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Same-Day Analysis

Motorola Sues Huawei in Industrial Spying Case

Published: 22 July 2010
Huawei has been named as the ultimate benefactor in an industrial spying case from 2008 brought by Motorola against Lemko and a number of former employees.

IHS Global Insight Perspective

 

Significance

This raises once again the spectre of industrial spying.

Implications

Huawei will need to defend itself against the civil case, which could result in fines being levied but will also raise further questions about the companies' tactics and motives.

Outlook

Huawei itself will likely largely feel the pain through increased difficulties in gaining a toehold in the United States and other Western markets through acquisitions and major network contracts.

Huawei has been named in a two-year-old case against Lemko Corp. as the ultimate receiver of confidential industrial information stolen from Motorola by employees and former employees. Motorola Inc. v. Lemko Corp. (no. 08-cv-05427) is being heard in the U.S. District Court, Northern District of Illinois (Chicago). The November 2009 filing names Lemko Corp, Shaowei Pan, Hanjuan Jin, Xiaohua Wu, Xuefeng Bai, and Xiahong Sheng for alleged violations of the Computer Fraud and Abuse Act and the Illinois Trade Secrets Act. Jin, Wu, Bai, and Sheng are also sued for alleged breaches of fiduciary duty. All defendants have previously moved to have the claims dismissed—with limited success—apart from Jin, who is also the defendant in a criminal case, United States v. Jin (no. 08 CR 192), pending in Illinois. Nicholas Labun, JinZhong Zhang, Angel Favila, Ankur Saxena, Raymond Howell, Faye Vorick, and Nicholas Desai are also named in filings from June 2010.

Shaowei Pan worked as senior engineer responsible for network architecture at Motorola, and is currently chief technology officer at Lemko Corp. The Wall Street Journal reports that he left Motorola to help set up the company but even while working for Motorola had passed on information to the CEO of Huawei, Ren Zhengfei, a former officer in the People's Liberation Army who founded Huawei in 1988.

The report notes that Pan used file-destruction software on his computer before being ordered by the court to hand it over by the end of May 2009. Despite this, Motorola claims to have evidence that Pan met with Ren in Beijing in August 2001, and provided information on the market response to certain products in Brazil and India in August 2002. Pan also reported to Ren on plans for setting up Lemko at this time. A further meeting in March 2003 was arranged between Ren and Huawei's vice-president of wireless communications, JinLong Hou, with Pan and two senior Motorola engineers. Following the meeting Pan sent an e-mail to Hou that was recovered, attaching confidential specifications for a SC300 (CDMA 2000 1X) base station.

Wu is married to Pan and continued working at Motorola as an engineer until December 2007 when Motorola terminated her employment. Several specific examples of breaches of confidentiality are provided, including providing access to Motorola computers, e-mailing confidential documents on 31 May 2007, and obtaining log and dump files and other proprietary software in October 2006.

Bai worked as an engineer for Motorola between 2001 and December 2007, similarly providing computer access, dump files for W-CDMA technologies, and subsidy unlock codes. Sheng started work for Motorola in November 2006 until July 2008 having moved from Lemko—but is alleged to have continued assisting Lemko. The evidence for this is described as finding Lemko-associated source code on her computer, and an an e-mail referencing helping Lemko and connecting a USB drive with a folder titled Lemko. Sheng also downloaded a large number of files before the termination meeting.

Jin, a software engineer with Motorola since 1998, is alleged to have been simultaneously working for Lemko from 2004. She was caught boarding a flight to Beijing with US$30,000 in cash and 1,000 paper and electronic documents containing trade secrets and faces criminal charges. The November 2009 complaint makes a number of specific allegations that on 24 March 2005 Jin transferred Motorola source code to her own, personal, non-secure e-mail account. She is also alleged to have accessed Motorola computers between February 2006 and February 2007 to remove confidential files and obtain other confidential information and trade secrets regarding various technologies, including system architecture design, ICD specifications, push-to-talk, iDen, and WiMAX. She installed the proprietary Motorola VPN software on a Lemko computer to facilitate this access.

Outlook and Implications

Although the case has been ongoing for some two years, the amendment in the suit filed on 16 July is the first mention of Huawei. Business Week reports that the complaint specifically notes: "Huawei and its officers knew they were receiving stolen Motorola proprietary trade secrets and confidential information without Motorola's authorization and consent." Lemko is alleged to have been set up in part to transfer further Motorola information but Huawei states that it has no relationship with Lemko beyond that of a re-seller agreement. The Wall Street Journal reports that Motorola stopped pursuing the case while negotiations with Huawei were ongoing in relation to a potential sale of the wireless networking business. With that now going to Nokia Siemens, there is nothing holding back Motorola's pursuit of the case (see World: 20 July 2010: Nokia Siemens and Motorola Confirm US$1.2-Bil. Wireless Infrastructure Asset Deal).

Huawei has suffered from a poor image for its perceived links to the Chinese government, being denied the acquisition of 3Com, and struggling to gain major network contracts despite highly competitive pricing and positioning (see World: 21 February 2008: U.S. Treasury Department Looks to Block Sale of 3com, Cites National Security and United States: 9 July 2010: Huawei Pitches for Sprint Deal—Report). Being named in this case is unlikely to help gain favour with U.S. CEOs.

China and Chinese companies have been repeatedly at the centre of industrial spying allegations. Huawei was itself accused by Cisco of using Cisco code for routers in 2003, in a case that resulted in the routers being dropped from the market (see World: 26 March 2003: Cisco to Pursue Injunction as Huawei Admits Some Wrongdoing). Siemens and General Electric are also reported to have complained of aggressive Chinese attempts to gain technologies while Google alleged widespread hacking attempts against its systems sourced in China (see China: 14 January 2010: Google Threatens to Pull Out of China Following Hack Attack).

The case is ongoing and will face the usual twists and turns of a complicated legal battle. Lemko and Pan have denied the allegations, stating that the Motorola is baselessly attempting to lay claim to inventions that were created after Pan had left Motorola. Lemko has also claimed rights to privacy to attempt to limit the access Motorola investigators can have to Lemko documents and systems.

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