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Sinovel: the Consequences of Trade Secret Theft

By:  John E. Parkerson, Jr., Esq. and Katja Demmel

A January 24, 2018 federal court jury conviction in Madison, Wisconsin serves as a serious warning to companies about how they can be destroyed easily by the theft of intellectual property. Fortunately, federal prosecutors were successful in securing a criminal conviction – but unfortunately not before the company that was the theft victim was almost destroyed.

After 11 days of trial, the jury convicted Beijing-based Sinovel Wind Group Co. Ltd. (“Sinovel”), the largest wind turbine manufacturer in China, of conspiracy to commit trade secret theft, theft of trade secrets, and wire fraud. Sentencing is set for June 4. The crimes’ victim was American Superconductor, Inc. (“AMSC”), a U.S. energy technologies company based in Massachusetts. The theft caused AMSC to lose hundreds of millions of dollars, more than $1 billion in shareholder equity, and almost 700 jobs representing over half its global workforce. With the January 24 conviction, there are signs that AMSC may be on a path to recovery, while Sinovel’s stock is on a downward slide.

A summary of the Sinovel facts show how quickly something like this can happen. In 2011, AMSC entered a contract with Sinovel to provide the latter company $800 million in products and services for Sinovel’s use in producing its wind turbines. Despite this agreement, Sinovel that same year convinced the disgruntled head of AMSC Windtec`s’ (an AMSC subsidiary) automation engineering department in Austria to steal copyrighted information and trade secrets from AMSC’s computers about AMSC’s software that regulates the flow of electricity from wind turbines to the electrical grid. Sinovel then configured its own software systems with the stolen AMSC source code information, and incorporated that software into wind turbines it erected in China and Massachusetts. With this theft, Sinovel no longer needed AMSC’s products and services, leaving AMSC without the promised $800 million.

After lengthy investigations, the U.S. Department of Justice in June 2013 charged Sinovel, two of its research and development and technology managers, and the former AMSC employee who stole the information. In the interim, the loss of Sinovel orders caused AMSC devastating financial hardship, nearly destroying the company.

These kinds of cases unfortunately are all-too common, and companies must be vigilant and have adequate safe-guards in place to reduce the risks of trade secrets theft. Just the week before the verdict in the Sinovel case, a Chinese software developer was sentenced by a federal court in White Plains, New York to five years in prison after he plead guilty to stealing a computer source code from IBM to hand over to a Chinese government agency. An on-line search will reveal many more similar cases and, thanks to effective international cooperation between a number of countries’ criminal investigation services and aggressive prosecutions, we hope to see the number of convictions rise. Aside from the serious crimes being committed, however, the business losses – including jobs – from trade secrets theft are too real to ignore.

For more information about the Sinovel case, see:

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John Parkerson is an attorney in Hall Booth Smith’s International Business and International Trade groups.

Katja Demmel, is working in Hall Booth Smith’s Atlanta office while awaiting the results of her Staatsexamen at the Oberlandesgericht Nurnberg.