1

IN THE UNITED STATES DISTRICT COURT 

FOR THE SOUTHERN DISTRICT OF OHIO 

WESTERN DIVISION 

UNITED STATES OF AMERICA, : CASE NO. 1:18-CR-0043 

: 

Plaintiff, : JUDGE TIMOTHY S. BLACK 

: 

v. : 

: 

YANJUN XU, : DEFENDANT’S OBJECTIONS 

: TO THE GOVERNMENT’S 

Defendant. : PROPOSED AMOUNT OF LOSS 

INTRODUCTION

Determining loss in a case where there was no actual loss can be complicated. This is 

particularly true in an attempted theft of trade secrets case. The commentary to U.S.S.G. § 2B1.1 

directs that if there is no actual loss, the court should determine the amount of intended loss. It 

further suggests that in a theft of trade secrets case, a court may use the cost of development or

the reduction of value of the trade secret, where “appropriate and practicable.” U.S.S.G. § 

2B1.1, cmt., 3(C). Seizing on the first part of that phrase, the government has urged the Court to 

use research and development costs as a measure of intended loss, and has proposed a number of 

$98 million. 

The problem is that using the cost of research and development here is neither 

appropriate nor logical. As readily conceded by the government’s own expert, the potential loss 

GE Aviation might have suffered if the theft of its trade secrets had been completed has nothing 

to do with the costs of research and development. GE Aviation will continue to design, develop, 

build, market, and certify jet engines incorporating composite fan blades and encasements. GE 

Aviation does not lose the value of those expenditures or that investment if its trade secrets are 

stolen. Accordingly, the $98 million figure proposed by the government is simply the wrong 

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measure of loss. What GE Aviation might, theoretically, lose at some future time is its 

competitive advantage in the market. This was also readily conceded by the government’s 

expert. However, the government has not offered a shred of evidence or support for a potential 

reduction of GE Aviation’s market share sometime in the future (or the reduced value thereof). 

It cannot do so because it is too speculative. 

Trade secrets, almost by definition, have some inherent value. It is therefore tempting to 

want to assign a figure to that value. But a court cannot pull a number out of thin air. The 

determination of loss, while it may be a “reasonable estimate,” must be based on evidence and 

reasons. These do not exist here. Where a court cannot reasonably assign a loss figure, the 

figure must be zero. 

Loss is not the only factor that should inform the Court’s ultimate decision, and the Court 

can fashion its sentence in a number of ways that lead to a reasonable term of imprisonment that 

is sufficient but not greater than necessary under 18 U.S.C. § 3553(a). But it is inappropriate for 

a court to squeeze a speculative and unsupported loss theory into the Guidelines that is not 

supported by the facts. Accordingly, the Court here should determine that the government has 

failed to establish a specific loss amount, and instead find that the loss is zero. 

If and only if the Court accepts the government’s argument that research and 

development costs are the proper measure of loss, which it should not, then it should reject the 

government’s proposed $98 million figure because it is vastly inflated. As established at the 

evidentiary hearing, even if China had been successful in obtaining GE Aviation’s trade secrets, 

those trade secrets would only have had the potential of shortening China’s development 

timeline in extremely limited areas. China would still have had to incur the vast majority of the 

costs set forth on the chart entered into evidence by the government at the hearing, regardless of 

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whether it obtained GE Aviation’s trade secrets. Similarly, GE Aviation would not have lost the 

value of the costs it incurred in developing the composite components underlying the chart – its 

investment – even if China had obtained its trade secrets. Accordingly, even under the 

government’s matrix for determining loss, the $98 million figure is vastly inflated, and the actual 

intended loss would constitute only a fraction of that amount. 

PROCEDURAL AND FACTUAL BACKGROUND 

The trial in this case concluded on November 5, 2021, with convictions on all counts. 

The initial draft of the Presentence Investigation Report was issued on January 28, 2022. Doc. 

193. On the issue of loss, the Probation Department accepted the government’s position, 

submitted in a letter dated January 25, 2022 containing a two-page diagram/chart produced by 

GE Aviation, that the intended loss in this case was $107 million.1 PSR at ¶ 57. This amount 

was based on the argument that the proper measure of loss was the estimated total of GE 

Aviation’s expenditures in designing and certifying a jet engine incorporating fan blades and 

encasements made from composite materials. In a letter dated February 11, 2022 (and attached 

to the final PSR), the defense objected to the loss calculation and described how the proper 

figure was, in fact, zero. In the alternative, the defense asserted that even if the cost of research 

and development was the correct measure, the $98 million was vastly inflated and any potential 

loss to GE Aviation was a mere fraction of that amount. The Probation Department included the 

government’s loss calculation in its final report, issued April 13, 2022. Doc. 197, PAGEID 

#4894 (“PSR”). 

1

 The figure proposed by the government is actually $98 million ($107 million was the result of a 

mathematical error) but the difference does not affect the Guideline range. 

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Given the wide gulf between the parties’ views on the fundamental issue of loss, the 

Court granted the parties’ request for an evidentiary hearing. The evidentiary hearing took place 

on August 23, 2022. Three witnesses testified. The government called Nick Kray, a senior 

engineer from GE Aviation (who had also testified at the trial), in an attempt to substantiate the 

claims made in the two-page chart submitted to the Probation Department, and admitted as 

Exhibit A at the hearing. The defense called David Zheng, the former GE Aviation engineer 

who was allegedly urged by Mr. Xu to disclose GE Aviation trade secrets related to fan blades 

and encasements made of composite materials, and Dr. Barry Davidson, an aerospace expert in 

composite materials. 

Following the hearing, the Court ordered briefing on the issue of loss. The arguments 

made on behalf of Mr. Xu are set forth below. 

ARGUMENT 

I. The Court Should Find Zero Loss Because The Commentary of the Federal 

Sentencing Guidelines is Not Binding on This Court. 

