Huawei sues to stop Motorola's deal with Nokia Siemens
Monday, January 24, 2011; 10:54 PM
Huawei, a Chinese telecommunications giant that has run up against U.S. government opposition as it seeks business in the United States, announced Monday that it was suing to stop its former partner, Motorola, from transferring what it said were trade secrets to a rival.
The case marks one of the first times that a Chinese company has sued a Western firm for breach of intellectual property agreements. It also constitutes a change in strategy for Huawei, the world's second-largest telecommunications equipment maker, which has generally stood by as its business opportunities in the United States have evaporated.
"The case indicates that Chinese firms are climbing up the ladder of production," said Nicholas Howson, a professor of law at the University of Michigan. "Fifteen years ago we would have said a case like this was bogus. Now, we really don't know."
The case concerns the announcement last year that Motorola was going to sell its main mobile telecommunications unit to Nokia Siemens Networks. In a complaint filed Monday in federal court in Chicago, Huawei alleged that it had provided Motorola with $878 million worth of equipment and technology for wireless networks - including routers and switching stations - that Huawei had developed since 2000.
Huawei further alleged that the technology was about to be handed over to Nokia Siemens, which announced plans last year to buy Motorola's networking equipment business for $1.2 billion. The complaint asked the court to stop the transfer because it would result in "irreparable harm" to Huawei as Nokia and Huawei compete across the globe.
Motorola said the case was "without merit," according to Nicholas Sweers, a spokesman. Sweers said Motorola was moving ahead with the sale of its networks business to Nokia Siemens. The deal was supposed to be completed by the end of 2010 but it is still awaiting approval from China's antitrust authorities.
In the past, Chinese firms rarely sued over such agreements because most products were developed in the West and were then obtained legally or stolen by Chinese firms. Now, Howson said, more Chinese firms are developing technologies themselves.
"It's a watershed moment for Huawei," said Bill Plummer, Huawei's vice president for government relations, speaking about the case. "We're now number two on the planet, but with stature comes the need to assure that your lifeblood - your innovation - isn't allowed to bleed out the door. This is new territory, but this is territory that is not unusual to a global leader."
The theft of Western intellectual property has long been a major issue between the West and China. It figured prominently in the recent summit between President Obama and Chinese President Hu Jintao, during which China agreed to do a better job protecting U.S. software against piracy.
Motorola sued Huawei last year, alleging that Huawei had obtained restricted Motorola technology after some Motorola employees set up a dummy corporation that was used to funnel trade secrets to Huawei. Plummer said the two cases were not related.
Over the past 20 years, Huawei has grown into a global telecommunications powerhouse but it has had a hard time shaking China's broader reputation for intellectual piracy and its own connections to the People's Liberation Army and to China's government.
In 2004, computer networks firm Cisco sued Huawei for allegedly using Cisco's computer code in Huawei's products. Cisco dropped the suit after Huawei agreed to make changes in its products.
Huawei was founded by Ren Zhengfei, a soldier in the People's Liberation Army. Although he was demobilized in 1984, opponents of Huawei's business in the United States insist that he has maintained his links with China's security services. Huawei officials say their firm is wholly owned by its employees and is not owned by the military or by any other agency of the Chinese government.
In 2008, Huawei's bid to buy U.S. telecom equipment firm 3Com fell through after opposition from U.S. lawmakers on national security grounds. Hewlett-Packard bought 3Com in April in a deal valued at $2.7 billion.
Last year, the U.S. government stepped in, sources have said, to warn AT&T and Sprint away from deals with Huawei to provide next-generation mobile telecommunications equipment for their U.S. networks.