Huawei dismisses fresh US racketeering charges

Huawei has publicly rebutted the new superseding charges of racketeering and trade secret theft filed by the US Department of Justice.

Officials from the DoJ and the FBI announced the charges against Huawei as well as two of its official subsidiaries, Huawei Device Co. Ltd. (Huawei Device), Huawei Device USA Inc. (Huawei USA), and two of its unofficial subsidiaries, Futurewei Technologies Inc. (Futurewei) and Skycom Tech Co. Ltd. (Skycom). Also on the defendants list is Huawei’s CFO, Meng Wanzhou (Meng), already in detention in Canada fighting her extradition case. The new charges being a superseding indictment means it contains and expands on the earlier charges officially announced in January 2019. As a result, most of cases listed out in detail in the full document are familiar to those following the Huawei vs. USA saga closely.

Huawei denies all the charges. “This new indictment is part of the Justice Department’s attempt to irrevocably damage Huawei’s reputation and its business for reasons related to competition rather than law enforcement,” the company said in a statement. “These new charges are without merit and are based largely on recycled civil disputes from last 20 years that have been previously settled, litigated and in some cases, rejected by federal judges and juries. The government will not prevail on its charges, which we will prove to be both unfounded and unfair.”

The charges broadly fall into two categories: racketeering and breaking US international sanctions.

Most of them fall into the first category. The DoJ alleges that Huawei and the associated parties have violated the 1970 “Racketeer Influenced and Corruptions Act (RICO)”. The law, targeted at organised crimes, lists 35 types of offenses that may qualify as “racketeering”, from bribery and kidnapping to obstruction of criminal investigation by law enforcement agencies and everything in between. In the present case, the DoJ accused Huawei of “misappropriated intellectual property included trade secret information and copyrighted works, such as source code and user manuals for internet routers, antenna technology and robot testing technology”, then, after winning unfair competitive advantages, Huawei and its subsidiaries reinvesting the gains from this “alleged racketeering activity in Huawei’s worldwide business, including in the United States.”

Specifically this category of actions allegedly include “entering into confidentiality agreements with the owners of the intellectual property and then violating the terms of the agreements by misappropriating the intellectual property for the defendants’ own commercial use” and poaching competitor employees the “directing them to misappropriate their former employers’ intellectual property”, as well as “using proxies such as professors working at research institutions to obtain and provide the technology to the defendants.” Huawei is also alleged to have incentivised its employees for obtaining the most valuable competitor information.

When it comes to breaking sanctions, the indictment, updated with more details, is against Huawei and its subsidiaries’ alleged “business and technology projects in countries subject to U.S., E.U. and/or U.N. sanctions, such as Iran and North Korea – as well as the company’s efforts to conceal the full scope of that involvement.”

Meanwhile, the Department of Commerce decided to renew the Temporary General License for Huawei for 45 more days, which means American companies can have another one and half months to do business with Huawei legally while moving “to alternative sources of equipment, software and technology”, the DoC said.

In response to the DoC decision, Huawei reiterated its position that it should be removed the government’s Entity List completely instead of being granted one at a time. Not doing so “has done significant economic harm to the American companies with which Huawei does business, and has already disrupted collaboration and undermined the mutual trust on which the global supply chain depends,” the company said in an emailed statement.

Incidentally, while the DoJ alleged Huawei of using scholars to gain access to advanced technologies otherwise unavailable to it, the Department of Education has launched an investigation into gifts from foreign governments to America’s top universities, with Harvard and Yale being singled out. These two schools as well as other Ivy League and leading schools including Georgetown, Texas A&M, Cornell, Rutgers, MIT, and Maryland, have failed to declare fundings from Qatar, China, Saudi Arabia, and the United Arab Emirates. The DoE said since its enforcement efforts started in July last year, $6.5 billion previously undisclosed foreign money has been reported.

The crackdown on the US academics’ links to the Chinese government went up a notch when late last month, Charles Lieber, the chair of Harvard University’s department of chemistry and chemical biology and one of the world’s leading nanoscientists, was arrested for lying about his link with Chinese government-sponsored lab in China as well as the hefty payments ($50,000 per month) he received.

Huawei stresses how much it respects intellectual property

Embattled telecoms vendor Huawei feels so passionately about the sanctity of intellectual property that it’s published a great big white paper on the matter.

Titled ‘Respecting and Protecting Intellectual Property: The Foundation of Innovation’, the paper goes on at great length about how important innovation it and how it can only happen if people don’t go around ripping off each other’s inventions. There’s even a whole five-page section stressing how much Huawei respects third party’s IP and would definitely never nick any of it.

The paper was unveiled at a press conference in China by Huawei’s Chief Legal Officer Song Liuping (pictured). “In the past 30 years, no court has ever concluded that Huawei engaged in malicious IP theft, and we have never been required by the court to pay damages for this,” he said.

“Innovation and IP protection is the cornerstone of Huawei’s business success. Last year we generated more than 100 billion dollars in revenue. None of our key products or technologies are linked to any accusations of IP theft. No company can become a global leader by stealing from others.

