The criminal charges brought against a Chinese wind turbine maker last week are another sign of the US government’s increasing efforts to protect intellectual property rights of American companies doing business in China and a warning shot to Chinese firms seeking to expand internationally, legal and trade specialists said.
A federal grand jury on Thursday indicted Sinovel Wind Group Co. of Beijing on charges of stealing technology from American Superconductor Corp. of Devens — charges that could mean years of probation and hundreds of millions in fines if Sinovel is convicted. The case, along with several similar actions taken in the United States against Chinese entities, is a reminder to China that its companies won’t be immune from established intellectual property laws if they do business in other countries, specialists said.
Sinovel’s indictment, for example, stemmed from four of its wind turbines, operating in Massachusetts, that allegedly contained software stolen from American Superconductor, which does business as AMSC, according to court documents.
When Chinese companies were operating almost exclusively in their own country, they could steal intellectual property with little fear of legal consequences, said Thilo Hanemann, a research director at Rhodium Group, a New York firm that tracks foreign investments.
The Sinovel case, however, “illustrates the heavy baggage that some Chinese firms carry on their journey to global markets,” Hanemann said.
“Their increasing business interests and investments abroad expose them to foreign courts and litigation. For competitors and business partners of Chinese firms, that’s good news.”
This increased exposure to legal actions in US courts could help make US technology and other intellectual property more secure in China, analysts said. And that has implications for Massachusetts — beyond the impact on AMSC.
China is currently the state’s second-largest export market. In the first three months of the year, Massachusetts firms shipped $620.3 million in goods to China, a roughly 12 percent increase from this time last year, said Paula Murphy, director of the Massachusetts Export Center. The top export: semiconductor machinery.
Given the opportunities in one of the world’s largest and fastest growing markets, many Massachusetts firms choose to do business in China, Murphy said — but not without trepidation, particularly among small and mid-sized businesses.
“We definitely still hear concerns from companies about doing business in China,” Murphy said. “The follow-on enforcement from these cases is what’s going to make companies feel more comfortable.”
Theft of intellectual property has long been a problem for American companies doing business in China and a source of tension in US-Chinese relations. China’s market economy is still relatively new, and neither intellectual property law nor the legal system to deal with violations is well established.
The US indictment against Sinovel comes nearly two years after AMSC first accused the Chinese company, once its largest customer, of illicitly replicating AMSC’s software to control the wind turbines.
Just a few months before, in March 2011, Sinovel suddenly stopped accepting product shipments from AMSC, nearly crippling the Devens company, which had to lay off workers as revenues and stocks plunged.
A former AMSC engineer out of the company’s office in Austria was later convicted of stealing the technology for Sinovel. In exchange, according to court documents, he received a $1.7 million contract, an apartment in Beijing, and equipment.
AMSC filed several suits against Sinovel in Chinese court, and is seeking $1.2 billion in damages and contract payments. Those cases, which have been appealed by Sinovel, are still awaiting resolution.
AMSC chief executive Daniel McGahn said how the Chinese court system treats his company’s claims will “be a referendum” on Chinese president Xi Jinping’s “ability to think about intellectual property in a Western way.”
“Trade relationships and economic development can only thrive if the parties involved know they can depend on the law,” McGahn said. “You can’t have investment and innovation without compensation.”
Sinovel has denied any wrongdoing and countersued AMSC for breach of contract and other claims. Matthew Jacobs, an attorney with Vinson & Elkins LLP who is representing Sinovel in the United States, had no comment Friday.
The outcome of the Sinovel cases could also influence Chinese deals in the United States, particularly if the Chinese courts are seen as going too easy on Sinovel. If that’s the case, US officials responsible for vetting Chinese acquisitions of US companies could retaliate, said Thomas F. Holt Jr., a professor at Tuft’s Fletcher School of Law and Diplomacy and a partner at K&L Gates, a law firm in Boston.
A government panel, Committee on Foreign Investment in the United States, scrutinizes acquisitions of US companies by foreign interests in order to protect national security.
“You have industries that are technologically significant, that are significant to our security,” Holet said. “You add a dash of the [recent] hacking concerns — all of this could cause US government officials to take a jaundiced view of Chinese investment in American-owned enterprises.”