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Chinese Firm, At Center Of Dispute With AMSC, Indicted

BY Rick Saia

6/28/2013

The Chinese company that's embroiled in a legal dispute with Devens-based AMSC is now facing a federal indictment, accused of stealing trade secrets that caused AMSC to lose more than $800 million.
The Justice Department (DOJ) announced that Sinovel Wind Group, as well as three individuals – two of its employees and one who worked for an AMSC subsidiary – were charged Thursday in federal court in Wisconsin. The company and the trio are each charged with one count of conspiracy to commit secret trade theft, theft of trade secrets and wire fraud, the DOJ said.
"The allegations in this indictment describe a well-planned attack on an American business by international defendants - nothing short of attempted corporate homicide," said John W. Vaudreuil, U.S. attorney for the Western District of Wisconsin. "The Department of Justice and this office are committed to protecting American commerce and aggressively prosecuting those who seek to steal and use our intellectual property."
Sinovel had been AMSC's largest customer in 2011 –when the latter was known as American Superconductor. In that year, the company refused to pay for products it had ordered, AMSC alleged. AMSC is also seeking more than $1 billion in deliveries and damages from Sinovel in China's court system over alleged contract violations and intellectual property theft. That caused AMSC to lose more than $37 million in revenue.
AMSC serves the wind power and electrical grid industries.
According to the indictment, AMSC developed and sold software and equipment to regulate the flow of electricity from wind turbines to electrical grids, and it considered the software and equipment to be trade secrets and proprietary information. The software that runs a part of AMSC's wind turbine electrical control system was developed in Wisconsin and was stored on a computer in AMSC's office in Middleton, Wis. That software worked with other products, including an AMSC system designed to keep a wind turbine running despite a temporary drop in power flow in the electrical grid, the DOJ said.
Sinovel purchased software and equipment from AMSC for the wind turbines Sinovel manufactured, sold and serviced. According to the indictment, in March 2011, Sinovel owed AMSC more than $100 million for products and services previously delivered and had entered into contracts to buy more than $700 million in products and services from AMSC.
In published reports, Sinovel has previously denied AMSC's charges.
The DOJ identified the three individuals facing indictment as Su Liying, 36, deputy director of Sinovel's research and development department; Zhao Haichun, 33, a technology manager for Sinovel; and Dejan Karabasevic, 40, a former employee of AMSC Windtec GmbH, an AMSC subsidiary.
The indictment alleges that the three and Sinovel conspired to obtain AMSC's copyrighted information and trade secrets to produce wind turbines and to retrofit existing wind turbines with low voltage ride through (LVRT) technology, without having to pay AMSC for previously delivered products and services, thereby cheating AMSC out of more than $800 million.
In its own statement, AMSC warned wind-farm developers that any wind turbines purchased from Sinovel may contain stolen intellectual property from AMSC.
"We will continue to seek justice on a global basis," said John Powell, the company's vice president and general counsel. "Our case against Sinovel is incredibly clear-cut and the evidence is very damning."
The indictment alleges that Sinovel, through Su and Zhao, recruited Karabasevic to leave AMSC Windtec and join Sinovel, and to secretly copy intellectual property from the AMSC computer system. The four defendants are charged with stealing source code from AMSC in March 2011, and transmitting it by downloading it from an AMSC computer in Wisconsin to a computer in Klagenfurt, Austria, where Karabasevic was based.
The indictment also alleges that following the theft of AMSC's intellectual property, Sinovel commissioned several wind turbines in Massachusetts and copied into the turbines' software compiled from the software stolen from AMSC. The U.S.-based builders and operators of these Massachusetts turbines have cooperated in this investigation, the DOJ said.
If convicted, Sinovel faces a maximum penalty of five years of probation and a fine of up to $1.6 billion.
The three individuals - Su, Zhao and Karabasevic – could each face a maximum penalty of five years in prison on a conspiracy charge, 10 years in prison on a charge of theft of a trade secret and 20 years in prison on a charge of wire fraud, the DOJ said.
AMSC said the indictment specifically involves four 1.5-megawatt Sinovel wind turbines that were installed in Farhaven, Scituate and the Charlestown section of Boston.
U.S. Urged To Revisit China Trade Relationship
In that same statement, AMSC requested that the Obama administration and Congress re-evaluate the U.S. trade relationship with China.
"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 P. McGahn, AMSC's president and CEO.
""Enforcement and protection of intellectual property – the DNA of new products and technologies – is essential for U.S. companies to compete successfully in a global economy," McGahn added. "This is impossible if companies in countries such as China are brazenly stealing trade secrets through industrial and cyber espionage."
(Image credit: freedigitalphotos.net)