The commentary to the Federal Sentencing Guidelines “has no independent legal force – 

it serves only to interpret the Guidelines’ text, not to replace or modify it.” United States v. 

Havis, 927 F.3d 382, 386–87 (6th Cir. 2019) (en banc), citing Stinson v. United States, 508 U.S. 

36, (1993). That is because “[u]nlike the Guidelines themselves . . . commentary to the 

Guidelines never passes through the gauntlets of congressional review or notice and comment. 

Id. Allowing an agency to define the law (as opposed to simply interpreting it) is 

unconstitutional because it violates the separation of powers. The U.S.S.G. § 2B1.1(b)(1) 

Guideline states that “if the loss exceeded $6500, increase the offense level as follows.” The 

term “loss” is generally understood to mean an amount “lost.” See https://www.merriamwebster.com/dictionary/loss. To that general and commonly understood definition of “loss,” the 

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commentary to the Guidelines adds the term “intended loss,” which is found nowhere in the 

Guideline itself. See U.S.S.G. § 2B1.1 cmt. n.3(A)(i)-(ii). In its en banc decision in Havis, the 

Sixth Circuit made clear that where the commentary “adds” conduct or crimes to the Guidelines 

text, such commentary is not binding. See Havis, 927 F.3d at 387. The Havis Court determined 

that the commentary’s addition of “attempt” to the definition of drug crimes, when the text of the 

Guideline did not include “attempt,” was improper. Id. Similarly, the commentary here adds 

“intended loss” to the common definition of loss, which is actual loss. “By interpreting ‘loss’ to 

mean intended loss, it is possible that the commentary sweeps more broadly than the plain text of 

the Guideline.” United States v. Kirschner, 995 F.3d 327, 333 (3d Cir. 2021) (internal citations 

and quotation marks omitted). 

It is true that the Sixth Circuit recently concluded in a non-precedential decision that 

“[t]he commentary defining ‘loss’ is consistent with the construction of the Guidelines as an 

interpretation of, rather than an addition to, § 2B1.1(b).” United States v. Murphy, 815 F. App’x 

918, 924 (6th Cir. 2020). However, in light of the Supreme Court’s changing views on the 

powers of regulatory agencies to interpret the law (see e.g., W. Virginia v. Env’t Prot. Agency, 

142 S. Ct. 2587 (2022) (limiting the EPA from interpreting the Clean Water Act)), and concerns 

raised by other circuits about the broad sweep of the commentary in § 2B1.1 cases, Mr. Xu here 

preserves for appeal the argument that because there was no actual loss in this case, the Court 

should ignore the commentary’s addition of “intended loss” and conclude that the loss figure is 

zero. 

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II. The Loss Amount Should be Zero Because the Cost of Research and 

Development is an Improper Measure of Loss in this Case, and the Government 

Has Offered No Evidence to Establish a Loss Based on a Potential Reduction in 

Competitive Advantage or Market Share. 

Loss under U.S.S.G. § 2B1.1 is a specific offense characteristic, and “[t]he government 

must prove the specific offense characteristic by a preponderance of the evidence.” United 

States v. Valentine, 59 F.3d 171 (6th Cir. 1995). 

At the evidentiary hearing conducted on August 23, 2022, the government offered 

testimony and introduced into evidence Exhibit A2, which seeks to establish that the approximate 

cost of the research and development of the composite fan blades and encasement used for a GE 

Aviation jet engine is $98 million.3 For the reasons set forth below, the costs that GE Aviation 

incurred in researching and developing composite fan blades and encasements are an improper 

measure of loss in this case. 

A. Legal Standard 

“Loss” is defined as the greater of actual or intended loss. U.S.S.G. § 2B1.1 cmt. n.3(A). 

Because there was no actual loss here, the Court must determine the amount of intended loss, if 

any. “Intended loss” is defined as the “pecuniary harm that the defendant purposely sought to 

inflict.” U.S.S.G. § 2B1.1 cmt. n.3(A)(ii) (emphasis added).4 “Intended loss analysis, as the 

2

 Exhibit A was previously submitted to the Probation Department in connection with 

preparation of the PSR. 

3

 The Probation Department adopted the government’s loss proposal in the PSR, and assigned 24 

points for loss under §2B1.1(b)(1)(M). See PSR at ¶ 58. 

4

 In 2015, the Sentencing Commission amended the §2B1.1 Guideline from a definition of 

intended loss that stated “pecuniary harm that was intended to result from the offense” to its 

current state: “intended loss means the pecuniary harm that the defendant purposely sought to 

inflict.” U.S.S.G. App. C, amend. 792 (eff. Nov. 1, 2015). The Commission noted that this 

“amendment reflects the Commission’s continued belief that intended loss is an important factor 

in economic crime offenses, but also recognizes that sentencing enhancements predicated on 

intended loss, rather than losses that have actually accrued, should focus more specifically on the 

defendant’s culpability.” Id. 

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name suggests, turns upon how much loss the defendant actually intended to impose on the 

victim.” United States v. Yihao Pu, 814 F.3d 818, 824 (7th Cir. 2016). Because loss is a specific 

offense characteristic, the Guidelines do not require a finding of loss greater than zero under § 

2B1.1. See id. at 828 (“the guidelines do not require a loss calculation greater than zero”); 

United States v. Free, 839 F.3d 308, 323 (3d Cir. 2016) (same). 

In determining the amount of loss the defendant intended to inflict, the Guidelines 

instruct that the Court must “make a reasonable estimate of loss.” However, while the loss figure 

need not be exact, the Court cannot pick a figure out of thin air. Its loss calculation must be 

based on reason and facts. See United States v. Barrington, 648 F.3d 1178, 1197 (11th Cir. 2011) 

(“[A] sentencing judge may not speculate about the existence of a fact that would result in a 

higher sentence, and the government must support its loss calculation with reliable and specific 

evidence.”); United States v. Howley, 707 F.3d 575, 582 (6th Cir. 2013) (“Even a reasonable 

estimate, however, requires some explanation.”); United States v. Fairley, 880 F.3d 198, 216 (5th 

Cir. 2018) (“the calculation of intended loss cannot be purely speculative.”); United States v. 

