Chinese wind power giant faces U.S. indictment on economic espionage charges

Source: Daniel Cusick, E&E reporter • Posted: Wednesday, July 24, 2013

China’s largest wind energy manufacturer, Sinovel Wind Group Co., has become the new face of a growing fracas between the United States and its global economic rival over intellectual property and the legal use and transfer of renewable energy goods and services.

Sinovel, which once bragged of pushing U.S. power systems giant General Electric Co. into third place for global wind turbine manufacturing, now faces charges in U.S. federal court that it and two of its employees conspired with another individual to steal proprietary software from a U.S. firm that was used to improve the efficiency of Sinovel wind turbines.

The 11-page grand jury indictment, filed last month in U.S. District Court in Madison, Wis., alleges that Sinovel, which until recently maintained a U.S. headquarters in Houston, conspired to steal property valued at more than $800 million from AMSC of Devens, Mass., under a plan hatched by two midlevel Sinovel executives in China and a Serbian co-conspirator who was employed by AMSC in Austria.

“The allegations in this indictment describe a well-planned attack on an American business by international defendants — nothing short of attempted corporate homicide,” John Vaudreuil, U.S. attorney for the Western District of Wisconsin, said in announcing the June 27 court filing. The case was brought in Wisconsin because the software was allegedly downloaded from a computer at AMSC’s Middleton, Wis., office.

Federal arrest warrants for the three named defendants were issued with the indictment, but it remains unclear whether any of them will be apprehended because all are foreign citizens living abroad.

Matthew Jacobs, an attorney with the San Francisco firm Vinson & Elkins LLP representing Sinovel Wind Group, declined to comment on the case in an email.

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.

The check that wasn’t in the mail

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.

Among the items alleged to have been stolen are software to run AMSC’s Power Module 3000 and programmable logic controller technologies. Both are key components of the company’s “low voltage ride through” system, which allows turbines to continue operating during periods of low electricity flow to the grid.

Months later, AMSC “discovered that Sinovel had gained access to and was actively using stolen AMSC trade secrets and intellectual property illicitly supplied by Dejan Karabasevic,” 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, Wis., according to the company’s statement.

As part of a subsequent investigation, AMSC found 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 Wisconsin 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 “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.

Allegedly stealing ‘the DNA of new products’

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 10 subsidiary companies outside China, told the Shanghai Stock Exchange that it would cancel its subsidiary activities in the United States, Canada, Belgium and Italy.

In a statement detailing the firms’ 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 U.S. 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, “we believe that the Chinese police have yet to undertake an investigation and China’s civil courts have yet to begin substantive hearings of AMSC’s cases,” the company said.

AMSC’s McGahn called intellectual property like its low voltage ride through technology “the DNA of new products and technologies” that must be protected for U.S. companies to successfully compete in a global marketplace. Yet, he added, “this is impossible if companies in countries such as China are brazenly stealing trade secrets through industrial and cyber espionage.”

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.

“We believe this [case] clearly demonstrates that the rights of foreign businesses are not being protected,” McGahn said. “The inability to rely on the rule of law is creating a risk for U.S. businesses operating in China.”

At least one U.S. senator is backing the company’s efforts. Elizabeth Warren (D), the freshman lawmaker from Massachusetts, said in a statement that the U.S. government “must get tough on these foreign companies that steal American ingenuity.” And she encouraged China to cooperate with U.S. efforts to stem illegal practices. “Decisive actions on their part will send a positive signal to the United States that China supports fair and mutually beneficial trade relations,” Warren said.