AMSC boss: China’s choice on IP

The Chinese government has an opportunity to make a positive statement to western countries on the value of intellectual property, an issue that’s now much bigger than the legal outcome of AMSC’s efforts to prosecute Sinovel for alleged theft of its trade secrets, says chief executive Dan McGahn.

“It’s really about how American companies go forward in China, how their IP can be protected and if there are problems, how they will be compensated for,” he told analysts on a conference call.

If the Chinese government does seriously address IP, it should help facilitate additional western investment in China and also technology transfer. If not, it “changes the landscape greatly” between how investors in the US and Europe look at, respect and want to participate in the Chinese market, McGahn adds.

AMSC wants to measure success of its legal battle with Sinovel in compensation. But management also believes the case is going to pave the way for a more robust dialogue between America, China and Europe on IP issues, according to McGahn.

AMSC alleges that Sinovel paid Dejan Karabrasevic, a former employee at AMSC’s Windtec office in Austria to steal critical elements of its power-electronics software code. This is part of the electrical control system – the so-called “brain” of a wind turbine.  AMSC is based in Massachusetts.

In late June, a US grand jury issued an indictment sought by the US Justice Department (DOJ) charging Sinovel, two of its China-based employees and Karabrasevic with theft of trade secrets.  Each faces one count of conspiracy to commit trade secret theft, theft of trade secrets and wire fraud.

If convicted, Sinovel faces a maximum penalty on each count of five years of probation and a fine for each count charge of up to twice the alleged loss of more than $800m.

“The order of magnitude of the amount of money that the US government is now seeking on our behalf – it’s staggering. It has to be taken seriously by the Chinese government when they look at this as an issue,” he contends.

McGahn says having a criminal indictment with a clear-cut equation for damages and also substantial fines has definitely raised IP as an issue for discussion between governments. “We’ve already seen that happen since the announcement of the indictment,” he notes.

“If and when a decision is made that this needs to be resolved, that the order of magnitude of the damages in the litigation are so significant, the evidence is so overwhelming, that we believe it's in China's best interest as a nation to make this problem go away in as positive a way that China can deal with,” he argues.

Meanwhile, AMSC continues to seek more than $1.2bn for contracted shipments and damages from Sinovel through four lawsuits filed in Chinese courts in late 2011. Sinovel, once AMSC’s largest customer, has filed a counterclaim for $58m against its former supplier in a Chinese court for alleged breach of contract.

AMSC’s cases have plodded on with no timeframe for resolution.  Two involving software copyright infringement await a ruling from China’s Supreme People’s Court on jurisdictional issues. The company remains hopeful the high court will act in the coming months.

In a case involving trade secrets, there has yet to a substantive hearing, according to McGahn. AMSC also awaits news soon on what it hopes will be a final hearing on its commercial arbitration claim.

“As we said before, we believe our case against Sinovel is clear cut,” McGahn says.