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Chinese Firm Found Guilty of Stealing Wind Technology from U.S. Supplier

The Wall Street Journal logo The Wall Street Journal 1/24/2018 Erin Ailworth

A federal jury found a Chinese wind-turbine maker guilty of stealing technology from a former U.S. supplier, in what was viewed as a test case for looming intellectual property battles between the two countries.

Federal prosecutors alleged that Sinovel Wind Group Co. Ltd. stole trade secrets from American Superconductor Corp., an Ayer, Mass.-based company that once counted Sinovel as its biggest customer.

Sinovel executives wooed a disgruntled American Superconductor employee into providing them with proprietary source code for software that controls wind turbines by proffering him money, prosecutors alleged in federal court in Madison, Wis.

The employee, who had been stationed in Europe, pleaded guilty before an Austrian court in late 2011 and served time in prison. Sinovel disputed allegations that company leadership had done anything improper.

Following an 11-day trial, the Wisconsin jury on Wednesday convicted Sinovel on all three counts, including theft of trade secrets and wire fraud, according to a spokeswoman for the U.S. District Attorney’s Office in the Western District of Wisconsin. Sentencing is set for June 4.

“Sinovel nearly destroyed an American company by stealing its intellectual property,” said Acting Assistant Attorney General General John P. Cronan of the Justice Department’s Criminal Division. “As today’s jury verdict demonstrates, this type of conduct, by any corporation—anywhere—is a crime, and won’t be tolerated.

The Sinovel indictment alleged that the theft cost American Superconductor more than $800 million. Federal officials previously said Sinovel could be fined a multiple of that loss, up to $4.8 billion.

The verdict comes amid trade tension between the U.S. and China, and just months after the Trump administration moved to take a harder line on intellectual property theft by China. The U.S. has vowed to take action against an array of Chinese goods and investments to combat pressure from China on U.S. companies to turn over valuable intellectual property.

Shares of American Superconductor, now known as AMSC, closed up over 12% at $5.70 a share.

“Given the current American administration, this is fuel for their fire to start bringing accountability per China’s actions,” AMSC Chief Executive Daniel McGahn said in an interview. “China certainly has to take notice to how the West perceives this case.”

The company also is pursuing legal action against Sinovel in China.

Neither Sinovel nor its attorneys immediately responded to requests for comment.

James Pooley, a former president of the American Intellectual Property Law Association, said the turbine-maker’s conviction in the U.S. comes as no surprise, especially given the recent attention to intellectual property theft by the Trump administration.

China, Mr. Pooley said, should take this as “a signal that the U.S. is prepared to put in the resources to prosecute the theft of trade secrets in cases that present themselves, and to back up the interests of U.S. companies.”

The dispute stems back to March 2011, when Sinovel stopped accepting deliveries from AMSC, saying its technology didn’t comply with new Chinese power-grid requirements.

The loss of business devastated AMSC. Its stock plunged more than 40% after it disclosed Sinovel’s refusal to take deliveries and led to hundreds of layoffs.

AMSC began to suspect Sinovel of theft in June 2011, according to court records, after a field team of AMSC employees in China found an imperfect replica of AMSC’s software in Sinovel turbines.

a close up of a sign© Imaginechina/Associated Press

Work by private and federal investigators led to an AMSC employee based in Austria named Dejan Karabasevic. Internet chat transcripts and emails submitted as evidence in court showed Mr. Karabasevic allegedly conspiring with Sinovel executives to steal and recreate AMSC”s technology in exchange for a total of $1.7 million.

In one exchange, Mr. Karabasevic chatted with a Sinovel executive about modifying AMSC’s software. “If you succeed, Sinovel can separate from AMSC,” Mr. Karabasevic wrote, according to court records.

“I need your strong help,” the Sinovel executive replied.

In an exchange with another Sinovel employee, in which Mr. Karabasevic referenced taking a job at Sinovel, he wrote: “All girls need money, I need girls, sinovel [sic] needs me.”

In 2012, court records show, FBI agents discovered four Sinovel turbines in Massachusetts operating with what an analysis showed to be modified versions of AMSC’s software. The discovery helped lead to Sinovel’s 2013 indictment.

Mr. Karbasevic and the Sinovel employees, who were also indicted in 2013, were called as witnesses in the Wisconsin trial.

Jeffrey Osborne, an analyst at Cowen & Co., said the verdict would hopefully close “a painful chapter” for the company, which also announced Wednesday that it had received an order from South Korea’s Doosan Heavy Industries & Construction Co. Ltd. for control systems for offshore wind turbines.

Write to Erin Ailworth at Erin.Ailworth@wsj.com

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