Microsoft-Backed Startup Accuses Huawei Of Secret Tech Theft

In short: Microsoft and Dell-backed startup CNEX Labs accused a Huawei unit of stealing its secret semiconductor designs, having filed a lawsuit against the Chinese technology giant with a federal court in Texas earlier this week. Huawei and its American arm Futurewei face charges of organized and perpetual trade secret theft, with the litigation being filed as a countersuit to Huawei’s original claim that it was CNEX who stole its technology and not the other way around. CNEX Engineering VP and co-founder Yiren Huang is a former Futurewei employee, having worked at the unit between 2011 and mid-2013 when he established the San Jose, California-based firm.

Mr. Huang alleges that Futurewei attempted to acquire some of his pre-existing SSD patents under an employment agreement after refusing to buy it from him. He declined the offer, with the company’s aggressive approach playing a major part in his decision to leave it, according to the countersuit. Huawei’s subsidiary also claims CNEX illegally poached 14 of its employees, a notion that the startup strongly denies. In turn, the Silicon Valley firm accused the Chinese company of spying on it through a variety of means, including false interest in becoming a customer.

CNEX is also accusing Huawei of abusing the U.S. judiciary, claiming the Chinese firm is trying to access its secret technical documents through a sham discovery process. Even in a scenario wherein the technology juggernaut loses the original lawsuit, it would still have everything it needs to copy CNEX-owned trade secrets if it’s allowed access to the documentation under the pretense of looking for patent infringement, the American company claims. Both parties are strongly denying all accusations from the other side, with the only exception being CNEX’s admittance that it indeed hired over a dozen Futurewei employees, though the company rejects any implication of doing so in an improper manner.

Background: The latest development marks the second occasion which saw Huawei’s American arm accused of trade secret theft in the last several months. This July, former Futurewei employee Jesse Hong claimed two of his ex-colleagues were in possession of trade secrets stolen at the Telecom Infra Project Summit hosted by Facebook in 2016. The people in question were accused of registering for the happening in Facebook’s Menlo Park campus under false names after being denied an invitation request. Mr. Hong said he was fired after raising concerns about the event and is seeking $105 million in damages, whereas Huawei’s subsidiary denies all accusations. The plaintiff doesn’t appear to have ever been associated with CNEX, i.e. isn’t one of the employees poached by the startup, according to an investigation conducted by AndroidHeadlines.

The CNEX-Futurewei clash is just the latest in a long list of problematic episodes Huawei has been enduring in the United States for the better part of the last two decades. The company has often been accused of trade secret theft by American companies in the past and while it vehemently denied all of them, several cases that surfaced over the years yielded compelling evidence of wrongdoing. One such litigation was started by Cisco in 2003 as the firm accused Huawei of misappropriating its router source code by literally copy-pasting it, presumably as part of reverse-engineering efforts. While the case was officially settled out of court, that only happened after Huawei agreed to do everything Cisco asked for, the plaintiff’s SVP General Counsel Mark Chandler said in 2012.

Last year, Huawei was found guilty of trade secret theft after T-Mobile proved its 2014 claim that the Chinese firm stole both designs and components of Tappy, a robot meant to test touchscreen-based user experiences. The wireless carrier was awarded “only” $4.8 million in damages because it failed to prove malicious intent, though the plaintiff’s lawyers argued it’s hard to send corporate spies to steal products in good faith. The ruling was ultimately more beneficial to Huawei as T-Mobile pushed for close to half a billion in damages based on lost profits, licensing fees, and punitive purposes, with the case itself ultimately coming down to the fact that the telecom giant was unable to prove the spies who stole its tech were acting on corporate orders.

Huawei’s intellectual-property issues also attracted the attention of Washington and Capitol Hill. Besides numerous hearings and investigations that effectively barred Huawei from doing business in the United States on any meaningful scale, both aisles of the political spectrum in the country are painting the company as a national security threat due to its close ties to Beijing, a notion that the Shenzhen-based firm repeatedly dismissed as baseless. Earlier this month, Vice President Mike Pence called China and its companies a major threat to American IP as part of his remarks meant to put pressure on Google to stop investing in the Far Eastern country.

The U.S. and China are currently amid a major trade war, the like of which the world has never seen waged between two of its largest economies. The American government so far imposed tariffs on some $250 billion worth of Chinese goods, whereas the other side responded almost reciprocally. In August of 2017, President Trump started an investigation into an alleged foreign theft of IP holdings from the U.S. and its allies that the current administration estimates is costing the West up to $600 billion per year.

Impact: While the U.S. judicial system is impartial in principle, the current political climate in the U.S. is hardly conducive to any Chinese company pursuing IP rights in the country, especially highly contested ones. Irrespective of that fact, Huawei’s stateside track record with both IP matters and general business is far from stellar, which is a point CNEX will certainly pursue in court, provided the case ever reaches that stage. Still, given the countersuit and the convoluted relationship between the two parties, the two litigations have the potential to drag on for years before coming close to a resolution. As for Huawei itself, the tech giant hasn’t completely paused its consumer electronics business in the U.S. but has placed a large check on them as it won’t be selling any new smartphones stateside anytime soon, a company official told AndroidHeadlines earlier this month.

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