Massive judgement issued against Chinese businessman who copied lucrative sex sorting technology.
An intense court battle over the lucrative global bull semen market has ended in a multimillion dollar award against a Chinese businessman who went to extraordinary lengths to steal a U.S company’s closely guarded sex-sorting secrets.
According to a B.C. Supreme Court ruling, Jesse Zhia-Bei Zhu and a handful of companies which he controls have been ordered to pay XY LLC nearly $270 million for conspiring to obtain confidential technology which permits the separation of female and male chromosomes in bull sperm.
Two of his employees have also been ordered to pay XY LLC an additional $60 million.
According to Justice Shelley Fitzpatrick’s complex decision, one of Zhu’s lawyers indicated he is “afraid of setting foot” in B.C. for fear he will be arrested in relation to a previous ruling sentencing him to six months in jail for civil contempt of court.
Zhu’s activities could best be described as Machiavellian: at various points he outlined a plan to make XY “feel all the time the sword of Damocles is on their heads” and bragged “the law is strong, but the outlaws are ten times stronger.”
“As an overarching comment, it is difficult to express the degree and scope of Zhu’s wrongdoing in relation to his concerted plan and actions to steal XY’s confidential information for his own financial ends,” Fitzpatrick writes.
A global sex sorting industry
The ruling shines a light on a global industry worth billions of dollars.
And it comes at a time when companies in the United States are fighting to bring down the cost of a commodity that sees a vial of X chromosome bull semen command as much as $200.
According to an article on Bloomberg, the company that owns XY LLC, Sexing Technologies, controls more than 90 per cent of the sexed-semen market, which has annual sales of $50 million in the U.S. and $220 million abroad.
cows in High River, Alta.
The global market for bull semen which can be guaranteed to generate only cows is worth billions of dollars. (Adrian Wyld/Canadian Press)
Beyond cattle, the science also has implications for sales and sex selection of mammals ranging from gorillas and other endangered species to horses and pigs.
XY’s trade secrets revolve around the use of a specially fitted cytometer, a machine that analyzes and sorts cells.
In 2004, one of Zhu’s companies, Delta-based JingJing Genetics, entered into an agreement with XY to buy two cytometers. But that deal fell apart when JingJing was alleged to have violated an intellectual property agreement and breached confidentiality.
That’s when the first lawsuits started flying.
‘Defeat the American agressor!”
In 2012, Justice Stephen Kelleher awarded XY LLC $8.5 million in damages. The judge also issued a permanent injunction prohibiting Zhu and his companies from using the confidential cytometer technology.
But just days after Kelleher made that ruling, XY received a tip Zhu had set up a new company, Fraser Biomedical Inc., “for the purpose of secretly producing sexed semen using XY’s technology.
Japan Surrogate Tuna
The technology used to separate female and male chromosomes in bull semen is tightly guarded and highly proprietary. (The Associated Press)
According to the court documents, a kind of shell game followed — with the challenge being to keep your eye on the cytometers. Zhu described one move as part of a plan “to defeat the American aggressor and wild ambitious wolf!”
Here’s how it worked:
JingJing Genetics declared bankruptcy in 2010 and a trustee took control of the cytometers. XY inspected them at that point and noticed that some of the specialized parts were missing.
Zhu’s new firm then used an unrelated medical supply company to buy the cytometers from the trustee without revealing who the true purchaser was.
And once they had the machines, Zhu’s new companies set about retrofitting them with the confidential technology.
‘A fraud against the Canadian government?’
In total, Zhu, his companies and two employees have been ordered to pay more than $330 million to XY LLC. The money was calculated in relation to the sales of semen and embryos in China as well as a plan to market the confidential technology for sale in China.
“It is also evident that Zhu saw his business as immensely valuable,” the judgement says. “One of his strategies was to acquire XY’s business.”
Industry observers say the ruling highlights an international issue involving Chinese businesses and the ignoring of patent law. But the decision also contains references to other questions for Canadian lawmakers.
Fitzpatrick notes that Fraser Biomedical was initially set up “for immigration purposes” to provide an investment vehicle for Chinese people who wanted to immigrate to Canada.
“In reality, the money that these people invested came from loans from Zhu, and they paid some fees to Zhu for the loans,” the judge says. “As such this was arguably a fraud against the Canadian government.”
Fitzpatrick also cites testimony from Zhu’s accounting manager who said he used nominee shareholders and directors to mask the fact that he owned certain companies.
According to the ruling, this was allegedly done to evade payment of Canadian taxes, to obtain government grants and to sidestep securities regulations.
Legal counsel for Zhu could not be reached. The lawyers for XY LLC declined comment.
Source : CBC