Altomare, 673 F. App’x 956, 964 (11th Cir. 2016) (“[T]he district court,[] is not permitted to 

speculate about the existence of a fact that would result in a higher sentence.”). 

This is a case involving the attempted theft of trade secrets. Determining loss in a trade 

secret case, especially when those trade secrets were not actually stolen, is particularly 

complicated. See Howley, 707 F.3d at 582 (“Determining the value of a trade secret, we 

acknowledge, is no easy task.”). The commentary to the Guidelines suggests that in trade secret 

cases, where “appropriate and practicable under the circumstances,” the Court may consider 

factors such as “the cost of developing that information or the reduction in the value of that 

information that resulted from the offense.” U.S.S.G. § 2B1.1, cmt. n. 3(C). 

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B. Research and Development Cost is Not the Proper Measure of Loss in This Case 

In proposing the alleged $98 million cost of research and development as the correct 

measure of loss in this case, the government and the Probation Department have both seized on 

the commentary to the Guidelines that suggests using the “cost of developing” the trade secrets 

as a measure of loss. Exhibit A; PSR at ¶ 58. In so doing, the government and the Probation 

Department ignore the restriction contained in the commentary, which cautions that the cost of 

development is only correct where “appropriate and practicable.” See U.S.S.G. § 2B1.1, cmt. n. 

3(C). Using the cost of development of composite fan blades and an encasement system for a 

GE Aviation jet engine in this case, under the circumstances present here, is not only not

appropriate, but it is nonsensical. As the government’s own evidence clearly established at the 

evidentiary hearing, the cost of research and development is not a loss to GE Aviation. PAGEID 

#5005, Tr. 45:4-22; PAGEID #5031-32, Tr. 71:10-72:4; PAGEID #5073-76, Tr. 113:21-116:24; 

PAGEID #5085-87, Tr. 125:11-127:1. 

Yanjun Xu was convicted of trying to obtain trade secrets from GE Aviation related to 

fan blades and an encasement made from composite materials. As alleged in the PSR, Mr. Xu 

sought to obtain this technology on behalf of the People’s Republic of China to assist China to 

develop and manufacture its own jet engines using composite materials. See PSR at ¶ 43. In 

other words, if Mr. Xu had been successful in obtaining trade secrets from Mr. Zheng, the 

government’s theory is that those trade secrets might have allowed China to shorten its timeline 

toward producing its own jet engines using composite materials, which, if successful, would 

eventually have led China’s aviation industry to stop buying jet engines from GE Aviation. That 

would, theoretically, have reduced GE Aviation’s competitive advantage at some point in the 

future and led to a loss of market share. Id. at ¶ 45. (“[H]ad Xu been successful in his attempt to 

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steal trade secrets from GE Aviation, the timeline to develop a similar engine would have been 

shortened and the biggest obstacle for GE Aviation’s competitors would have been removed.”). 

However, the funds expended by GE Aviation to research, develop, and manufacture 

composite fan blade and encasement technology is simply not a loss that GE Aviation would 

have suffered if Mr. Xu had been successful, or that Mr. Xu intended GE Aviation to suffer. 

Nick Kray, the GE Aviation engineer who testified for the government at the evidentiary hearing, 

made abundantly clear that GE Aviation was going to research, develop, build, market, and sell 

jet engines containing composite fan blades and encasements whether or not someone stole GE 

Aviation’s trade secrets: 

Q Now, just to be clear, obviously, if someone steals some of GE’s 

proprietary information in this area, that doesn’t prevent GE from continuing to 

make -- design, make, sell, fan blades and encasements, right? 

A That’s correct. 

Q GE doesn’t lose the ability to develop, make, market, and sell those 

products? 

A I think the key thing is that we’re always trying to go the next step in 

efficiency, so having that process that you can leverage up onto next engine design 

is key. Yes, we would certainly -- 

Q I understand. And GE would continue to do that? 

A Certainly. 

Q Continue to work in this area, right? 

A Certainly. 

Q Regardless of whether or not someone had obtained trade secrets or not 

from GE? 

A I think it wouldn’t -- it wouldn’t affect my day-to-day effort, no. 

 PAGEID #5005, Tr. 45:4-22. 

As a result, Mr. Kray readily conceded that the research and development costs were not 

a potential “loss” for GE Aviation: 

Q So just going back to where I started, and I’ll end there, you agree that -- 

you know, you’ve said this -- that the theft of a trade secret could have the 

potential to affect GE’s competitive advantage down the road, right? 

A That’s correct. 

Q That’s the potential loss that GE could suffer, right? 

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A That’s correct. 

Q It’s not the money that GE spent to research, develop, build, test, certify an 

engine with composite fan blades or encasements, correct? 

A That is correct. 

PAGEID #5031-32, Tr. 71:19-72:4 (emphasis added). 

In spite of the logical and reasonable testimony of its own expert, the government (and 

the Probation Department) are trying to fit a square peg into a round hole. The Seventh Circuit, 

addressing the same issue in a trade theft case, summarized the situation perfectly: 

It seems that the probation officer and the district court simply looked at the 

evidence and determined that an intended loss amount was required because there 

was no actual loss. Then, because the guidelines state that the court may estimate 

loss in a trade secrets case by considering the value of the trade secrets, they 

simply stated the trade secrets’ purported value was the intended loss amount 

without any analysis about whether that metric worked with the circumstances of 

Pu’s case. The guidelines state that in a trade secrets case, the cost of developing 

the information should be a factor taken into account to estimate the loss amount 

when the factor is “appropriate and practicable under the circumstances.” Without 

evidence of Pu’s intent to cause the victims to suffer a loss equal to the cost of 

development, the district court’s use of the cost of development to determine the 

intended loss amount was not appropriate. 

