INTELLECTUAL PROPERTY RIGHTS

06/10/2013

Chinese national sentenced to 12 years in prison for cyber theft, piracy of over $100 million in sensitive software and proprietary data

One of the longest criminal copyright infringement sentences ever imposed in the US

WILMINGTON, Del. — A Chinese national was sentenced to 144 months in federal prison June 11 for conspiracy to commit wire fraud and criminal copyright infringement. The individual operated a website used to distribute more than $100 million worth of pirated software around the world, making it one of the most significant cases of copyright infringement ever uncovered – and dismantled – by U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI).

The theft and piracy perpetuated by Xiang Li, 36, of Chengdu, China, included industrial-grade software and confidential data stolen from the internal server of a cleared defense contractor. Li will be deported to China after he completes his federal sentence.

"Xiang Li mistakenly thought he was safe from the long arm of HSI, hiding halfway around the world in cyberspace anonymity," said John P. Kelleghan, special agent in charge of HSI Philadelphia. "Fast forward to today, where he has been sentenced for illegally stealing, distributing and ultimately exploiting American ingenuity and creativity. Counterfeiting and intellectual property theft is one of the most serious threats this century to U.S. businesses and innovation. In this one case alone, Li was responsible for more than $100 million in lost revenue to American companies. While we've dealt a significant blow to an organization who was distributing pirated and cracked software, our agency is committed to identifying, infiltrating and disrupting these criminal enterprises wherever they exist."

According to court documents, HSI identified Li as the operator of a website located at www.Crack99.com in December 2009 that was advertising thousands of pirated software titles at a fraction of their retail value. The investigation revealed that Li used the Crack 99 website to distribute pirated or cracked software to customers all over the world, including the United States. Software is "cracked" when its digital license files and access control features have been disabled or circumvented.

Between April 2008 and June 2011, Li engaged in over 700 transactions through which he distributed over $100 million of pirated software to over 400 customers located in at least 28 states and over 60 foreign countries. These software products were owned by approximately 200 different American software manufacturers, ranging from large corporations to small businesses. Li also sold 20 gigabytes of confidential and proprietary data obtained from the internal computer network of at least one cleared defense contractor. Li pleaded guilty to the charges Jan. 7, after he was charged April 18, 2012.

The tightly controlled and very valuable software products that Li sold and distributed online are industrial-grade, digital tools used to design myriad products essential to the daily life, health and safety of the public, and to U.S. national security. For example, the software is used in a wide range of applications including: aerospace simulation and design; defense; electronics; energy; engineering; explosive simulation; intelligence gathering; manufacturing; mining; space exploration; mathematics; storm water management; explosive simulation; and manufacturing plant design.

Li's customers included those in embargoed countries in the Middle East, employees of foreign governments and federal government employees and contractors holding security clearances in the United States. More than one-third of the unlawful purchases were made by individuals within the United States, including small business owners, government contractors, students, inventors and engineers.

For instance, Li sold 12 cracked software programs worth more than $1.2 million to Cosburn Wedderburn, who was then a NASA electronics engineer working at NASA's Goddard Space Flight Center, in Greenbelt, Md. Wedderburn uploaded this cracked software to a NASA computer network and used it to perform on a side contract he negotiated to design a thermal simulation project for China-based Huawei Technologies Inc.

Li also sold 10 cracked software programs worth more than $600,000 to Dr. Wronald Best, who held the position of chief scientist at a Kentucky-based government contractor that services the U.S. and foreign militaries and law enforcement with a variety of applications such as radio transmissions, radar usage, microwave technology and vacuum tubes used in military helicopters. Best used the cracked software to design components for patriot missiles and the radar systems of the Marine One and the U.S. Army's Black Hawk helicopter. Best was sentenced March 18.

Between January 2010 and June 2011, undercover HSI special agents made a series of purchases of pirated software worth hundreds of thousands of dollars from Li's Crack 99 website. The investigation culminated in a face-to-face meeting between Li and undercover HSI special agents on the Island of Saipan in June 2011. Li agreed to travel from China to Saipan to deliver pirated software, design packaging and 20 gigabytes of proprietary data from a U.S. software company to undercover HSI special agents posing as U.S. businessmen. In addition, Li and the undercover HSI special agents were meeting to discuss a plan to distribute pirated software to small businesses in the United States. The undercover HSI special agents arrested Li June 7, 2011, after he delivered the stolen intellectual property to them at a Saipan hotel. Li was transported to the District of Delaware, where he has remained in custody since June 2011.

Through emails sent to customers of his website, Li described himself as being part of "an international organization created to crack" software – based in China. In a November 2008 email exchange with a customer, for example, Li stated that he would charge $1,000 to obtain a cracked version of a particular software program. When the customer wrote, "Yes ok tell me who do this." Li replied, "Experts crack, Chinese people Sorry can not reveal more."

The investigation also revealed that Chinese and Russian software crackers loosely organize into "fan groups" and crack software by disabling access and dissemination controls. The fan groups then make the hacked software available on web forums or other online portals.

"Middle men," such as Li, obtain the cracked software from forums, websites and file transfer protocol sites. These middle men operate websites that advertise the sale of cracked software products and distribute that software through the Internet. The middle men specialize in – and guide customers through – the complex technical installation process. Without middle men like Li, complex, industrial-grade software that has been cracked is often inoperable and non-transferable.

One of the companies victimized by the software piracy scheme stated, "Circumventing our commercial aerospace and defense software license mechanisms not only harms the competitiveness of our company, but also U.S. national security interests. In addition to the revenue lost, we spend significant legal resources obtaining patents and trademarks to protect our intellectual property. We also invest a lot of energy administering software license agreements and product-based, end-user licenses, which are key components of our U.S. export control compliance and customer support programs."

HSI-led National Intellectual Property Rights Coordination Center (IPR Center)

As the largest investigative arm of the Department of Homeland Security, HSI plays a leading role in targeting criminal organizations responsible for producing, smuggling and distributing counterfeit products. HSI focuses not only on keeping counterfeit products off our streets, but also on dismantling the criminal organizations behind such illicit activity.

HSI manages the IPR Center in Washington. The IPR Center is one of the U.S. government's key weapons in the fight against criminal counterfeiting and piracy. As a task force, the IPR Center uses the expertise of its 21 member agencies to share information, develop initiatives, coordinate enforcement actions and conduct investigations related to IP theft. Through this strategic interagency partnership, the IPR Center protects the public's health and safety, the U.S. economy and the war fighters.

To report IP theft or to learn more about the HSI-led IPR Center, visit www.IPRCenter.gov.

Assistant U.S. Attorneys David L. Hall and Edward J. McAndrew, District of Delaware, prosecuted this case on behalf of the U.S. government.