#849: It Takes Two To Make A Trade War Fight President Trump says China is stealing U.S. technology. So we looked into one case. And things got a little complicated.
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#849: It Takes Two To Make A Trade War Fight

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#849: It Takes Two To Make A Trade War Fight

#849: It Takes Two To Make A Trade War Fight

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NOEL KING, HOST:

Last Friday, President Trump started a trade war with China.

NICK FOUNTAIN, HOST:

Or maybe it started months ago, or maybe we're not even in one yet. But, regardless, he put tariffs on $50 billion worth of Chinese stuff.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT DONALD TRUMP: Because we have to because we've been treated very unfairly.

FOUNTAIN: China responded by saying, we're going to slap $50 billion worth of tariffs on you, too.

KING: Now, President Trump gave a reason for this. He said that China steals from the U.S. - that China steals our ideas and our technology.

FOUNTAIN: And as proof, Trump mentioned this big report that was put together by the U.S. Trade Representative's office. It came out in March.

KING: So here - this right here is the U.S. Trade Representative's report.

FOUNTAIN: You got a big binder clip, and in between it is like 70 pages.

KING: Two hundred and fifteen pages.

FOUNTAIN: OK.

(LAUGHTER)

KING: Yes. OK, and it has this insanely long name.

FOUNTAIN: "Findings Of The Investigation Into China's Acts, Policies, And Practices Related To Technology Transfer, Intellectual Property, And Innovation Under Section 301 Of The Trade Act Of 1974."

KING: It is a banger. But the thing in the report that I was really interested in is Appendix C - because in Appendix C, there's a list of all the companies that have something to say about China, including companies that are complaining about China. But if you look at it carefully, what you see is that instead of individual companies, there's mostly a lot of trade organizations.

FOUNTAIN: Oh, yeah - the American Foundry Society, the Biotechnology Innovation Organization, the Motor & Equipment Manufacturers Association and a bunch more.

KING: So I called and I emailed just about every trade organization on there. And I said, can you put me in touch with one company that can explain what it looks like when China steals or demands its intellectual property or its technology?

FOUNTAIN: Yeah.

KING: And they said sure. Just hang on. I waited a couple days. And then they mostly got back to me and said, sorry, but we can't find a company that's willing to talk to you.

FOUNTAIN: Which makes sense because probably a lot of these companies are doing business in China, and they have a lot to lose.

KING: But while I was combing through Appendix C, I came across this little company that testified for the report. And it actually used its name.

(SOUNDBITE OF BENEDIC LAMDIN & RIAAN VOSLOO'S "THE DUCHESS")

KING: Hello, and welcome to PLANET MONEY. I'm Noel King.

FOUNTAIN: And I'm Nick Fountain. Today on the show, is China really stealing from the U.S.? We read this brick of a report that the president is using to justify his trade war.

KING: And buried inside, we found this strange, complicated and very personal story. Two men - a businessman and a scientist - together, they got hold of an invention that they thought might change the world. And, together, they hoped to make a lot of money.

FOUNTAIN: Instead, they descended into suspicion, accusations and lawsuits.

KING: How do you feel right now about the professor?

ED ROGERS: Well, I mean, I don't hate him. I don't trust him.

KING: And eventually, they ended up in the pages of the Trump administration's report.

(SOUNDBITE OF BENEDIC LAMDIN & RIAAN VOSLOO'S "THE DUCHESS")

KING: The tiny company in the middle of this huge trade war is called Bonumose. So I called them up, and I got the CEO, Ed Rogers. And I said to him, you know, a lot of the companies in this report didn't want to use their names.

ROGERS: I mean, you always keep in the back of your mind that when you stand up or raise your hand - that, you know, somebody is going to probably shoot at you. But in my opinion, to hide behind anonymity is cowardly.

KING: So I went down to Virginia to meet this guy Ed Rogers. Ed Rogers looks so much like Mitt Romney that he was once mistaken for Mitt Romney at a Mitt Romney event. And he's got kind of a Romney vibe. Here's how he describes himself.

