The United States Department of Justice released an indictment against Huawei Technologies charging the Chinese technology company with trade secret theft and bank fraud. In particular, a thirteen-count indictment in New York accuses the company, two of its affiliated companies, and its Chief Financial Officer, Wanzhou Meng, of bank and wire fraud, as well as, conspiracy in connection with business in Iran. The other indictment, a ten-count indictment filed in Washington state, alleges Huawei stole trade secrets from its American rival, T-Mobile USA, which is based out of Washington state.
The trade secret misappropriation allegations against Huawei accuse the Chinese telecom-equipment giant of stealing trade secrets for a T-Mobile cell phone-testing robot named Tappy. Tappy tested smartphones by mimicking human fingers. It is alleged that Huawei’s employees illicitly obtained software, specifications, and even parts, including one of Tappy’s arms, from a T-Mobile laboratory. Huawei’s workers also allegedly took photographs and measurements of Tappy and its components. The goal was to help Huawei build its own robot. Prosecutors claim that Huawei needed to build a robot like Tappy because the phones it supplied to T-Mobile were not of high quality and continually broke down. T-Mobile, however, declined to sell or license the Tappy system to Huawei, particularly because Huawei also supplied competitors, such as AT&T. The indictment goes on to claim that Huawei went so far as to offer bonuses to employees who succeeded in obtaining technology from rivals, as revealed by a string of company emails.
When T-Mobile discovered the trade secret theft, Huawei falsely claimed it was the work of rogue actors. This prompted T-Mobile, in 2014, to file a civil lawsuit against the Chinese smartphone maker for trade secret misappropriation and breach of contract. The Seattle jury did not find Huawei’s claims persuasive as it decided T-Mobile’s trade secrets had, in fact, been misappropriated by Huawei. Indeed, that jury awarded T-Mobile $4.8 million in damages. The jury, however, did not find Huawei’s misappropriation to be “willful and malicious” and as such, did not award any damages for the trade secret claim, but only on the breach of contract claim.
Trade secrets are any confidential business information which provides an individual or company a competitive advantage based on the information not being generally known. Indeed, for information to be considered a trade secret, it must not be generally known or readily ascertainable to competitors. Moreover, the holder of the trade secret must undertake reasonable efforts to maintain the information in secrecy. Trade secrets can encompass anything from manufacturing or industrial secrets to commercial secrets. For example, the subject matter of trade secrets may include sales methods, distribution methods, manufacturing processes, or even lists of suppliers and clients.
Trade secret misappropriation takes place if the offender acquires a trade secret by improper means or disclose the same with knowledge that the person who gave the offender the information acquired it through improper means or under circumstances giving rise to a duty to maintain its secrecy. Improper means, for purposes of misappropriation, include theft, fraud, bribery, industrial espionage, breach of a contractual duty to maintain information in confidence, or inducing another to breach such duty. In a civil lawsuit for trade secret misappropriation, if found liable, the defendant may be ordered to stop violating the plaintiff’s rights and to take affirmative steps to preserve the secrecy of plaintiff’s information, via injunctive relief, or to pay damages and attorneys’ fees to plaintiff.
As in the charges currently facing Huawei, an individual or enterprise can also be found criminally liable for trade secret theft. The Economic Espionage Act of 1996 provides the U.S. Attorney General with broad powers to prosecute any person or company involved in trade secret misappropriation. Penalties for such violations include a fine of up to $5 million, if the offending party is a corporation, and up to ten years in prison.
The director of the Federal Bureau of Investigation said, at a press conference, that Huawei’s actions “exploit American companies and financial institutions” and “threaten the free and fair global marketplace.” Huawei, on the other hand, denies having committed “any of the asserted violations” and claims to have been unaware of any of the wrongdoing by its employees. A bipartisan bill introduced in Congress recently, if passed, would systematically ban the sale of American technology to any Chinese company found to have violated export-control laws or sanctions. Thus, if found liable for trade secret theft, Huawei could face such a ban.