Yihao Pu, 814 F.3d at 826. That is precisely what is happening here. The government and the 

Probation Department have fixated on the commentary suggestion that courts may consider “the 

cost of developing that information” as a measure of loss, ignoring the admonition that it must be 

“appropriate and practicable under the circumstances,” and further ignoring the second part of 

the commentary suggestion – “or the reduction in the value of that information that resulted from 

the offense.” U.S.S.G. § 2B1.1, cmt. n. 3(C)) (emphasis added). 

The government’s entire theory of loss is, in fact, based on a theoretical future reduction 

in GE Aviation’s “competitive advantage.” See Govt. Letter to Probation, 01/25/22, at 3, 5; PSR 

at ¶ 45. That was consistently confirmed by the government’s expert, Mr. Kray, who testified 

both at the trial and at the evidentiary hearing that any potential loss that GE Aviation might 

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suffer as a result of a theft of its trade secrets was a reduction in its current competitive 

advantage. See e.g., PAGEID #5004, Tr. 44:2-25. He agreed that whatever possible loss GE 

Aviation might endure was years down the road, if and when China (or some other competitor) 

built its own engines with composite technology, at which point GE Aviation would no longer 

hold a monopoly in this area. See PAGEID #5006, Tr. 46:1-5 (“if you lost technology today, to 

actually see it show up in the field might be five or ten years, right. So yeah, it wouldn’t happen 

tomorrow, but it would happen down the road, yes.”). In other words, the true measure of loss, if 

any, is not “the cost of developing that information” rather, it is the potential “reduction in the 

value of that information.” U.S.S.G. § 2B1.1, cmt. n. 3(C)(ii). 

C. The Government Has Not and Cannot Present Evidence to Support a Finding of 

Loss Based on a Future “Reduction in the Value” of the Trade Secrets 

The government has offered no evidence to allow for even a “reasonable estimate” of GE 

Aviation’s potential future reduction in competitive advantage and market share (and value 

thereof). Instead, it has substituted a research and development figure that is simply unrelated to 

the potential loss GE Aviation might have suffered, and is therefore not “appropriate” (U.S.S.G. 

§ 2B1.1, cmt. n. 3(C)) in determining loss in this case. Because the government has failed to 

meet its burden of establishing a specific offense characteristic of loss, the loss is zero. 

And, the greater problem for the government is that assessing any future potential loss in 

“competitive advantage” is utterly speculative. As Mr. Kray conceded, whatever that possible 

future loss in competitive advantage might be depends on a number of unknown variables, such 

as: 

 how fast a competitor can research, develop, build, and get certified the same technology; 

 how far along in the process the competitor already is when it acquires the trade secret; 

 the nature of the trade secret and its relative importance to the development process; and 

 whether in the meantime, other competitors have caught up, and therefore GE Aviation’s 

market share is already diluted. 

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PAGEID #5006-08, Tr. 46:23-48:6. Ultimately, Mr. Kray agreed that assigning a “loss” number 

to whatever reduction in market share GE Aviation might suffer years into the future was 

extremely difficult if not impossible in light of the unknown variables: 

Q Okay. So you would agree, right, that sitting here today calculating what 

such a future potential loss to a competitive advantage or market share -- 

calculating a number would be really difficult, right? 

A I would say the number would only go up. Right. 

Q Well, but you can’t, you can’t put a number on that right now because of all 

of these variables that we talked about; isn’t that right? 

A Okay. Another way to look at it, sure. 

PAGEID #5007-08, Tr. 47:23-48:6. 

The conclusion that intended loss cannot be determined in certain trade theft cases is 

consistent with analyses conducted by other courts that have grappled with this issue. For 

example, in Pu, the defendant pled guilty to stealing trade secrets – source codes for software 

programs – from two employers. Pu, 814 F.3d at 818-21. Although there was no actual loss, the 

court used the development costs of the source codes to calculate an intended loss of $12 million. 

Id. at 822. The defendant appealed and the Seventh Circuit reversed, finding that the court erred 

by “simply look[ing] at the evidence and determin[ing] that an intended loss amount was 

required because there was no actual loss.” Id. at 826. The Seventh Circuit instructed as 

follows: 

We do not doubt that the cost of development of the trade secrets was an easy 

figure to use when making the intended loss calculation. The guidelines suggest 

that the cost of development is the metric to use to estimate loss in a trade secrets 

case. But the real question is whether the government proved by a preponderance 

of the evidence that the cost of development of the trade secrets was the correct 

loss figure. To answer this, we must determine whether the record supports a 

finding that it was more likely than not that Pu intended to cause a loss to the 

victims that equaled the cost of development. We conclude that it does not. 

Id. (internal citations omitted). 

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The Tenth Circuit reached the same conclusion in United States v. Snowden, 806 F.3d 

1030, 1033 (10th Cir. 2016). There, the defendant pled guilty to unlawfully obtaining 

information after he hacked a computer and intercepted emails and client lists from his former 

employer and used them to start his own company. The district court calculated intended loss 

based on the victim’s development cost. On appeal, the Tenth Circuit held that “we do not read 

that language in the commentary as contradicting the guideline by substituting cost of 

development for loss in calculating the offense level.” Id. at 1033 (emphasis in original). Yet 

“the evidence before the district court was that [the victim] did not suffer any business loss from 

Defendant’s acts.” Id. “‘Loss’ is the key,” the court held, “and the development cost was not 

adequately tied to any loss actually suffered by [the victim].” Id.; see also United States v. Isler, 

983 F.3d 335, 341–42 (8th Cir. 2020) (district court found that loss was impossible to calculate 

even though the government provided several different alternatives for calculating loss and 

instead agreed with the Probation Department that loss was minimal ($5000)).

