The Case of American Superconductor Corp. Highlights IP Theft Abroad

As I visited The Boston Globe’s website to read about the stumbling Red Sox (I will not say which baseball team I root for right now), I came across a far more interesting story that highlights a growing problem US companies are facing.

Now that we are a more intellectual property (IP) based economy (we manufacture less, but develop more technology and software), we will rely more and more on the strength of IP laws around the world.  Unfortunately, China has fallen short in that department (more so with enforcement than laws on the books) and the case of American Superconductor Corp. illustrates this issue perfectly.

With this blog, I try to have some fun and keep things pretty light while providing nuggets of information gleaned from real world experience (representing clients in the situations I write about) and research.  This issue, however, is no fun for the American company that presumably spent millions developing a new technology, only to find it stolen by their customer – a Chinese company – Sinovel Wind Group Co.

As detailed in the story (from The Boston Globe), this has become such a serious issue, Massachusetts’ senior senator has become involved:

“Massachusetts jobs are at stake and so is the future of Sino-American collaboration in this [alternative energy] sector,’’ said Senator John F. Kerry, a Massachusetts Democrat who is Senate Foreign Relations Committee chairman. “American businesses won’t make investments there if this can happen to them.’’

The situation highlights long-running tensions between the United States and China over protecting intellectual property, from hardware to software to movies on DVDs. For the past decade, China has been the top source of intellectual property rights violations, a report by US customs, immigration, and border protection officials found.

In this instance, the Massachusetts-based company wrote the software for Sinovel’s wind turbines’ electrical control system in China.  When American Superconductor Corp. sent a team to China to look at a turbine, they discovered that their software had been copied onto that turbine.  After some investigation, American Superconductor Corp. discovered that an employee of their Austrian subsidiary was paid a little more than $20,000 to pass along data encryption decoding information to Sinovel Wind Group Co.   Not coincidentally, Sinovel Wind Group Co.  is now terminating its contract with American Superconductor Corp.  American Superconductor Corp. alleges that this cancellation is directly related to the theft of their technology and has filed suit in China.  In addition, the employee is facing charges in Austria for their equivalent of corporate espionage.

This is an issue we will see continue to be played out over and over again until China enforces its laws or the US pulls out of that market.

Thanks to The Boston Globe and to the stumbling Red Sox.