ROGERS: I mean, I'm the kind of person who - if I see a wall-hanging that's slightly crooked, I'll go straighten it out.

KING: Would you be offended if - on tape in this story - I described you as maybe a little bit square?

ROGERS: (Laughter) No, I would not be offended. You can describe me however you choose to.

KING: Ed is a little bit square.

FOUNTAIN: OK.

KING: Anyway, here is the story that Ed told the U.S. Trade Representative for the report and the story he told me.

FOUNTAIN: It's also the subject of a criminal investigation and a couple of lawsuits. We've read the legal documents, and so here it goes.

KING: It is July of 2015. And in a laboratory in Blacksburg, Va., an amazing discovery is made.

ROGERS: That was sort of like a eureka moment.

FOUNTAIN: Ed was the CEO of the company that was working out of the lab. His boss, the owner of the company, was a scientist. Ed was the business guy.

KING: So Ed wasn't in the lab that morning, but the scientist, his boss, sent him this email at 10:37 a.m.

ROGERS: We think it's going to work. This is just amazing. What a beautiful idea.

FOUNTAIN: This beautiful idea was a new process to make a rare sugar called tagatose.

KING: Tagatose is a sugar with, like, magical properties. It is very low-calorie. It tastes like actual sugar, which is miraculous enough. But also, you eat it, and it stops your blood sugar from rising.

FOUNTAIN: Also, according to a scientist that we talked to, if you eat it in large quantities, it could give you the runs but still has potential.

KING: Yes. It's one of the sugars found in nature - in things like apples and cacao trees but just in very tiny amounts.

ROGERS: You know, if you want to talk about who invented tagatose, God invented tagatose.

KING: God may have invented it, but scientists have been making it in labs for years.

FOUNTAIN: The dream had always been to put tagatose in soda and cereal and candy. Imagine being able to eat all the crap you want and not worry about all the bad stuff that sugar does to you, like weight gain or diabetes?

KING: Now, the reason this hasn't happened is that tagatose is really expensive to make.

FOUNTAIN: This new process was a way to make it on the cheap and in huge amounts.

ROGERS: I knew the technology was - could be earth-shattering. I mean, just globally significant - globally significant from a financial perspective but also globally significant from a public health perspective.

KING: From a financial perspective, sugar is about a $100 billion a year market.

FOUNTAIN: This company could be on the verge of making a lot of money, and that was Ed's job. He was hired to market what was being invented in that lab.

KING: The scientist Ed was working for was a guy named Percival Zhang. He was also a professor at Virginia Tech. And Ed told me that he really admired Percival.

ROGERS: Well, he was very smart. There was a bit of a language barrier because he's originally from China.

FOUNTAIN: Ed says they emailed a lot - seemed to have a good relationship. So everything's chugging along, and then Ed says he notices something.

ROGERS: I started hearing some discussion of travel to China and other places by the professor and others in the company.

FOUNTAIN: He didn't really think very much of it.

ROGERS: It wasn't suspicious at first.

KING: Because the professor is a Chinese citizen, right?

ROGERS: Well, I don't think he's a Chinese citizen. He's a naturalized U.S. citizen. I think he probably still has family over there, but he had speaking engagements. So there didn't seem to be anything unusual about that.

KING: Percival also seemed to have a relationship with a lab in China.

ROGERS: I started hearing about a satellite lab - that there's another lab being set up somewhere in China.

FOUNTAIN: By the way, Percival's lawyer denies that there were satellite labs.

KING: Did you ever just pull the professor into an office and say, hey, pal, it's making me uncomfortable that I'm hearing about a satellite lab set up in China? Did you ever just confront him and say what are you doing?

ROGERS: Well, not exactly like that. I wanted to be respectful of the professor because very smart guy. He started the company. It was his company. You know, and I didn't want to try to order him around.

FOUNTAIN: But also, Ed owns stock in Percival's company. So whatever happens to the company also happens to him.

KING: So Ed says he's just kind of leery. And then in December of 2015 - six months after the discovery in the lab - Percival is out of the office. He's traveling.