A particularly instructive case is United States v. Yu Xue, No. CR 16-22, 2020 WL 

5645765 (E.D. Pa. Sept. 22, 2020). In Yu Xue, the defendants pled guilty to theft of trade secrets 

from a large biopharmaceutical company that manufactured cancer-fighting products. At 

sentencing, the government argued that the intended loss was greater than $550 million. The 

defendants argued it was $0. The parties submitted loss calculation memoranda, conducted a 

three-day hearing, and filed post-hearing briefs. The government put on five experts, who 

asserted that the value of the stolen information was between $200 million and $2.2 billion. 

One of the two defendant experts testified that the government’s method for calculating 

loss was inappropriate since it did not assess harm, which he explained was the only proper 

method to calculate loss in cases involving theft of trade secrets. As he explained it, the critical 

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inquiry is whether the victim was deprived of economic opportunity and whether the 

marketplace was changed as a result of the misappropriation. Yet, in his opinion, there was no 

loss in the case because there was no evidence that the pre-theft value of the stolen information 

was affected in any way by defendants’ actions. See id. at 11. 

Convinced, the court held that neither fair market value nor cost of development were 

appropriate methods to calculate loss since there was no evidence that defendants intended to 

cause the victims to suffer such a loss: 

The Government has failed to meet its burden to prove intended loss in this case 

because it did not show by a preponderance of the evidence that its suggested loss 

figure was one Defendants purposefully sought to inflict upon GSK. As a result, 

while the Government produced evidence of the fair market value and 

development cost of the stolen information, it failed to establish that Defendants 

purposefully sought to inflict that amount of harm upon GSK. This critical error 

was fatal to the Government’s position. 

Id. at 17. Accordingly, as the government had failed its burden to establish an intended loss 

figure based on reason and evidence, the court concluded that the loss was zero. 

The same result should occur here. In United States v. Howley, 707 F.3d 575, 582 (6th 

Cir. 2013), the Sixth Circuit has already reversed a finding of zero loss by the district court.5 It 

did so, however, not because a zero loss determination is never appropriate in a trade theft case, 

but because the district court failed to explain its reasons for concluding that it could not make a 

loss finding. While the Court expressed some concern about zero loss in a case where a trade 

secret has, by statute, an “independent economic value”, “[t]he ultimate decision is up to the 

district court, which is in a unique position to assess the losses Roberts and Howley intended to 

cause. All we require is that the court provide reasons for its choice.” Id. at 582-83. 

5

 Notably, Howley was decided before the change to the Guidelines came into effect in 2015 

making the subjective intent of the defendant the operative inquiry. 

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The reasons here are obvious. GE Aviation’s costs of research and development as a 

proxy for intended loss are simply inappropriate and illogical under the circumstances. Mr. Xu 

did not intend for GE Aviation to suffer losses equal to its research and development costs. He 

allegedly intended for China to speed up its own development of jet engines with composite fan 

blade and encasement technology in order to become competitive in the market.6 The 

government has presented zero evidence to allow the Court to reasonably estimate what a 

potential market share loss (and a consequent gain for China) could be, because determining 

such a number about events that might occur years, if not decades, in the future is impossible and 

utterly speculative.7 Without evidence, the Court cannot just pick a number and assign it as loss, 

and is therefore left with no choice but to determine that the loss for Guidelines’ purposes in this 

case is zero. 

6

 And even that assertion is speculative. It is equally plausible that the information sought would 

only prove valuable to corroborate work already done by Chinese manufacturers, or that it could 

offer interesting topics for discussion among Chinese aviation experts, but would not necessarily 

advance China’s manufacturing timeline. PAGEID #5084-85, Tr. 124:1-125:10. 

7

 The government’s brief and half-hearted effort to suggest that future fuel cost savings might be 

another measure of loss must fail for the same reasons as any assessment of future market share 

loss. It is impossible to reasonably estimate those fuel cost savings in light of the numerous 

unknown variables at issue here. For example, that figure depends on the number of planes 

purchased, the business plans of the customers who might prefer a cheaper engine to one that has 

composite materials, the time period when China or other competitors catch up with GE and put 

their own engines on planes, and a whole host of other unknowables. PAGEID #5027-29, Tr. 

67:5-69:12. As the government’s expert conceded at the hearing: 

Q But when you’re trying to calculate a number of what -- what loss GE might 

suffer by not being able to sell its engines down the road, right, that number is far 

ahead in the future because sitting here today, as you said earlier, you can’t really 

calculate that number, right? 

A A way to look at it, sure. 

PAGEID #5029, Tr. 69:7-12. This alternative measure of loss is therefore far too speculative to 

provide a reasonable estimate. 

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III. In the Alternative, If the Court Somehow Determines that Cost of Research and 

Development Is a Proper Measure of Loss, the Court Should Reject the 

Government’s $98 Million Estimate of Loss. 

Even if the cost of research and development of composite fan blades and an encasement 

for a jet engine were the proper measure of loss, which it is not, the government’s proposed loss 

figure of $98 million is vastly inflated and cannot serve as a reasonable estimate of loss. As 

noted above, GE Aviation’s expert made clear that GE Aviation would expend the costs 

associated with research and development whether or not China (or some other competitor) 

obtained trade secrets. PAGEID #5031-32, Tr. 71:10-72:4; PAGEID #5073-76, Tr. 113:21-

116:24; PAGEID #5085-87, Tr. 125:11-127:1. Thus, the only logical analysis using GE 

Aviation’s research and development costs would be to determine whether a theft of trade secrets 

related to this process could have led to cost or time savings for China. According to the 

evidence established at the evidentiary hearing, however, the only potential time and cost savings 

for China in its development process by possessing GE Aviation’s secrets would be limited to a 

very narrow band on the research and development chart. PAGEID #5076, Tr. 116:11-24; 

Exhibit A. 

