A federal jury on Wednesday found Chinese turbine manufacturer Sinovel Wind Group guilty on US charges that it stole trade secrets from its former technology supplier AMSC, resulting in a loss of more than $800m for the Massachusetts-based company.
After an 11-day trial, Sinovel, which was AMSC’s largest customer until 2011, was found guilty by the jury in Madison, Wisconsin, on all charges that included conspiracy and wire fraud.
Sinovel has denied any wrongdoing.
The Chinese vendor could face up to $4.8bn in fines as the charges can carry a maximum penalty twice the alleged loss for each of the three counts in the indictment.
Whether AMSC would have any success seeking restitution for losses attributed to the theft is unclear but that possibility sent its shares soaring 12.4% to $5.70 in New York. They rose another 5.2% to $6.00 in after-hours trading.
“Today’s verdict sends a strong and clear message that the theft of ideas and ingenuity is not a business dispute; it’s a crime and will be prosecuted as such,” said US Attorney Scott C. Blader for the Western District of Wisconsin. “Sinovel’s illegal actions caused devastating harm to AMSC."
The case stems from accusations made by federal prosecutors in June 2013 that Sinovel stole software code relating to wind turbine electrical control systems (ECS) developed by AMSC in Wisconsin and elsewhere.
The software and related hardware, which regulates electricity flow from turbines to the grid, are considered trade secrets and proprietary information.
At the time of the alleged theft in March 2011, Sinovel had contracted with AMSC for more than $800m in products and services to be used for turbines that it manufactured, sold, and serviced. AMSC was then know as American Superconductor Corp.
In a statement, the Department of Justice (DOJ) in Washington, DC, said prosecutors in the trial proved that Sinovel’s theft was tied to its intention to “produce its own turbines powered by the stolen intellectual property” and retrofit existing ones.
Sinvovel was charged along with Su Liying, deputy director of Sinovel’s research and development department; Zhao Haichun, a technology manager for the vendor; and Dejan Karabasevic, a former employee of AMSC Windtec Gmbh, a wholly-owned subsidiary of the US company.
DOJ says evidence presented at the trial showed that Sinovel conspired with the other defendants to obtain and use AMSC’s copyrighted information and trade secrets without paying the US company the more than $800m it was owed and promised.
According to DOJ, through Su and Zhao, Sinovel convinced Karabasevic, who was head of AMSC Windtec’s automation engineering department in Klagenfurt, Austria, to leave and join the Chinese OEM.
And then for Karabasevic to steal intellectual property from the AMSC computer system by secretly downloading source code on 7 March, 2011, from an AMSC computer in Wisconsin to a computer in Klagenfurt.
Sinovel later commissioned several wind turbines in Massachusetts and copied into them software compiled from the source code stolen from AMSC.
In September 2011, an Austrian court found Karabasevic guilty of stealng proprietary information from AMSC and giving it to Sinovel for remuneration. He was sentenced to one year in jail, where he served time, and two years of probation.
Bloomberg reports that Sinovel alleged during the trial that Karabasevic and the two Sinovel employees acted on their own without the vendor's approval.
“Given the current American administration, this is fuel for their fire to start bringing accountability per China’s actions,” AMSC chief executive Daniel McGahn told The Wall Street Journal. "China certainly has to take notice to how the West perceives this case.”
In China, AMSC is also involved in a protracted legal battle with Sinovel on issues related to the software copyright infringement case, with several cases in the civil court system and another is in arbitration. AMSC is seeking $1.2bn in damages.
The verdict against Sinovel is likely to stoke trade tensions between the US and China. It comes two days after President Donald Trump's administration slapped tariffs as high as 30% on solar cell and panel imports – a move it says was taken to protect manufacturers here that have been losing market share to Asian companies, mainly Chinese.
The administration is moving to clamp down on Chinese theft of intellectual property from American companies and is urging them to resist pressure from Beijing to share it as a precondition for greater market access in China.
Last week, Trump’ told Chinese President Xi Jinping that rising US trade deficits with China were no longer sustainable. The goods and services trade deficit was $347bn in 2016, according to latest published USTR data.