FOUNTAIN: And Ed says he gets another email from Percival that worries him. It's about their amazing breakthrough, the tagatose technology.

KING: Ed told me that in this email, Percival mentions a research institute in China. It's called the Tianjin Institute of Industrial Biotechnology. What is the Tianjin Institute of Biotechnology?

ROGERS: It's an arm of the Chinese Academy of Sciences as I understand it, so it's owned by the government.

KING: And the professor tells you, hey, we've got an opportunity to sell our technology to them.

ROGERS: Yes. The number was between 5 and $20 million to sell 60 percent of the technology. And I was like, OK, now we've got a real problem here.

KING: That is Ed's version. Percival denies it. Ed says he was like, I don't know anything about this institute in China. Why would we agree to do this?

FOUNTAIN: Yeah. If the technology was successful, you could get it in major soda brands. It could be in candy bars.

KING: I actually tried a spoonful. It was so good.

FOUNTAIN: Did you get the runs?

KING: (Laughter) No. I was thinking, like, little packets of tagatose for your coffee. Altogether, this seems like it could be worth a lot more than $20 million.

FOUNTAIN: Three days after that email, the company holds a board meeting. The way Ed remembers it, he and Percival sat across from each other at a long conference table.

ROGERS: It wasn't a very long meeting, and it was not a very friendly meeting. And it involved some shouting, like, you know, what are you doing here? And why is this happening? And this is not appropriate. And that's when I was told that my contract would not be extended past December 15.

FOUNTAIN: Ed has been fired.

KING: Ed says he tried asking Percival what was going on in China. Was Percival taking their technologies there? But he says he wasn't getting clear answers.

Now Ed does know that the company is getting its funding from grants to work on tagatose and these other technologies. Some of those grants are from the National Science Foundation. So he sits down, and he does something that - I don't know. He starts reading through grant applications, looking into whether there had been grant fraud.

ROGERS: And I realize, OK, well, the grant applications say that the company owns these technologies. But the professor is saying that the company does not own these technologies, and that is a contradiction. And if what the professor is saying is true, then that makes the statements in the grant applications untrue.

KING: Oh, that is not a small deal.

ROGERS: I'm not going to say the professor's been lying, but I will say that there was a pretty big contradiction.

FOUNTAIN: You're not supposed to contradict yourself in a grant application.

KING: Ed bangs out an email to the National Science Foundation. Will you read it?

ROGERS: I'll read part of it. I'll read part of it. So the part on page 3 says, I'm not a scientist. However, in my understanding of the grant applications, the proposed...

KING: He was telling on the man who hired him, a guy he says he admired - a respected professor.

ROGERS: So there's a thing I've seen at my son's school that says, choose the hard right not the easy wrong. And this was - I wouldn't say this was an easy decision to let the NSF know, but it was a decision that I felt like I had to make.

FOUNTAIN: Within a few weeks, the National Science Foundation froze the company's grant money while it investigated. But interestingly, despite all of this, Ed and Percival did not immediately cut ties, which seems weird because there's a lot of mistrust here. But remember, they kind of need each other, too. They both own shares in Percival's company at this point.

KING: And Ed has also started another company called Bonumose. The two men negotiate a deal. Ed give shares in his company to Percival's company, and the tagatose technology is transferred over to Ed's new company.

FOUNTAIN: Then, about nine months later, Ed got good news from the U.S. Patent and Trademark Office, basically saying, you guys got something unique here. And Ed's been out talking to food and beverage companies about this stuff, and some of them were showing real interest.

KING: And then, last April, one of those companies sends Ed an email.

ROGERS: Dear Ed, I have attached to this email a patent from China that is pretty similar to yours. Did you have a chance to see this patent? Best regards. (Laughter) So that's a - what?

FOUNTAIN: To be clear, it is a patent application, and it's in Chinese.

ROGERS: And so we ran it through Google Translate.

KING: Wait. You really ran it through Google Translate instead of getting a translator here in Charlottesville?