At the outset, it is important to point out that the processes described in the government’s 

Exhibit A and $98 million financial expenditures encompass vast amounts of information that 

are not trade secrets. And, the government has failed to identify where in the building block 

process or categories contained in Exhibit A trade secrets can be found.8 To that point, Mr. 

Zheng did not have access to proprietary information related to the entire design process, and 

Mr. Xu therefore could not have obtained trade secrets related to the entire research and design 

8

 Indeed, Exhibit A contains no data to substantiate the government’s cost arguments but is 

simply a graphic without any detailed representation of the kinds of tests and processes that GE 

Aviation actually employs. 

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module contained in Exhibit A. PAGEID #5037, Tr. 77:15-22. As Mr. Zheng testified, he 

worked exclusively on encasement system design and manufacturing, and had only limited 

access to fan blade design and manufacturing information. PAGEID #5037, Tr. 77:11-19. 

Moreover, Mr. Zheng’s general access to information was restricted on a “need to know” basis 

and was further limited by his role as a “staff” engineer. PAGEID #5037-38, Tr. 77:15-78:9. 

Finally, Mr. Zheng made clear to the Chinese the limits of his knowledge and access to 

information. PAGEID #5039, Tr. 79:1-24; PAGEID #5045-46, Tr. 85:1-86:2. Accordingly, Mr. 

Xu could not have allegedly intended any loss to GE Aviation beyond what he believed Mr. 

Zheng could provide. 

It is also relevant in this regard that Mr. Zheng worked exclusively on encasement 

systems for the GE9X engine, designed to be fitted on a Boeing 777, a large, wide-bodied plane. 

PAGEID #5043, Tr. 83:8-12. Mr. Kray conceded that China has so far only manufactured the 

C919 jetliner, which is a smaller plane akin to the Boeing 737, and has not yet built a larger 

passenger plane. PAGEID #5025, Tr. 65:4-15. The C919 uses the LEAP engine, a joint project 

of Safran and GE Aviation. PAGEID #5025, Tr. 65:16-19. In the short term, at least, it is far 

more likely that China would have been interested in replacing the LEAP engine with a homebuilt version for its existing fleet. However, Mr. Zheng did not work on the LEAP engine, and 

his information on composite encasements would therefore have had limited value, given the 

highly particularized nature of these systems. PAGEID #5025-26, Tr. 65:23-66:1. 

Returning to the chart in Exhibit A, $80 million of the government’s proposed $98 

million loss figure is swallowed up by containment certification testing and containment rig 

testing. Both the government’s expert, Mr. Kray, and the defense expert, Dr. Davidson, agreed 

that the certification test must be performed by anyone who is seeking to put a jet engine on an 

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airplane and have it certified to carry passengers, and that it would be cavalier and compromise 

safety to skip the containment rig test.9

Q And any competitor of GE Aviation’s who builds a jet engine would have 

to go through this certification process, correct? 

A Yes. 

Q And that’s whether or not they built that engine using, let’s say, GE’s 

proprietary information, right? 

A I would say any engine that gets built has to be certified to those rules. 

Q Right. And my question is, even if that engine uses some trade secrets of 

GE’s to be built -- 

A It would still have to be certified, sure. 

Q -- it would still have to be certified, right? 

A Yeah. 

PAGEID #5013, Tr. 53:4-16 (Kray); PAGEID #5075, Tr. 115:17-23 (Davidson) (“And so they 

have got to do their own containment rig testing. They’re not cavalier. They’re not going to go 

from subcomponent testing to designing a big, full-scale rig test and end testing it. So they’ve 

got to do containment rig testing, so it doesn’t save them anything. So I would say Rows 1, 3, 5, 

6 make no difference whatsoever.”). 

Since any jet engine manufacturer, including China, has to go through the containment rig 

and containment certification test process, and these tests (because everyone has to conduct them) 

do not employ trade secrets, Mr. Xu could not have “intended” to cause a loss regarding that 

9

 Although the containment rig test is not required for certification, Mr. Kray testified that it 

would be “cavalier” to skip that test, it could compromise safety, and might affect the success of 

the extraordinarily expensive certification test. PAGEID #5016, Tr. 56:4-14. More importantly, 

Dr. Davidson testified that the bilateral agreement between China and the FAA essentially 

requires China to follow the building block approach in jet engine manufacturing, which includes 

containment rig testing. PAGEID #5056-57, Tr. 98:17-97:15. Moreover, nothing in the literature 

suggests that China takes a “cavalier” approach to passenger safety. PAGEID #5075, Tr. 

115:13-23. 

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testing. The cost of this testing has to be borne regardless. Accordingly, $80 million of the $98 

million should not be considered by the Court in determining loss.10

Second, both experts agreed that the type of fiber and resin used in manufacturing the 

composite material used to build fan blades and encasements has a profound impact on the entire 

design cycle and would impact test results all along the way. 

Q ...the fiber that is selected, that can control the entire design cycle in the 

sense that if you pick one fiber versus another fiber, they can have different 

results? 

A That’s true. 

PAGEID #5017, Tr. 57:5-25 (Kray); PAGEID #5070, Tr. 110:10-19 (Davidson). The experts 

also agreed that because carbon fibers are export controlled, China cannot purchase its fibers 

from the same source as GE Aviation. PAGEID #5018, Tr. 58:15-25 (Kray); PAGEID #5071, 

Tr. 111:19-25 (Davidson). Since China cannot use the same fibers as GE Aviation, the evidence 

established that its test results will not be identical to GE Aviation’s results. Indeed, Mr. Kray 

testified that unless a competitor’s design and manufacturing of these materials were essentially 

identical to GE Aviation’s, that competitor would have to go through the same process and incur 

the same costs: 

Q And if a competitor were not to have all of those essentially same or 

identical processes, materials, that sort of thing, tools, they would have to go 

through this process on their own, wouldn’t they? 

