Wednesday, July 24, 2013

China: Beijing's Largest Wind Manufacturer Indicted in US Over Trade Secret Theft

According to, China's largest wind energy manufacturer, Sinovel Wind Group Co., has become the public and notorious face of a growing contention between the US and China the United States over intellectual property and the legal use and transfer of renewable energy goods and services. 

Sinovel, which once postured that it would push US power systems giant General Electric Co. into third place for global wind turbine manufacturing, has now been indicted in the US District Court in Madison, WI on charges that two Sinovel employees and a Serbian co-conspirator now face charges in US federal court to steal proprietary software from a US firm that was used to improve the efficiency of Sinovel wind turbines. 

The 11-page grand jury indictment, filed on June 27, alleges that Sinovel, which until recently maintained a US headquarters in Houston, conspired to steal property valued at more than $800 million from AMSC of Devens, MA, under a plan hatched by two midlevel Sinovel executives in China and a Serbian co-conspirator who was employed by AMSC in Austria. 

The case was initiated in Wisconsin because the software was allegedly downloaded from a computer at AMSC's Middleton, WI office.

Federal arrest warrants for the three named defendants were issued with the indictment, but it remains unclear as to whether any of them will ever be arrested because all are foreign citizens living abroad. That being said, the US Attorney in Madison will no doubt issue arrest warrants at all US ports of entry as well as through INTERPOL.

According to AMSC and the Justice Department, the alleged conspiracy and theft occurred between January 2011 and December 2012, around the time Sinovel abruptly ceased payment and refused "substantial shipments" of proprietary software and equipment developed by AMSC and used to regulate the flow of electricity from Sinovel wind turbines to electricity grids. 

At the time, Sinovel owed AMSC more than $100 million for "software, products and services" previously delivered and had contracted to receive about $700 million more in shipments from AMSC. 

COMMENT: In retrospect, many US firms have learned the hard way, that particularly where proprietary data is concerned, payments owed by Chinese companies should always require payment in advance.

Where Chinese firms are indirectly or indirectly involved, Western companies should, as a matter of written policy, polygraph ALL staff in order to neutralize foreign efforts to steal proprietary trade secrets.  This investigative effort should also include a thorough and comprehensive background investigation with emphasis on staff that are living beyond their means.

Months later, AMSC realized that Sinovel had gained access to and was actively using stolen AMSC trade secrets and intellectual property illicitly supplied by Dejan Karabasevic, the Serbian co-conspirator, who had worked for the company's Windtec division in Klagenfurt, Austria, and who had access to the proprietary software developed and stored on a computer in an office in Middleton, WI, according to the company's statement.

As part of a subsequent investigation, AMSC discovered that its stolen technology had been used in four wind turbines built by Sinovel in Massachusetts. AMSC's president and CEO, Daniel McGahn, described the unauthorized technology transfer as "criminal acts [that] have led to significant financial harm to AMSC, its employees and their families as well as its shareholders."

A grand jury in Madison agreed, delivering indictments against Sinovel Wind Group, its two executives, Su Liying and Zhao Haichun, and the former AMSC manager, Karabesevic, on charges of theft of trade secrets, conspiracy to commit trade secret theft and wire fraud.

In a statement, acting Assistant Attorney General Mythili Raman of the Justice Department's Criminal Division said the conspiracy and theft were part of a plan hatched by Sinovel's executives and Karabesevic to steal "proprietary wind turbine technology from AMSC in order to produce their own turbines powered by stolen intellectual property."

According to the indictment, Sinovel surreptitiously "recruited Karabasevic to leave AMSC Windtec and join Sinovel, and to secretly copy intellectual property from the AMSC computer system." AMSC officials have said the material evidence is bolstered by a confession from Karabesevic, emails between Karabesevic and Sinovel's executives, and contracts prepared by Sinovel that agreed to pay the former head of AMSC Windtec's automation engineering department roughly $1.7 million over a six-year period after he joined the Chinese firm.

Last week, attorneys for Sinovel filed a motion to quash the grand jury subpoenas, according to the Milwaukee Journal Sentinel. Other media reported that Sinovel, which operated ten subsidiary companies outside China, told the Shanghai Stock Exchange that it would cancel its subsidiary activities in the US, Canada, Belgium and Italy. 

In a statement detailing the firm's relationship, AMSC officials say they began working with Sinovel in 2005, shortly after the Chinese firm was established. AMSC, then called American Superconductor Inc., provided wind turbine design and engineering services as well as power control systems to Sinovel, helping foster the company's rapid growth into a global competitor.

Six months after Sinovel severed its ties to AMSC in March 2011, the US company filed four legal actions against its former partner with the Chinese government, alleging the illegal use of AMSC's intellectual property and seeking more than $1 billion in deliveries and damages. The company also asked Chinese authorities to bring criminal charges against those responsible for the intellectual property theft. Yet nearly two years later, Chinese police have yet to initiate their investigation.

Based on China's apparent unwillingness to investigate or prosecute Sinovel, AMSC said it has asked the Obama Administration to re-evaluate the United States' trade relationship with China.

I continue to be amazed and disappointed that the Federal government continues to tolerate wholesale trade secret theft from US and Western countries, losses estimated to be at $400 billion, with few consequences for the Chinese government.

If the Obama Administration offers no solution to this gross infringement on trade secret property rights, then perhaps they are a source of the problem.

Ironically, the majority of convictions under the Economic Espionage Act of 1996 (EEA), as amended, have involved Chinese nationals or their representatives.

To make matters worse, naturalized US citizens who are ethnic Chinese, and who owe their allegiance to the US, continue to be defendants in EEA indictments and criminal complaints. The sad part is that these same US citizens truly believe they are doing nothing wrong.