An escalating battle between the U.S. and China for supremacy in semiconductor technology is playing out in federal court between Chinese telecommunications giant Huawei Technologies Co. and a Silicon Valley startup backed by Microsoft Corp. and Dell Technologies Inc.
CNEX Labs Inc., based in San Jose, Calif., and its co-founder Yiren “Ronnie” Huang alleged in Texas federal court this week that Huawei and its Futurewei unit have engaged in a multiyear plan to steal CNEX’s technology.
A lawyer for Huawei denied the allegations, which were made in a countersuit in response to a complaint Huawei itself had filed last year, accusing CNEX and Mr. Huang—its former employee—of stealing its trade secrets and demanding detailed information about CNEX’s technology.
The continuing legal dispute is an unusual example of a Chinese company attempting to use the U.S. court system to access technology it claims had been stolen from it by an American company.
The intellectual property in dispute—solid-state drive (SSD) storage technology—allows massive data centers to manage the ever-growing volume of information generated by artificial intelligence and other advanced applications, prompting investment in CNEX from the venture-capital arms of Dell and Microsoft, which operate leading storage and cloud platforms, respectively.
Mr. Huang, a Chinese-born U.S. citizen, is at the center of both the American and Chinese companies’ allegations against each other, underscoring the increasingly intertwined nature of the talent pool for developing cutting-edge technologies.
After attending universities in Shanghai and Michigan, Mr. Huang worked in Silicon Valley for nearly 30 years—including nearly a dozen at Cisco Systems Inc. —CNEX says in court filings. He was named an inventor on 9 U.S. patents and 13 pending U.S. patent applications that have been assigned to CNEX, the filings say.
In 2011, Futurewei, based in Plano, Texas, hired Mr. Huang to work at its Santa Clara, Calif., offices due to his expertise in SSD technology, but the Chinese firm refused his offer to sell to Futurewei his pre-existing intellectual property, CNEX alleges. Later the Chinese firm tried to get him to sign it away under an employment agreement, but he refused to do so, CNEX says.
After finding Futurewei lacking in entrepreneurial culture, Mr. Huang left in May 2013 and promptly co-founded CNEX in 2013, the U.S. firm says in its filings. Huawei immediately began monitoring the startup, including by feigning interest in becoming a customer in order to try to improperly gain access to its technology, CNEX says.
Huawei then sued CNEX and Mr. Huang, alleging he had stolen its tech and improperly recruited 14 of its employees. CNEX admitted in its response that those employees used to work at Huawei but denied any conspiracy.
CNEX said Huawei’s litigation against it is “premised on bogus claims of trade secret misappropriation and false claims of ownership of CNEX’s proprietary technology” and that it “represents the latest in a long line of underhanded tactics waged by Plaintiffs in their ongoing effort for Chinese technological dominance.”
As part of the discovery process, Huawei asked the court in a filing earlier this month to force CNEX to turn over all of its technical documents, including “detailed engineering specifications, testing plans, source code design documents, source code flow charts, hardware design documents and schematics, hardware and software bug status reports, engineering personnel responsibility designations, client product delivery details, and production schedules.” A protective order entered by the judge places heavy restrictions on access to the technical documents in the case.
Though it dominates telecom-equipment markets in Asia, Europe and elsewhere, Huawei has been virtually locked out of the U.S. since a 2012 congressional report alleged that its gear, and that made by its smaller Chinese rival ZTE Corp . , could be used by Beijing to spy on Americans. The companies have denied the allegations.
Scrutiny on the two Chinese telecom behemoths has intensified in recent months as the Trump administration and a bipartisan coalition in Congress move deliberately to counter what they view as years of unbridled Chinese aggression across an array of military, political and economic fronts.
The U.S. Chamber of Commerce has long criticized China’s theft of intellectual property from American businesses, including with a scathing report on Beijing’s Made in China 2025 policy, a blueprint for turning China into a global manufacturing leader.
The Committee on Foreign Investment in the U.S., which reviews deals for national security concerns, cited Huawei’s dominance in the telecommunications-equipment industry in advising President Trump to block Broadcom Ltd.’s $117 billion hostile takeover bid for U.S. semiconductor giant Qualcomm in March. The Treasury-led committee, known as CFIUS, wrote that they feared such a deal could weaken Qualcomm, which competes with Huawei for wireless-technology patents.
The U.S. is using the committee as well as an ongoing update of export control laws, to protect critical technology such as semiconductors from being acquired by China.
Earlier this year, the Pentagon halted sales on U.S. military bases of smartphones made by Huawei and ZTE. The Justice Department is also investigating whether Huawei violated U.S. sanctions on Iran.
Source: The Wall Street Journal
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