A Canadian living in China was detained on Tuesday and taken into custody in New York after he and a business associate were charged with attempting to sell Tesla’s proprietary technology for producing batteries. On an allegation of trade secret theft, federal prosecutors in Brooklyn requested that a court keep Klaus Pflugbeil without the ability to post bond. The office of the U.S. attorney for the Eastern District of New York released a statement stating that he was taken into custody following his encounter with undercover agents on Tuesday on Long Island when he attempted to sell them technology that would be used to make battery components.
In the statement, the US attorney wrote:
A complaint was unsealed today in federal court in Brooklyn charging Klaus Pflugbeil, a resident of the People’s Republic of China (the “PRC” or “China”) and Canadian national, and Yilong Shao, a Chinese national, with conspiring to send trade secrets that belonged to a leading U.S.-based electric vehicle company (“Victim Company-1”). Pflugbeil and Shao are operators of a PRC-based business (“Business-1”) that sold technology used for the manufacture of batteries, including batteries used in electric vehicles. The defendants built Business-1 using Victim Company-1’s sensitive and proprietary information, and even marketed their business as a replacement for Victim Company-1’s products. Pflugbeil was arrested this morning after he sent multiple Victim Company-1 trade secrets to an undercover agent and traveled to Nassau County for a meeting with what he believed to be Long Island-based businesspeople, who in reality were undercover law enforcement agents. Pflugbeil is scheduled to make his initial appearance today before United States Magistrate Judge Peggy Kuo. His co-defendant Shao remains at large.
Former Employees Implicated in Theft of Battery Assembly Trade Secret
Prosecutors added that Yilong Shao, a 47-year-old Chinese national, is still at large. Late on Tuesday, when asked for comments, Mr. Pflugbeil’s 58-year-old public defender did not reply. The firm that had its secrets stolen was only mentioned in court records as “a U.S.-based leading manufacturer of battery-powered electric vehicles and battery energy systems.” Tesla’s description corresponds with other data found in court filings.
In the statement, the US attorney wrote:
Victim Company-1 is a U.S.-based leading manufacturer of battery-powered electric vehicles and battery energy systems. In 2019, Victim Company-1 acquired a Canada-based manufacturer of automated, precision dispensing pumps and battery assembly lines (the “Canadian Manufacturer”). Prior to its purchase by Victim Company-1, the Canadian Manufacturer sold battery assembly lines to customers who manufactured alkaline and lithium-ion batteries for consumer use. The battery assembly lines contained or utilized a proprietary technology now owned by Victim Company-1: continuous motion battery assembly (the “Battery Assembly Trade Secret”). The proprietary technology provided a substantial competitive advantage to Victim Company-1 in the battery manufacturing process. Victim Company-1 spent at least $13 million developing the Battery Assembly Trade Secret.
Both Mr. Pflugbeil and Mr. Shao were formerly employed by Hibar Systems, a Canadian business that supplied Tesla with battery production technologies in 2019. Prosecutors claim that they had access to designs and other records that made it possible for anyone to replicate the manufacturing process.
Undercover Operation Leads to Arrest of Trade Secret Thief
In September, during a trade exhibition in Las Vegas, Mr. Shao was approached by undercover agents who indicated interest in purchasing the material, which Tesla had confirmed was confidential. The representatives told Mr. Pflugbeil they were hoping to work out a contract, which convinced him to come to New York. Breon Peace, the U.S. attorney for the Eastern District of New York, said in a statement that the arrest shows that the government “will prosecute those who engage in theft of trade secrets that places U.S. businesses at a competitive disadvantage, undermines innovation, and creates a potential national security risk.”