A That’s correct. 

PAGEID #5021, Tr. 61:20-24. 

There is really no dispute that China, like every other manufacturer of jet engines, uses 

the building block method in its design and manufacturing process. PAGEID #5008-08, Tr. 

10 Moreover, a significant portion of the $10.5 million estimated labor costs should not be 

considered, as they are included in the containment rig and certification tests. Id; see also,

Exhibit A. 

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48:25-49:13 (Kray). That method relies on trial and error, continual testing, software projections, 

retesting – to eventually move from a small coupon of composite material to the entire blade and 

encasement. All through the process, the materials used (fibers and resins), the tools, the 

assembly – affect test results. If there was one significant take-away from the testimony of both 

Mr. Kray and Dr. Davidson, it was that unless these processes are identical, most, if not all, of 

the steps required to build composite fan blades and encasements would have to be taken by the 

manufacturer, regardless of whether that manufacturer had access to another manufacturer’s 

trade secrets or test results. See e.g. PAGEID #5008-08, Tr. 48:25-49:13 (Kray); PAGEID 

#5081-82, Tr. 121:14-122:8 (Davidson) (“Manufacturing a woven case is incredibly complex, 

and GE spent hundreds of millions of dollars working this out, and their process really cannot be 

replicated. So, so if the Chinese were to make a woven case, they would be using a different 

material, they would be using different manufacturing equipment. They would definitely get a 

different weave. They would definitely get a different fiber volume fraction, different resin 

distribution, different resin flow, which I can go through in great detail. It would not shorten any 

aspect of their Building Block approach.”) 

The government’s expert, Mr. Kray testified that being in possession of GE Aviation’s 

proprietary information might give a competitor a “leg up.” PAGEID #5029-30, Tr. 69:25-

70:20. But he conceded that the nature of that advantage was difficult to assess, and that the 

competitor would still be required to go through “their own magnitude of testing”: 

A I think it would give them a leg up. It would give them a jump start, if you 

will, in the process; but, certainly, they would have to go through their own 

magnitude of testing, certainly. 

Q Right. You said it might give them a leg up, so to speak? 

A Um-hmm. 

Q But you don’t know how high that leg is, right, you 

have no way of knowing? 

A That’s true. 

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Q And if anyone takes shortcuts in the building of an aircraft engine, they risk 

not getting -- getting through certification, right? 

A That’s true. 

Q They risk their product failing, right? 

A True. 

Id. Moreover, neither Mr. Kray nor anyone else ever defined what that “leg up” might consist 

of. See id. No one testified, for example, that if China had obtained information about particular 

test results, it could have skipped its own testing in any significant way, or could have gone to 

manufacturing quicker, or that such information would have led to any other material 

improvement. The “leg up” comment was entirely conclusory without any data, evidence, or 

facts to back it up. In contrast, Dr. Davidson disagreed that obtaining trade secrets would give 

China a “leg-up”: “So I guess would there be -- if the Chinese had some information on GE’s 

internal processes, would it provide them, you know, a leg up, so to speak? And, again, beyond a 

few tests here and there, I don’t see it . . . .” PAGEID #5082, Tr. 122:13-16. 

Fourth, in assessing the value of any potential trade secrets, it matters greatly how far 

along Chinese aviation was in 2017 in designing and manufacturing its own fan blades and 

encasement systems made from composite materials. Whatever “short cut” or “leg up” the 

possession of GE Aviation’s trade secrets might theoretically have given China would be 

meaningless if China had already progressed in the design process past the point where such 

information might be useful. As he testified at the hearing, Dr. Davidson carefully reviewed the 

available literature on China’s progress in this area, which consisted of peer-reviewed articles in 

reputable publications, not self-promoting media accounts. PAGEID #5093-94, Tr. 133:24-

134:24. Dr. Davidson’s review of the literature revealed that: 

they knew how to do material properties, select. They knew how to do the first, 

the down-select, how to look at different materials. They certainly knew how to 

do material property characterization, allowable testing. They’ve done many 

subcomponent tests. Really, you can see a progression like -- let me just talk 

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about containment rig. So in 2017, they published a subscale containment rig test. 

So it’s really the same thing GE does, but on a scaled-down containment rig. 

PAGEID #5077, Tr. 117:5-21. In other words, referring to Exhibit A, a review of the literature 

revealed that by 2017, the Chinese had moved through the first five blocks of the design process, 

to the containment rig test. It was therefore Dr. Davidson’s opinion that employing information 

obtained from GE Aviation that related to the first five blocks would not have been helpful to the 

Chinese because it was unlikely they would have wanted to backtrack, undo all of their own 

substantial progress and start again from the beginning (knowing that without access to the same 

materials, equipment and processes of GE Aviation that approach would necessarily fail): 

So to do -- they wouldn’t go back in time, they wouldn’t say, oh, well, let’s redo 

GE’s subcomponent test, because now they would be on a parallel track. And it’s 

a foregone conclusion, they’ve already figured out that’s not going to work, this 

approach is going to work better, and they demonstrated it worked. So no, it 

would have slowed them down, it would have cost them money. 

PAGEID #5079, Tr. 119:18-24. 

Whatever information Mr. Xu allegedly could have obtained, therefore, had he been 

successful, would have brought China little to no benefit in its development of the fan blade 

section of the engine and would not have reduced China’s timeline in becoming competitive. 

That, ultimately, was the conclusion drawn by Dr. Davidson. Id. He opined that in the research 

and design process, the only area in which GE Aviation’s trade secrets might have had some 

benefit to the Chinese would have been in the “sub-component” testing matrix, which, according 

to GE Aviation cost $500,000. See Exhibit A. As he testified, 

So I would say that if there’s any savings to the Chinese, it’s in subcomponent 

testing, and of this point 5 million,11 it’s a portion of it. I don’t know. So maybe 

they save 10 percent, maybe they save 1 out of 10 tests, maybe they save 

something like that, so maybe they save 500K. And then there’s a sliver of design 

11 Dr. Davidson misstated this amount. GE Aviation has identified this cost as $500,000, not $5 

million. See Exhibit A. 

