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Wind Case Could Become a Lightning Rod for Escalating US-China Trade Tensions

For two years wind industry observers have been following U.S. component maker AMSC’s (formerly American Semiconductor) suit against the world’s second largest wind turbine manufacturer, China’s Sinovel. The suit alleged theft of intellectual property – software code for AMSC’s PM3000 control system, which works with its low-voltage ride-through (LVRT) to regulate the flow of electricity to the grid – and use of the stolen software in Sinovel’s wind turbines. AMSC had filed a suit with a U.S. federal court in its home state of Massachusetts, and corresponding ‘cease and desist’ civil actions in the Beijing No. 1 Intermediate People's Court and the Hainan Province No. 1 Intermediate People's Court in China.

With yesterday’s indictment against Sinovel by the U.S. court, what has been wind sector news could become a wider lightning rod for the escalating rhetoric that has come to characterise trade relations between the U.S. and China, which are especially frayed after the two nations' recent dispute over solar panel pricing.

And there are other contributing factors. Bloomberg’s Michael Riley said the case “may heighten tensions in U.S.-China relations in the wake of the Edward Snowden affair,” referring to the U.S.'s alleged cyber-spying on Chinese citizens and China’s allowing the PRISM whistleblower to leave Hong Kong. Riley's view was perhaps confirmed by statements from the U.S. Department of Justice (DOJ). U.S. Attorney John Vaudreuil asserted that “The allegations in this indictment describe a well-planned attack on an American business by international defendants – nothing short of attempted corporate homicide,” and FBI executive assistant director Richard McFeely stated that “The FBI will not stand by and watch the hemorrhage of U.S. intellectual property to foreign countries who seek to gain an unfair advantage for their military and their industries. We are actively working with our private sector and government partners to disrupt and impact those who have made it their mission to steal U.S. military and corporate secrets.”

Elizabeth Warren, U.S. senator from Massachusetts, also took a strong stance on the case, saying: “We must get tough on those foreign companies that steal American ingenuity. It's time to enforce our trade laws to ensure that U.S. companies compete on a level playing field. I call on China to cooperate fully in ending these unlawful practices. Decisive actions on their part will send a positive signal to the United States that China supports fair and mutually beneficial trade relations.” 

The Dispute

AMSC’s dispute with Sinovel, previously its largest customer, began in 2011 when Sinovel refused scheduled shipments from AMSC reportedly worth US $7 million; AMSC says Sinovel also owed them over $100 million for back shipments at the time. Looking into the matter, AMSC says it found evidence that one of its own employees, the head of the automation engineering department at AMSC Windtec in Klagenfurt, Austria, had given the control code to Sinovel. After an investigation by Austrian authorities, the employee, Dejan Karabasevic, confessed and served a short prison term in Austria. An FBI investigation found email evidence that Karabasevic was promised $1.5 million by  high-level Sinovel management through contracts authorized by the company's then-CEO and current director, Han Junliang, and that Sinovel subsequently used the code obtained from Karabasevic to upgrade its wind turbines, including some that were sold to the U.S. market.

The U.S. court’s indictment alleges that Karabasevic conspired with Su Liying, deputy director of Sinovel’s R&D department, and Zhao Haichun, technology manager at Sinovel, to obtain AMSC’s copyrighted information and trade secrets in order to produce new wind turbines and retrofit existing turbines with LVRT technology, without having to pay AMSC for previously-delivered products and services. It further alleges that Sinovel then commissioned several wind turbines in Massachusetts which used software compiled from the code stolen from AMSC. The U.S.-based builders and operators of these turbines cooperated with the investigation, said the DOJ.

If convicted, Sinovel faces a maximum penalty on each count of five years' probation and a fine of twice the gross gain or loss, meaning that Sinovel would face a fine of up to twice the alleged loss of over $800 million for each count charged.

A Case with Wider Implications

Given the recent trade tensions between the U.S. and China, it is unsurprising that this case has interested media outside the wind industry and could fuel international debate.

AMSC has called for a “re-evaluation” of U.S.-China trade relations in the wake of yesterday’s verdict. “The fact that Sinovel has exported stolen American intellectual property from China back into the United States – less than 40 miles from our global headquarters – shows not only a blatant disrespect for intellectual property but a disregard for international trade law,” said Daniel McGahn, AMSC president and CEO.

In May AMSC said in a press release that China’s Supreme People’s Court had scheduled a hearing to review its Chinese suit’s jurisdiction after Sinovel had moved to transfer the matter to the Beijing Arbitration Commission. The motion was denied by the Beijing No. 1 Intermediate People's Court, after which Sinovel appealed. There has been no decision from the Supreme Court to date. 

“China's president, Xi Jinping, recently said that China will protect legitimate rights of foreign enterprises,” McGahn said. “However, to date, the experience of companies like AMSC has proven otherwise. In the EU, our former employee confessed to collusion with Sinovel, was convicted and jailed for his crimes. In the U.S., the Department of Justice has indicted Sinovel. In China, however, the legal system has yet to take substantive action. We believe this clearly demonstrates that the rights of foreign businesses are not being protected.

“The inability to rely on the rule of law is creating a risk for U.S. businesses operating in China,” said McGahn. “The [Obama] administration has been incredibly supportive of our issue and so I'm requesting that, together with Congress, they examine how trade secret theft is impacting American jobs and innovation and address the issue before it further impacts economic development,” he said.

When asked for specific suggestions on how the U.S. should proceed, McGahn said in an email that he would like to see the case addressed at the US-China Strategic and Economic Dialogue in Washington, DC in July. "By addressing the AMSC case, Beijing would be sending a positive signal about the prospects for U.S.-China technology cooperation," he said.

He continued, "I’m often asked what steps I’d like to see the [U.S.] government take to combat intellectual property theft. I believe that the focus on enforcement needs to be intensified and meaningful punishment should be given to offending companies. For example, intellectual property thieves could be imposed with a mix of sanctions, including industry-wide bans on imports and being blacklisted from financial markets including impacting directly those that have financial interests in criminal enterprises.”

Sinovel has previously failed to respond to requests for comment on this case. Sinovel.com, the company’s global website, appeared to be offline at the time of this writing.

Lead image: cybersecurity via Shutterstock

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