Third Circuit Affirms Decision Not to Apply Intended Loss: Xue

Intended loss not applicable affirmed by Third Circuit in case of Xue's conviction.

Scientist Convicted of Scheme to Steal Trade Secrets

Xue was a scientist employed by pharmaceutical company GlaxoSmithKline (“GSK”). In 2016, a federal grand jury charged Xue and others with engaging in a scheme to steal trade secrets from GSK. Xue pled guilty pursuant to a plea agreement to one count of conspiracy to steal trade secrets, in violation of 18 U.S.C. 1832(a)(5). The plea agreement specifically stipulated that no agreement had been made between the parties as to fraud loss under the Sentencing Guidelines.  Also, the district court would determine the loss amount prior to imposing a sentence.

After accepting Xue’s guilty plea, the district court held a three-day evidentiary hearing to determine the loss amount attributable under U.S.S.G. 2B1.1. It was undisputed that GSK suffered no actual monetary loss as a result of the trade secret theft. However, the government argued for a Guidelines enhancement for “intended loss.” The parties disputed the value of the stolen information for the purposes of calculating intended loss. The government presented an economic expert witness who asserted that the intended loss exceeded $1 billion. Conversely, Xue argued that the intended loss was zero.

The district court issued an opinion finding that the government failed to establish that the defendants purposely sought to inflict a loss on GSK, and the court concluded the intended loss amount to be $0 and declined to apply an enhancement under 2B1.1. The court subsequently calculated Xue’s Guidelines range, without the intended loss enhancement, to be 12 to 18 months imprisonment. Xue was ultimately given a sentence of 8 months. The government appealed the district court’s sentencing determinations to the United States Court of Appeals for the Third Circuit.

The Government's Appeal

On appeal, the government argued that the district court erred in declining to apply a sentencing enhancement based on the intended loss amount. For an offense involving fraud or theft, U.S.S.G. 2B1.1 provides for an offense level enhancement based on the value of loss attributable to the defendant’s conduct. The Guidelines’ commentary defines “loss” as “the greater of the actual loss or intended loss.” 2B1.1 cmt. n.3(a). However, the government bears the burden of establishing the amount of loss under the Guidelines by a preponderance of the evidence. And the Guidelines do not require that a district court find a loss amount greater than $0.

The Third Circuit and Intended Loss

Third Circuit: There Must Be an intent to inflict monetary harm on the victim

In a different case, the Third Circuit recently reaffirmed that a district court is required to “conduct a ‘deeper analysis’ before inferring that a defendant intended to cause a particular loss” for 2B1.1 purposes. United States v. Kirschner, 995 F.3d 327 (3d Cir. 2021). In Xue’s case, the Third Circuit found the district court interpreted the Guidelines’ definition of intended loss to include the mens rea requirement.  This indicated the defendant purposefully sought to inflict monetary harm on the victim. But the government here “attempted to prove only the development cost of the stolen information and its fair market value.”

Third Circuit: The Government's Arguments Are Unavailing

Under the plain language of 2B1.1 and its commentary, the Third Circuit determined that the district court was correct in determining only whether Xue purposely sought to inflict a loss on GSK in the amount the government claimed. Finding that the government failed to meet its burden by establishing Xue had the required mental state for the intended loss enhancement, the Third Circuit held the district court did not err in declining to value the stolen trade secrets as the government argued.

The government also argued that proof of the defendant's intent to gain from the theft of trade secrets established the defendant intended to inflict a pecuniary harm on GSK. However, the district court considered the evidence of how the defendants used and intended to use the stolen information and found the record did not support an inference of intended loss. The Third Circuit concluded that this finding was not clearly erroneous.

Finally, the government argued that the defendants admitted during their plea allocutions that they acted with the required mental state for applying the intended loss enhancement. 18 U.S.C. 1832(a)(5), in relevant part, prohibits an individual who, “with intent to convert a trade secret . . . to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will, injure any owner of the secret, knowingly . . . conspires” to steal trade secrets.

The Third Circuit found the government’s argument unavailing. There is an important distinction between the elements of the offense and the required mental state for purposes of the analysis of intended loss. A defendant who intends or knows that their conduct will injure the owner of the trade secret does not necessarily intend to inflict monetary harm on the owner. The district court rejected the government’s argument on this ground. The Third Circuit concluded that the district court’s finding the defendant's plea allocution failed to establish the required intent for intended loss analysis was not error.

The Court's Holding:  Intended Loss Was Inapplicable

Accordingly, the Third Circuit affirmed the district court’s judgment and finding that an intended loss enhancement under 2B1.1 was inapplicable. United States v. Xue, No. 21-2227 (3d Cir. 2022)