DuPont, China & A Billion-Dollar Color
Bloomberg Businessweek|February 8 - February 14, 2016

DuPont, China, and a billion-dollar color.

Del Quentin Wilber

There’s white, and then there’s the immaculate ultrawhite behind the French doors of a new GE Café Series refrigerator. There’s white, and then there’s the luminous-from-every-angle white hood of a 50th anniversary Ford Mustang GT. There’s white, and then there’s the how-white-my-shirts-can-be white that’s used to brighten myriad products, from the pages of new Bibles to the hulls of super yachts to the snowy filling inside Oreo cookies.

All this whiteness is the product of a compound known as titanium dioxide, or TiO2. A naturally occurring oxide, TiO2 is generally extracted from rutile and ilmenite ore and was first used as a pigment in the 19th century. In the 1940s chemists at DuPont refined the process until they hit on what’s widely considered a superior form of “titanium white,” which has been used in cosmetics and plastics and to whiten the chalked lines on tennis courts. DuPont has built its titanium dioxide into a $2.6 billion business, which it spun off as part of chemicals company Chemours, in Wilmington, Del., last fall.

A handful of other companies produce TiO2, including Kronos Worldwide in Dallas and Tronox of Stamford, Conn. Chemours and these others will churn out more than 5 million tons of TiO2 powder in 2016. China also produces large amounts of the pigment, and its industries consume about a quarter of the world’s supply. Most of China’s TiO2 plants, however, use a less efficient and more hazardous process than the one developed at DuPont. Starting in the 1990s, if not earlier, China’s government and Chinese state-run businesses began seeking ways to adopt DuPont’s methods. Only they didn’t approach the company to make a formal deal. According to U.S. law enforcement officials, they set out to rip off DuPont.

“At first, you’re like: Why are they stealing the color white? I had to Google it to figure out what titanium dioxide even was,” says Dean Chappell, acting section chief of counterespionage for the FBI. “Then you realize there is a strategy to it.” You can’t even call it spying, adds John Carlin, the assistant attorney general in charge of the U.S. Department of Justice’s national security division. “This is theft. And this—stealing the color white—is a very good example of the problem. It’s not a national security secret. It’s about stealing something you can make a buck off of. It’s part of a strategy to profit off what American ingenuity creates.”

Most trade-secret theft goes unreported. Companies worry that disclosing such incidents will hurt their stock prices, harm relationships with customers, or prompt federal agents to put them under a microscope. Theft of trade secrets also rarely results in criminal charges because the investigations are time-consuming and complicated, and it’s difficult to win a conviction for conspiracy to commit economic espionage. A 2013 study estimated that China accounted for as much as 80 percent of the $300 billion in losses sustained by U.S. companies from the theft of intellectual property. Often, China won’t even release the records or serve the subpoenas that might contribute to a prosecution. To win in court, companies must prove they properly safeguarded their trade secrets, something many fail to do.

DuPont/Chemours does shield its titanium dioxide process. Guards patrol its plants, which are surrounded by tall fences. Visitors have to be escorted and are forbidden from taking photographs. Documents and blueprints must be signed out, bags inspected. Employees sign confidentiality agreements and are relentlessly drilled on protecting proprietary information. Work is compartmentalized so that few employees have access to everything in a plant. The company vets all its contractors.

Even so, as documents and testimony in a 2014 federal trial in San Francisco revealed, a naturalized American citizen, business owner, and technology consultant named Walter Liew stole DuPont’s protocols for producing its superior titanium white from 1997 through 2011. He even took blueprints for a factory and used the information to win contracts worth almost $30 million. FBI agents and federal prosecutors now consider the Liew case a watershed in their understanding of Beijing’s pursuit of U.S. intellectual property. Liew’s defenders say the U.S. targeted a hardworking, resourceful entrepreneur to protect the bottom line of a massive U.S. corporation—that DuPont was less victim than aggressor, recruiting law enforcement to stifle competition.

Titanium dioxide arrives at DuPont’s plant embedded in rock and must be separated out and refined. When DuPont first produced the pigment, it relied on a crude, messy method known as the sulfate batch process. By the late 1940s, however, DuPont’s engineers had developed a more efficient approach: the chloride route.

The basics are public knowledge. First, the ore is fed into a large ceramic-lined vessel—the chlorinator. There it’s mixed with coke (pure carbon) and chlorine and heated to at least 1,800F. “The material inside here resembles lava. This is like running a big volcano,” Daniel Dayton, a former top executive at DuPont, told jurors about the chlorinator in 2014. (Chemours and DuPont declined to comment for this story.)

Hot gas in the chlorinator gets piped out and condensed into a new compound called titanium tetrachloride, or “tickle,” as engineers call it. The tickle is heated again, subjected to various purifying chemical reactions, and cooled. Now a yellowish liquid, the tickle is inserted into a second vessel, called the oxidizer. It’s again heated to very high temperatures and mixed with oxygen; the reaction knocks the chlorine molecule off the titanium, and two oxygen molecules attach to the titanium in its place. The resulting particles are so fine that the white stuff has the consistency of talcum powder.

Other companies have developed chloride-route processes, but Chemours’s is considered the best. Company executives have said they spend $150 million a year to improve the procedure, even if it’s just to boost production by 1 percent. The company has “a particular way of combining things that are proprietary and nonproprietary and make it work,” Assistant U.S. Attorney Peter Axelrod told jurors in 2014. “And that process, that system, that technology, is what the Chinese government and the stateowned entity wanted,” he added, referring to a company we’ll come to in a moment. To get this info, they relied on Liew.

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