ROGERS: Translators are expensive. Google Translate's free.

KING: And up comes a name, the Tianjin Institute of Industrial Biotechnology.

FOUNTAIN: The Chinese research institute that Ed says Percival had emailed him about now was applying for a patent to make tagatose.

KING: Yes. And according to court documents that Ed has filed, that application is nearly identical to the process that Ed's company owns.

FOUNTAIN: The patent has four inventors listed, but two of them are anonymous.

(SOUNDBITE OF BARNABY ALLAN TAYLOR'S "COWBOY COUNTRY")

KING: And this is what sets Ed on his path. He wonders, is one of those anonymous inventors Percival Zhang. That was the spring of 2017. A couple months later, President Trump orders this investigation into China's alleged theft of U.S. IP and technology.

FOUNTAIN: And that is when Ed Rogers decided to stick his head up right to the Trump administration and get himself involved in this big trade war.

(SOUNDBITE OF BARNABY ALLAN TAYLOR'S "COWBOY COUNTRY")

KING: I wish I could meet Percival Zhang, but it is not an option. I can tell you what he looks like because there are pictures online. He looks so much like a scientist that he is practically a stock photo scientist. There he is holding a beaker. There he is in a lab coat. There he is accepting an award for his research.

In this one picture, weirdly, he's wearing a pink button-down shirt, and he's holding up a loaf of bread toward the camera. So I clicked on that one, and it's a news story about Percival trying to turn plant waste into food.

I really wish I could meet Percival, but his lawyer told me that's not an option. So I talked to the lawyer, and what you're going to hear is what Percival is alleging in a counterclaim against Ed.

JAMES HOPENFELD: My name is James Hopenfeld, and I am an intellectual property lawyer.

KING: Can you tell me a little bit about your client? What kind of guy is he?

HOPENFELD: Yeah. I - Professor Zhang is a professor, and he specializes in - industrial chemistry would be one way to put it.

KING: OK. That was a good answer. That was a very lawyer-y answer, but I actually more meant, what kind of guy is he?

HOPENFELD: Percival is a very passionate person, and he believes very strongly in what he does. That is, he really wants to create and develop technical innovations that benefit people. He's exceptionally intelligent and, like I said, very passionate.

FOUNTAIN: But also a guy who knows his limits, so that's why he hires Ed to run the business end of things - to talk up his inventions to potential investors.

KING: And when he does that, when he hires Ed, Percival's lawyer says he now has gotten himself stuck in one of the oldest rivalries in history - the scientist versus the salesman.

FOUNTAIN: The scientist.

HOPENFELD: Well, Percival wanted - he wanted to focus more on taking the technology and just getting it out there and spreading it.

FOUNTAIN: If they happened to make money along the way, awesome.

KING: But the salesman.

HOPENFELD: He really was focusing solely on making money.

FOUNTAIN: The lawyer says that within a few months, Percival realized this was just an unfixable dynamic. And on top of that, he didn't think Ed was doing a particularly good job. So in December of 2015, he fired Ed. And the lawyer says Ed came after him. First, kind of gently.

HOPENFELD: Well, listen, Percival. I think I know a lot more about how to commercialize all of these inventions than you do. You're an academic. I'm the money guy. Why don't we form this new company, and you assign the rights to these grants and all these - all this stuff to me. You go do your research. I'll focus on making money.

FOUNTAIN: But by this point, James the lawyer says that Percival just didn't trust Ed. He said no.

HOPENFELD: Then, he started to get very aggressive. And the first thing he did is he started to hint, well, listen, Percival. I see some improprieties in these grant applications that you filed. And he started threatening to report Percival for grant fraud to the authorities.

KING: Why did Percival not just get out of bed with this man? Why did he not just say, look, we are done? I want you out of my life. Why continue this obviously toxic relationship?

HOPENFELD: Ed Rogers had implied to Percival that if he did this deal with him that he would help Percival clear his reputation and his name. Now, you have to understand how Percival...

KING: Whoa.

