Kolon says theft charges in the U.S. will not stick

A federal grand jury in the United States indicted a total of five former and current employees of Kolon Industries two months ago for stealing trade secrets from U.S. chemical giant DuPont related to the production of a synthetic fiber, the Korean textile manufacturer said yesterday.

In explaining the delayed disclosure, the company said it had only just learned of the charges.

A U.S. jury reportedly issued a criminal indictment with the U.S. District Court in Richmond, Virginia, against the five as well as the company itself on Aug. 21. They were charged with pilfering technological secrets to manufacture Kevlar, the fiber used in bulletproof vests, and interrupting a U.S. government investigation into the case, Kolon said.

Foreign media reported yesterday that the indictment says Kolon gained unfair profits of $226 million by hiring a former DuPont employee with the intention of producing and selling a similar type of the body armor material, which it calls Heracron.

Kolon also interrupted the investigation by deliberately erasing e-mails that might serve as evidence of its theft, according to the reports.

The decision of a grand jury, consisting of civil jurors, usually determines whether U.S. prosecutors will proceed with a criminal indictment.

Kolon said it was embarrassed by the jurors’ decision but defended itself by arguing that it is a common industry practice to poach staff from rivals. Kolon often hires former staff from its competitors as consultants, it said.

“It’s always unfortunate when companies like DuPont resort to trade secret litigation in an attempt to block legitimate competition, particularly in an area of technology that is over four decades old,” said Jeff Randall, a U.S. lawyer representing Kolon.

Randall said it is disturbing that the U.S. Department of Justice (DOJ) “would bring charges that effectively assist DuPont in improperly extending its monopoly over aramid fiber technology beyond the limited term provided by the U.S. patent laws.”

Randall said the U.S. government’s indictment raises a number of concerns.

“Often in legitimate trade secret disputes involving the government, prosecutors will bring a criminal case, which then eliminates the need for any subsequent civil case,” he said. “That’s not what happened here. Despite its ongoing investigation since June 2007, the DOJ initially opted not to prosecute Kolon, and instead allowed DuPont to engage Kolon in more than three and a half years of civil litigation.”

A Kolon employee in Seoul said his company will continue fighting the charges in court. The company said it expects a fair trial and believes it will prevail.

It also said it will push ahead aggressively with a separate civil case against DuPont.

In September, the Eastern District Court of Virginia ordered that Kolon stop producing and selling products made from its para-aramid fiber in the United States and other markets for two decades, citing a jury verdict from a trial last November. According to this, Kolon stole confidential technology-related information from DuPont to produce the material. The jury awarded DuPont $919.9 million in damages.

Kolon filed an injunction to suspend the execution of the ruling and the U.S. Court of Appeals for the Fourth Circuit accepted the request. Kolon will be able to continue operating its Heracron plant in Gumi, North Gyeongsang, until the trial ends.

Kolon said it has invested more than 200 billion won ($176 million) in developing the high-tech para-aramid fiber since 1985 in cooperation with the late Yoon Han-shik, a researcher at the Korea Institute for Science Technology Research, to localize aramid technology. It began commercial production of Heracron in 2005.

In February 2009, DuPont sued Kolon for allegedly stealing its trade secrets. Kolon responded by filing a separate lawsuit accusing its U.S. rival for holding an unfair monopoly on the aramid market.

By Song Su-hyun [ssh@joongang.co.kr]