Pursuit of theft charges against Huawei is the second recent case where prosecutors have built criminal allegations on civil litigation
By Chuin-Wei Yap
Updated Jan. 17, 2019 9:48 a.m. ET
The federal
adds pressure on Chinese tech giant Huawei Technologies Co. by further involving the criminal-justice system in the fight against China’s alleged encroachment on intellectual property.
It is the second case in four months where federal prosecutors have built criminal allegations on civil litigation, risking uncertain outcomes as a verdict isn’t guaranteed.
The Trump administration wants to use indictments, along with export controls and other policy tools, as part of an arsenal to counter Chinese theft of trade and technology secrets, which U.S. officials increasingly view as part of national security,
. That has meant a more aggressive effort to convert corporate squabbles into criminal charges.
The federal investigation, first reported by The Wall Street Journal, into whether Huawei stole trade secrets from U.S. business partners arose from civil lawsuits, including one in which the Shenzhen-based company was accused of misappropriating robotic technology from wireless-network operator T-Mobile US Inc.
In November, the U.S. said it
in China and Taiwan on charges of stealing semiconductor-design secrets from Idaho-based chip maker
Inc., based almost entirely on litigation that Micron had filed in California courts a year earlier.
In both cases, the entry of federal prosecutors ratcheted up global attention and the stakes in what had until then been less noticed civil filings.
China said Thursday that it was concerned that a closed civil case was being reopened. “We have serious suspicions about the true motives behind it,” a Foreign Ministry spokeswoman said. “If they are politicizing this case, this does not comport with the rules on fair and free competition and breaches the spirit of the rule of law.”
In the Huawei case, the jury didn’t award T-Mobile any damages in a claim of misappropriation of trade secrets and didn’t find Huawei’s alleged actions in that claim “willful or malicious”—an outcome that raises the risk that a criminal case on broadly similar terms may not deliver the verdict prosecutors want, attorneys say.
“In a civil case, you need to prevail on a preponderance of the evidence, whereas a criminal case you need beyond a reasonable doubt, a much stricter burden of proof,” said Christopher Neumeyer, an attorney specializing in intellectual property for Taiwan-based Duane Morris & Selvam. “If you can’t prevail in a civil case, how are you going to win a criminal case?”
Huawei declined to comment. The Chinese and Taiwanese companies in Micron’s case say they plan to fight the charges. Fujian Jinhua Integrated Circuit Co. said in a statement that it isn’t guilty. The Taiwanese firm,
Corp. , said it has 15 years of experience in making the kind of chips whose technology it has been accused of helping Jinhua to steal.
Prosecutors pursuing the pair of tech-related cases may be taking cues from a playbook set a year earlier, when a Wisconsin jury found Chinese wind-turbine maker
Co. guilty of
from its former U.S. supplier,
Corp.
Attorneys say the Sinovel ruling was a landmark in using federal courts to go after Chinese companies for tech theft. Like Micron and T-Mobile, Massachusetts-based American Superconductor had tried first to take the Chinese company to court on its own—in that case, by filing suit in Beijing in 2011. That litigation went nowhere. The U.S. court ruled Sinovel must pay $59 million in fines and restitution to the American firm.
High-profile prosecutions are part of a range of weapons the U.S. can call on to shape global perceptions of China’s state-corporate behavior, as well as China’s perception of how its options might be dwindling, attorneys and analysts say. Other tools include sanctioning exports and redefining “emerging technologies” as a national security concern.
“The U.S. will pursue critical Chinese companies in any form possible,” said Alicia Garcia Herrero, chief economist at investment bank
. “The U.S. is aiming at creating a kind of sinking feeling for China. That is, no matter what China does, there will still be new angles for the U.S. to contain it.”
On its part, Beijing has sought to allay concerns in a series of pronouncements and other policies, even before the recent escalation of litigation. President Xi Jinping in July 2017 at a financial work conference said that intellectual property infringers would “pay a heavy price,” a remark analysts describe as unusual for the occasion. And last month, dozens of government agencies vowed in a coordinated announcement tougher punishments against such wrongdoers.
The U.S. may have more tech companies it could pursue. In December, the Justice Department indicted two Chinese nationals on charges of hacking and stealing technology and other business secrets from more than 45 companies in at least a dozen U.S. states and from government agencies. The U.S. hasn’t charged any companies involved in the allegations.
In a speech accompanying the December indictments, Deputy Attorney General Rod Rosenstein said one advantage of using the justice system is that it makes it difficult for China to feign ignorance when faced with a barrage of detailed allegations and corroboration.
“Exposing these actions through the criminal-justice system is a valuable tool,” he said.
But should prosecutions go awry, China may find itself with a trump card—and justification for retaliation. For some analysts, a central question remains.
“Is there really a reasonable determination that this is an appropriate case, or is it just a political thing?” Mr. Neumeyer said. “I don’t know how much of it is careful legal strategy and how much of it is tit for tat.”
—Julie Wernau contributed to this article.
