Wall Street Journal: US Criminal Probe Targets Huawei

The United States is investigating China’s Huawei Technologies for theft of trade secrets from US partners, reports the Wall Street Journal. “The investigation grew in part out of civil lawsuits against Huawei, including one in which a Seattle jury found Huawei liable for misappropriating robotic technology from T-Mobile’s Bellevue, Wash., lab, the people familiar with the matter said,” the Journal reports. T-Mobile ended the relationship after catching employees taking photos of its robotic technology and one trying to steal the robot’s fingerlike tip. T-Mobile claims Huawei then used the technology for its products. “The federal investigation puts added pressure on the Chinese technology giant, the world’s largest maker of telecommunications equipment and the No. 2 maker of smartphones world-wide. It comes amid a broader push by the Trump administration to aggressively pursue claims of intellectual property theft and technology transfer by Chinese companies.” Huawei denies that its products are a security threat and used to spy against users. – YaleGlobal

Wall Street Journal: US Criminal Probe Targets Huawei

US pressure against Huawei builds as reports suggest investigators follow up on a civil case that claimed Huawei stole robotic technology from T-Mobile
Dan Strumpf, Nicole Hong and Aruna Viswanatha
Friday, January 18, 2019

The Wall Street Journal: Federal prosecutors are pursuing a criminal investigation of China’s Huawei Technologies Co. for allegedly stealing trade secrets from U.S. business partners, including technology used by T-Mobile US Inc. to test smartphones, according to people familiar with the matter.

The investigation grew in part out of civil lawsuits against Huawei, including one in which a Seattle jury found Huawei liable for misappropriating robotic technology from T-Mobile’s Bellevue, Wash., lab, the people familiar with the matter said. The probe is at an advanced stage and could lead to an indictment soon, they said. A Justice Department spokesman declined to comment.

A Huawei spokesman declined to comment on the federal probe but said Huawei and T-Mobile “settled their disputes in 2017 following a U.S. jury verdict finding neither damage, unjust enrichment nor willful and malicious conduct by Huawei in T-Mobile’s trade secret claim.” The company contested the T-Mobile case, but conceded that two employees acted improperly.

The federal investigation puts added pressure on the Chinese technology giant, the world’s largest maker of telecommunications equipment and the No. 2 maker of smartphones world-wide. It comes amid a broader push by the Trump administration to aggressively pursue claims of intellectual property theft and technology transfer by Chinese companies. Huawei has long been under scrutiny by the U.S., which has effectively blocked the company from installing its telecom equipment in major U.S. networks because of concerns that its gear could be used to spy on Americans.

Huawei has forcefully denied that it is a security threat. It says it is owned by its employees and operates independently of the Beijing government.

American pressure on Huawei has been building. On Wednesday, a bipartisan group of congressional lawmakers introduced legislation that would ban the export of U.S. components to Chinese telecommunications companies that are in violation of U.S. export-control or sanctions laws. Backers said the bill was aimed at Huawei and ZTE Corp., the Chinese telecom giant that violated U.S. sanctions against Iran and North Korea. “Huawei and ZTE are two sides of the same coin,” said Sen. Chris Van Hollen (D., Md.), one of the sponsors. “Both companies have repeatedly violated U.S. laws, represent a significant risk to American national security interests, and need to be held accountable.”

Last month, Canadian authorities arrested Huawei Chief Financial Officer Meng Wanzhou at the request of U.S. authorities. Ms. Meng, the daughter of company founder Ren Zhengfei, is accused of misleading banks about the nature of Huawei’s business in Iran, leading to violations of U.S. sanctions on the country. Ms. Meng has denied the charges, and Huawei says it follows the law in all countries where it operates.

In another development, Polish authorities last week arrested Huawei executive Wang Weijing and charged him with conducting espionage on behalf of the Chinese government. Huawei wasn’t accused of wrongdoing, and the company on Saturday terminated Mr. Wang’s employment.

On Tuesday, Huawei’s founder made a rare appearance before international media at the company’s headquarters in the southern Chinese city of Shenzhen, seeking to directly confront the concerns. Mr. Ren said Huawei hasn’t—and would never—spy on behalf of the Chinese government.

The new federal investigation against Huawei involves, in part, allegations leveled in the civil suit by T-Mobile in 2014, according to the people familiar with the matter.

At the time, T-Mobile had hired Huawei to supply cellphones for the U.S. wireless network operator, according to the lawsuit. T-Mobile had developed a testing robot it nicknamed “Tappy” to perform quality-control tests on phones it sold.

During the course of the business relationship, Huawei employees asked detailed questions about the robot and repeatedly sought information about proprietary technology, the T-Mobile lawsuit claimed.

In one alleged instance, two Huawei employees slipped a third one into a testing lab to take unauthorized photos of the robot. One employee also tried to hide the fingerlike tip of “Tappy” behind a computer monitor so that it would be out of view of a security camera, and then tried to sneak the tip out of the lab in his laptop-computer bag, according to the lawsuit.

That employee later admitted that he took the component because Huawei’s research and development office believed the information would improve its own robot, the lawsuit said. “Due to Huawei’s material breaches of its contracts with T-Mobile, and its unlawful theft of trade secrets, T-Mobile was forced to stop its ongoing handset supply relationship with Huawei at substantial cost,” the lawsuit said. “Huawei has used the robot technology it misappropriated from T-Mobile to unjustly gain a commercial advantage worth hundreds of millions of dollars.”

In a filing responding to T-Mobile’s allegations, Huawei said it didn’t steal trade secrets because Tappy wasn’t secret. Video of the device could be easily found on YouTube, and details of its design and specifications were published in numerous patents, Huawei said.

The case eventually went to trial, and a jury in 2017 awarded T-Mobile $4.8 million after it found Huawei breached its contract with the network operator. The jury didn’t award T-Mobile any damages in a separate claim of misappropriation of trade secrets and didn’t find Huawei’s actions in that claim “willful or malicious.”

“With the jury finding misappropriation of trade secrets and breach of contract, we won the first trial that we believe revealed their wrongdoing and began to unravel the Huawei story,” T-Mobile’s lawyer on the trial, John Hueston, said Wednesday.

The Justice Department in recent months has stepped up its efforts to prosecute allegations of Chinese technology theft, including by bringing criminal cases involving conduct previously outlined in civil lawsuits.

In November, it unsealed charges against a Chinese state-owned business and its Taiwan partner for allegedly stealing trade secrets from the U.S.’s largest memory-chip maker, Micron Technology Inc. That came after Micron sued the companies over similar allegations.

Dan Strumpf covers tech in Asia out of The Wall Street Journal's Hong Kong bureau.  Nicole Hong writes about law enforcement, courts and legal issues from The Wall Street Journal's headquarters in New York. Kate O’Keeffe contributed to this article.

© 2019 Dow Jones & Company Inc. All Rights Reserved.