“We have grown because we invest. Last year alone, we invested 15 billion US dollars in R&D – the fifth largest in the world. We have more than 80,000 R&D engineers that put their hearts and souls into the technology we create. Huawei fully supports the IPR protection system, both globally and in the United States.”

That all seems pretty clear doesn’t it? The primary purpose of the paper, however, was not to protest arguably too much about Huawei’s innocence, but to indirectly berate US President Trump for using intellectual property as a political pawn.

“Over the past 30 years, we have paid more than 6 billion US dollars in royalties to legally implement the IP of other companies,” said Song. “Nearly 80% was paid to American companies…. Disputes over IP are common in international business. Huawei has been on both sides of these disputes. We believe these disputes should not be politicized. Intellectual property is private property, protected by the law, and disputes should be resolved through legal proceedings.”

Song makes several valid points here. As we recently covered, US attempts to co-opt its own companies into its political dispute with China are increasingly causing collateral damage. Furthermore the apparent suspension of the rule of law for Huawei is not only unjust, but undermines the whole foundation on which international trade relies.

Having said that, Huawei’s unprompted protestations of angelic innocence when it comes to intellectual property are likely to raise some eyebrows. For example, a recent investigation into Huawei’s historical activities in this area paints a somewhat more nuanced picture. Huawei is using MWC Shanghai to make a bunch of self-aggrandizing announcements but the real action will take place when Trump meets Chinese President Xi in Japan this weekend.

US ups the ante on Chinese industrial espionage claims

State-owned Chinese company Fujian Jinhua Integrated Circuit Company (FJICC) and Taiwan’s United Microelectronics have been formally charged with intellectual property theft, targeting a US firm.

FJICC, which is owned by the People’s Republic of China (PRC) and part of the ‘Made in China 2025’ technology development programme, has already had it US supply chain components severed after intervention from the US Department of Commerce earlier this week, though the formality of a lawsuit escalates the conflict between the US and China further. United Microelectronics has already stated it has cut ties with FJICC, seemingly in an effort to avoid similar sanction from the US.

The lawsuit takes FJICC, United Microelectronics and three individuals into the courtroom, accused of using stolen trade secrets in the production of FJICC and United Microelectronics products. According to the lawsuit, the PRC did not possess DRAM technology prior to the events described in the indictment, though it was a segment which was identified as an economic priority. The three accused individuals previously worked at a subsidiary of US firm Micron, before transferring to United Microelectronics and subsequently setting up the relationship between the company and FJICC. At this point, the trade secrets were allegedly transferred to Chinese control.

If convicted, each company faces forfeiture, though how this will be imposed we are not sure, and a maximum fine of more than $20 billion.

“I am announcing that a grand jury in San Francisco has returned a multi-defendant indictment alleging economic espionage on the part of a state-owned Chinese company, a Taiwanese company, and three Taiwan individuals for an alleged scheme to steal trade secrets from Micron, an Idaho-based semi-conductor company,” said Attorney General Jeff Sessions.

“Micron is worth an estimated $100 billion and has a 20 to 25 percent share of the dynamic random access memory industry—a technology not possessed by the Chinese until very recently.  As this and other recent cases have shown, Chinese economic espionage against the United States has been increasing—and it has been increasing rapidly.  I am here to say that enough is enough. With integrity and professionalism, the Department of Justice will aggressively prosecute such illegal activity.”

Intellectual property theft is one of the cornerstones of President Trump’s assault on China, though taking the company to court is escalating the conflict further. After allegations of corporate espionage early this week, cutting out US components from the company’s supply chain was a logical step, though the lawsuit further compounds the battle.

The ban from the Department of Commerce is similar to the economic dirty-bomb the US dropped on ZTE earlier this year, though that only lasted a couple of weeks. The consequences of that action were clear, ZTE was also sent to keep the dodo company, though there was certainly collateral damage for US firms. Acacia Communications was one company who dependence on ZTE as a customer saw share price decline by more than 30% as a result of the ZTE export ban, though whether there are firms who are similarly dependent on FJICC remains to be seen.

The lawsuit itself represents the greater conflict between the US and China, both of which has ambitions to control the 5G ecosystem and subsequently lead the technology industry of tomorrow. Intellectual property theft is rhetoric which we have consistently heard from President Trump, though should the US prove successful in this case, it would not be surprising to see more investigations. Considering the leading positions Huawei and, less so, ZTE have crafted in the telco industry, these firms might find themselves in the crosshairs before too long.

One thing is certain, this will not be the last aggressive move towards China from this administration. If anything, this is justification for every intervention made by President Trump, think back to the Executive Order blocking Broadcom’s acquisition of Qualcomm and also the dreaded tariffs, as well as validation to accelerate towards further conflict.

“No country presents a broader, more severe threat to our ideas, our innovation, and our economic security than China,” said FBI Director Christopher Wray. “The Chinese government is determined to acquire American technology, and they’re willing use a variety of means to do that – from foreign investments, corporate acquisitions, and cyber intrusions to obtaining the services of current or former company employees to get inside information.

“We are committed to continuing to work closely with our federal, state, local, and private sector partners to counter this threat from China.”