It bore the hallmarks of a normal incentive program: employees nominated for outstanding work and managers doled out bonuses.
However, this bounty program at Huawei Technologies Co used encrypted e-mail and paid workers for secrets stolen from other companies, US prosecutors claimed last month.
Their indictment accuses the company of stealing technology from T-Mobile US Inc, a case that on Thursday got under way in a Seattle federal court as Huawei pleaded not guilty to theft of trade secrets.
US companies for decades have complained about Chinese firms stealing intellectual property (IP) or demanding its disclosure to do business in the country.
US President Donald Trump has made protection of IP a focus of trade talks now under way.
“The US has made substantial progress in our trade talks with China on important structural issues, including intellectual property protection,” Trump said in a tweet on Sunday last week as he announced the delay of higher tariffs for an unspecified period.
The Chinese government has dismissed the complaints.
However, according to a 2017 report by the Commission on the Theft of American Intellectual Property (IP Commission), the US economy loses at least US$225 billion annually from counterfeit goods, pirated software and theft of trade secrets.
The IP Commission called China “the world’s principal IP infringer” that is “deeply committed to industrial policies that include maximizing the acquisition of foreign technology and information.”
US Trade Representative Robert Lighthizer on Wednesday told the US Congress that the US is seeking commitments against cybertheft and physical theft in the ongoing talks.
“I agree with those who see our large and growing trade deficit and their unfair trade practices, including technology transfer issues, failure to protect intellectual property, large subsidies, cybertheft of commercial secrets and other problems, as major threats to our economy,” Lighthizer said.
Chinese President Xi Jinping (習近平) and then-US president Barack Obama in 2015 reached an agreement to stop the theft of corporate secrets, but the US in November last year accused China of continuing a state-backed campaign of IP and technology theft.
China has long denied pilfering technology, attributing the US accusations to hearsay.
“China’s achievements in innovation have been made by the wisdom and hard work of the Chinese people,” Chinese Ministry of Foreign Affairs spokeswoman Hua Chunying (華春瑩) said in response to complaints made by US Vice President Mike Pence last summer.
“It is typical unilateralism and zero-sum thinking to launch trade wars for domestic political considerations and for one’s own interests,” Hua was quoted by Xinhua news agency as saying.
In December last year, two Chinese nationals, said by US prosecutors to have coordinated with the Chinese government, were indicted and accused of a decade-long espionage campaign that yielded secrets from US companies and government agencies.
US Deputy Attorney General Rod Rosenstein said that the charges were “an important step in revealing to the world China’s continued practice of stealing commercial data.”
“IP theft has been part of the opening with China from the start,” James Lewis, director of the technology policy program at the Center for Strategic and International Studies in Washington, said in an interview. “It has been a constant theme.”
Accusations run the gamut, including of stealing nuclear power know-how, software to run wind turbines, industrial fabric-cutting machines and, in Huawei’s case, parts of a phone-testing robot.
In 2011, the Shenzen-based company was just entering the US market with its phones and its handsets were failing too often. It saw a path to catching up with competitors’ quality: a testing robot like the one developed by its partner, T-Mobile.
T-Mobile protected the robot with patents, security cameras, a guard and confidentiality agreements.
Huawei engineers in China allegedly pressed their US-based colleagues for details on how the device worked, court filings said.
Tensions rose.
“We CAN’T ask TMO any questions about the robot. TMO is VERY angry the questions that we asked,” a Huawei employee in the US was quoted as saying in an e-mail.
In May 2013, a Huawei engineer allegedly placed a robot piece into his laptop bag, left with it and, along with a colleague, took measurements and photographs, which they sent back to China, the indictment said.
Huawei last month in a statement said that it had done nothing wrong.
“The company denies that it, or its subsidiary or affiliate have committed any of the asserted violations of US law set forth in each of the indictments,” Huawei said.
Earlier, it blamed the incident on rogue employees.
At Thursday’s hearing in Seattle, US District Judge Ricardo Martinez set trial for March 2 next year.
The Chinese foreign ministry reacted to the charges against Huawei by accusing the US of manipulation.
It called on the Trump administration to stop its “unreasonable crackdown” on Chinese companies.
The case has already been the subject of a civil suit. In 2017 a jury awarded T-Mobile US$4.8 million in damages from Huawei for breach of contract, but rejected allegations of misappropriation of trade secrets. The parties later agreed to drop the case after settlement talks.
Accusations of theft go back years. In the early 1990s, Chinese-made fabric cutters began appearing on the market.
Robert Stevenson, chief executive at Buffalo, New York-based Eastman Machine Co, a closely held maker of machines for cutting cloth that dates to the 19th century, said that the new machines were clones of those made by his company.
Sales of the genuine machines plummeted and Eastman went from having 150 unionized workers and selling 20,000 machines annually worldwide to 58 workers and selling fewer than 8,000, Stevenson testified to Congress in 2005.
The company survived, but is smaller as a result of Chinese copying, he said.
“These thefts in China not only have cost me 50 jobs, they probably have cost millions of jobs,” Stevenson said in an interview. “Right now in this discussion with China, with the Trump administration, hopefully they’re doing something about it.”
Most countries steal less as their economy matures, but China shows a different pattern, said Derek Scissors, an economist at the American Enterprise Institute.
“As China has become more advanced, they’ve been able to benefit more from IP theft,” Scissors said in an interview.
“Cyber makes it possible to steal a lot more than previously,” because rather than sneak into a factory, “you just break into the network,” Scissors said. “It’s crucial to China and intractable in the trade talks.”
At times cybertheft can have a dramatic effect on a victim’s fortunes.
American Superconductor Corp, based in Ayer, Massachusetts, cut almost 700 jobs and lost more than US$1 billion in shareholder equity after Sinovel Wind Group Co allegedly stole software used to regulate power flowing from wind turbines, prosecutors said.
Sinovel was last year found guilty in a federal court in Wisconsin of orchestrating the 2011 theft, conducted via an Austrian employee paid to become an insider spy.
Sinovel agreed to pay US$57.5 million in restitution, a court filing showed.
“It’s a Pyrrhic legal victory,” Michael Brown, a former chief executive officer of cybersecurity firm Symantec Corp, told Congress in July last year.
American Superconductor is “now competing in a global market for wind turbines against its former customer using stolen technology,” Brown said.
The company did not respond to a request for comment.
More recently, China General Nuclear Power Co turned to a Taiwanese-born US citizen and nuclear engineer trained at US universities for help procuring components for its reactors, the US Department of Justice said.
The engineer, in turn, allegedly enlisted employees at Florida Power & Light Co and the Tennessee Valley Authority to provide technical reports.
The engineer pleaded guilty to conspiracy in 2017.
China’s nuclear industry once relied on imported technology, but the newest reactors are more than 90 percent domestic.
“The playbook is simple: rob, replicate and replace,” US Assistant Attorney General for National Security John Demers testified at a US Senate hearing in December last year.
“Rob the American company of its intellectual property, replicate that technology and replace the American company in the Chinese market, and one day, in the global market,” Demers said.
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