rd Circuit Court found that the district court properly applied the Guidelines to determine whether the defendants sought to inflict a loss on the victim in the amount claimed by the government, in this case, $1 billion. Finding that the district court’s analysis was correct, the court noted that the government erroneously presupposed that the defendants intended to inflict losses upon GSK with the theft of the trade secrets in an amount equal to the cost of developing the trade secrets or their fair market value. The district court found that the government did not prove that the defendants intended to inflict a pecuniary loss of the defendants and therefore did not err in declining to value the trade secrets.

The 3rd Circuit emphasized that commentary to §2B1.1 allows a court to estimate loss based on the cost of developing a trade secret and the fair market value of the information, but that without evidence showing that the defendants intended to inflict a pecuniary loss equal to the cost of development of the trade secrets or its fair market value, the court could not find that the loss was equal to those amounts.

Hope Lefeber: Aggressive Defense Against Federal Criminal Charges

As the case of Xue makes clear, application of the Federal Sentencing Guidelines is complex, nuanced, and multi-faceted. While the Guidelines were intended to combine all the factors that go into sentencing into a single manual that would result in uniform sentencing across the country, the result has been detrimental to criminal defendants as prosecutors use the guidelines to their advantage by filing cases in a way that results in the harshest penalties possible.

To combat these aggressive tactics, you need an experienced federal criminal defense attorney who understands the complexities of federal sentencing and can persuade a judge to interpret the Guidelines in a way that is favorable to the defendant.

Federal criminal defense attorney Hope Lefeber has extensive experience arguing for interpretations of the Guidelines that lead to favorable results for her clients. She frequently works with psychological, psychiatric, and forensic experts to educate judges as to why they should impose the minimum sentence or even grant a variance from the sentencing guidelines.

Ms. Lefeber is a fierce and aggressive attorney who fights to protect her clients’ rights. She takes a hands-on approach to every case she handles and thoroughly evaluates and investigates every piece of evidence the government will use to try to convict and sentence her clients.

If you are under investigation or have been charged with a crime in federal court, contact Philadelphia federal criminal defense attorney Hope Lefeber today to schedule a free, confidential consultation to discuss your situation and how she can help.