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labor that they would save because they saved that 1K. So that’s the kind of 

savings I think the Chinese would achieve. 

PAGEID #5076, Tr. 116:13-20. Moreover, Dr. Davidson observed that whatever savings China 

might have had in this area, if any, would have had minimal to no impact on its timeline for 

developing composite engine parts. Id.; PAGEID #5079, Tr. 119:18-24. 

Based on the uncontroverted evidence elicited at the evidentiary hearing, even if China 

had obtained the trade secrets it allegedly sought, its savings would have been minimal and its 

timeline would have been unaffected. Thus, even if the Court were to employ the costs of 

research and development as a proper measure of loss, and the Court used China’s potential cost 

savings as a proxy for GE Aviation’s non-existent loss, those cost-savings would be a mere 

fraction of the $98 million figure proposed by the government. The technology at issue here is 

so highly engineered and complex, virtually all of the costs of research and development would 

have been incurred both by GE Aviation and by China, whether or not trade secrets had been 

obtained. PAGEID #5031-32, Tr. 71:10-72:4; PAGEID #5073-76, Tr. 113:21-116:24; PAGEID 

#5085-87, Tr. 125:11-127:1. There was not, and importantly, could not, have been a “smoking 

gun” or “crown jewels” or secret formula obtainable by China that would have in any significant 

way reduced its own process and timeline in building this technology. See PAGEID #5103, Tr. 

143:5-12 (Davidson) (“Q ...do you believe there’s any game-changing crowned jewel 

information at GE Aviation that could have had a substantial impact on China’s own 

development of its containment casing and fan blades? A Given the constraints of China, you 

know, having the limitations it does due to export controls, I don’t see it, no. I would say no, 

there is not.”). 

Accordingly, even if the Court were to use the cost of research and development as a 

measure of loss, based on the uncontroverted evidence produced at the hearing, cost savings, if 

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any, could only have occurred in the “sub-component testing” phase. That phase, as proffered by 

GE Aviation, cost $500,000 and the evidence showed that only a fraction of that amount could 

potentially have been saved by the Chinese. Thus, if a loss were to be set based on this method, 

it would not be $98 million. It would be closer to $50,000. 

CONCLUSION 

It is perhaps discomforting to conclude that a case involving theft of trade secrets might 

have no loss or intended loss. Trade secrets, almost by definition, carry some value. But as 

made clear above, setting a loss amount for purposes of the Guidelines cannot be done in a 

speculative manner disconnected from the facts and evidence. Even a “reasonable estimate” 

must be based on facts and on reasoned legal analysis. The Court here simply has not been 

provided sufficient information by the government to reach a reasonable conclusion. First, the 

money GE Aviation spent to build the fan module of a jet engine is not a loss. GE Aviation 

hasn’t lost those funds and, as its expert testified, will continue to develop, design and build fan 

blade technology made from composite materials. Since GE Aviation does not lose the ability to 

make this technology and does not lose the investment it made by designing and building it, Mr. 

Xu could not have “intended” to cause GE Aviation to lose that investment. 

Second, the government has offered no evidence that GE Aviation’s competitive 

advantage at some distant point in the future could have been compromised if China had 

obtained these trade secrets. It certainly has not offered any evidence that would allow the Court 

to reasonably estimate what such a future loss of competitive edge, or market share, might be.12

Indeed, there is no way to estimate such a future potential event. GE Aviation’s position in the 

12 In fact, the government’s expert, Mr. Kray, was reluctant even to admit that a potential change 

in GE Aviation’s competitive advantage might lead to a reduction in market share. PAGEID 

#5005-06, Tr. 45:1-46:5. 

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market in five or ten or fifteen years depends on numerous variables that are currently unknown. 

It would, therefore, be utter speculation to try to capture such future events at this point. 

Third, even if the Court did seek to employ the cost of research and development as a 

reasonable measure of loss – which it is not – that reasonable estimate would have to be a mere 

fraction of the $98 million proposed by the government. As discussed above, virtually all of the 

steps GE Aviation undertook to arrive at the final product would have to be undertaken by 

Chinese jet engine manufacturers as well, even if they were in possession of GE Aviation’s trade 

secrets. The nature of this technology, the extraordinary complexity of the engineering, and the 

building block approach all manufacturers use do not lend themselves to skipping steps. GE 

Aviation’s process cannot be replicated, and to the extent there is any savings in cost at all, it 

would be minimal. 

For all of these reasons, the Court should determine that the government has not met its 

burden of establishing the special characteristic of loss under U.S.S.G. § 2B1.1(b)(1). 

Respectfully submitted, 

/s/ Jeanne M. Cors 

Jeanne M. Cors (0070660) 

Sanna-Rae Taylor (0090102) 

Taft Stettinius & Hollister LLP 

425 Walnut Street, Suite 1800 

Cincinnati, Ohio 45202 

Telephone: (513) 381-2838 

cors@taftlaw.com

srtaylor@taftlaw.com

Florian Miedel (pro hac vice) 

Miedel & Mysliwiec LLP 

80 Broad Street, Suite 1900 

New York, NY 10004 

Telephone: (212) 616-3042 

fm@fmamlaw.com

COUNSEL FOR DEFENDANT 

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CERTIFICATE OF SERVICE 

I hereby certify that on September 20, 2022, a copy of the foregoing was filed 

electronically. Notice of this filing will be sent to all parties in this case by operation of the 

Court’s CM/ECF system. Parties may access this filing through the Court’s system. 

/s/ Sanna-Rae Taylor 

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