HOPENFELD: You understand how Percival was feeling at this point. He's been accused of grant fraud. He knows he's a Chinese national. And here's Ed Rogers, who's the all-American boy who's accusing him of committing this fraud. So he's scared. He's scared that people aren't going to believe him.

KING: So the lawyer says this is why Percival agreed to that deal with Ed. His back was against the law.

FOUNTAIN: And so he signed over the tagatose technology.

KING: That is a - that is a very - that's like mustache-twirling stuff that you've just laid out.

HOPENFELD: It really is. For lack of a better word because it's really accurate, you know, I don't want to exaggerate where - but in this case, it's not exaggerating to say diabolical. I mean, think about it. In April 2016, Ed Rogers finds himself with what he thinks is some of Percival Zhang's most valuable technology. A year before, Ed Rogers didn't even - probably didn't even know what tagatose was. Percival Zhang works on this technology for years and years and years and years. He has a stellar, professional reputation. He has everything. He's on his way to commercializing the technology. And in the space of a few months, Ed Rogers has a large chunk of his intellectual property and has completely damaged his reputation. That's like a coup d'etat.

FOUNTAIN: Now, to be clear, we have no idea who's right.

KING: No, we don't. Ed Rogers says this is all nonsense. He says he didn't threaten Percival. He never offered to help clear Percival's name. He didn't steal Percival's company.

FOUNTAIN: Ed's company sued Percival in May of 2017, claiming, among other things, breach of contract. The suit essentially says Percival stole the technology and the trade secrets and took them to China.

KING: And from that point on, it got very serious. In November of 2017, Percival was arrested and charged with grant fraud. He spent three months in jail. He denies the charges.

FOUNTAIN: And in May of this year, Percival countersued Ed and Ed's company for breach of contract, defamation and other claims. So he will have two trials over the next nine months or so, a civil case with Ed and a criminal case with the U.S. attorney.

KING: We did get in touch with the Tianjin Institute of Industrial Biotechnology in China. They told us this tagatose patent application is theirs and that they developed it independently. So this is what a trade war looks like between two guys in Virginia.

FOUNTAIN: But these two guys are not the reason we're maybe in a trade war with China.

KING: No, they're really not. This U.S. Trade Representative's report was about so much more. It's about accusations that China is forcing American companies that want to do business there to turn over their technology.

FOUNTAIN: And, of course, companies do want to do business with China. It is a huge market - hundreds of millions of consumers.

KING: So companies go there, and they turn some stuff over, and, of course, they don't want to talk about the compromises they've made. And many of them probably fear retaliation from China.

FOUNTAIN: Ed's company isn't really in that position. It's a small company, and they're not working in China.

KING: But in one way, I think they are representative of what's going on here. At the heart of this fight between Percival and Ed is a ton of mistrust over what the other guy was up to. And there's also a ton of fear, I think. And when I read the U.S. Trade report, I came away thinking we're afraid of China. We're afraid that they are trying to surpass us in part by stealing our stuff.

FOUNTAIN: President Trump seems to think a trade war may change that, but it could be a really expensive fix.

(SOUNDBITE OF BRIAN FLORES, JOHN HUNTER JR, JONATHAN SLOTT AND JONATHAN STILL'S "HEP CAT")

FOUNTAIN: If you are somehow involved in a trade war or a price war or a war-war, let us know. Send us an email - planetmoney@npr.org. We'd love to talk to you. We're also on Twitter, Facebook and Instagram.

KING: Today's show was produced by Sally Helm. Our editor is Bryant Urstadt, and Alex Goldmark is our supervising producer. Special thanks in this episode to Erin Ennis, Michael Cone, Rob Lodder, Mark Cohen and Rachel Stern. Also thanks to Chad Bown, who hosts a show called Trade Talks.

FOUNTAIN: Also some business - we are looking for a new intern. I started at NPR as an intern. Sally did as well. It is a blast. You'll learn a lot, and you get paid. If you're in school or have recently finished, check out more info at npr.org/money. I'm Nick Fountain.

KING: And I'm Noel King. Thanks for listening.

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