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- July 28, 2010 -

Global Supply Chain News: Intellectual Property Rights in China Remain Key Issue; Motorola Sues Electronics Giant Huawei, Claiming Multi-Year Effort to Steal Trade Secrets

US, European Companies and Governments Increasingly Upset over Lack of IP Progress in China


SCDigest Editorial Staff

SCDigest Says:
Huawei has been accused of intellectual property violations before. In 2003, Cisco Systems alleged the company stole its router code.

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Despite continuous promises and some action by the Chinese government, protection of intellectual property remains at the top of the list of concerns for US and European companies in terms of doing business in China. Motorola is the latest company to expose the issues, filing a lawsuit last week accusing manufacturing partner Huawei of a multi-year scheme to steal its latest wireless network technology.


Motorola had originally filed a the suit in 2008, but that legal action was focused on a small company called Lemko, of Schaumburg, Illinois. Last week, Motorola amended the suit to directly charge Huawei Technologies, one of China’s largest and most global corporations, of collusion in the industrial espionage effort.


The original lawsuit charged five former Motorola employees, four of whom held Chinese citizenship and another who held both U.S. and Chinese citizenship, with stealing its trade secrets. They were accused in part of accessing and transferring Motorola's intellectual property to a company called Lemko, which Motorola says they were secretly working for.


But in the amended filing, Motorola alleges information from Lemko was being fed directly to  Ren Zhengfei, the founder of Huawei, and said as many as 13 of its employees were involved in the transfer of valuable cellular technical secrets to Huawei and possibly others.


"Defendant Shaowei Pan was a trusted senior engineer and director of architecture working full time at Motorola on the development of new products and new technologies for Motorola," according to the amended complaint. "However, as set forth below, defendant Shaowei Pan and the other defendants secretly were engaged in new product development for Huawei."

The suit says the flow of information from Motorola to Huawei went on for years during the past decade.


Huawei called the complaint "utterly without merit" and said Lemko was simply a supplier of equipment for the company.


Lemko has claimed in court filings that Motorola has falsely attacked it in an attempt to put it out of business and take over its proprietary technology, which involves developments in a field Motorola overlooked for years. "It is unfortunate that Motorola continues to define its success by the number of frivolous lawsuits it commences," a Lemko spokesman said, according to the Wall Street Journal.


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Huawei has been accused of intellectual property violations before. In 2003, Cisco Systems alleged the company stole its router code, but the company dropped the suit after Huawei agreed to remove its router products from the market and change them.


What’s the Risk in China?


Huawei had revenues of some $22 billion in 2009 and is considered a national champion, with the company starting to be seen as a true global supplier to telecommunications companies outside the US. Several years ago, it almost acquire US-based network provider 3COM, before controversy about the possibility led it to drop its bid.


The lawsuit may cause some problems for Huawei as it attempts to open US and European markets, but the legal action also holds risks for Motorola.


The company was one of the earliest and most aggressive of US companies in opening the Chinese market and setting up manufacturing there. It is said to have some 800 million Chinese customers – a number that could be under some risk if Motorola is perceived to be “picking on” Huawei, or the Chinese government decides to retaliate in some way.


The Motorola suit came as both US and European officials and companies continue to press for greater protection of intellectual property in China.  


A few weeks ago, Germans Jürgen Hambrecht, chairman of BASF, and Peter Löscher, chief executive of Siemens AG, complained strongly to Chinese Premier Wen Jiabao about rules that foreign companies say compel them to transfer valuable intellectual property in order to gain market access.


Amid a variety of criticisms, US government officials continue to press Chine for greater protection of the intellectual property of US based companies, from entertain products to software to a variety of technology and industrial trade secrets.


Just how big is the threat of loss of intellectual property to Chinese companies? What if anything can US companies do? Let us know your thoughts at the Feedback button below.

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