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Huawei’s Employee Bonus Program For Stealing Technology

January 30, 2019

By Jeff Ferry, CPA Chief Economist

On January 16th, a grand jury in the US District Court in Seattle, Washington indicted Chinese telecom equipment maker Huawei for theft of trade secrets and attempting to corruptly obstruct a civil lawsuit. 

The indictment contains an extraordinary amount of detail on Huawei’s industrial espionage practices and its theft of intellectual property from US wireless carrier T-Mobile USA. This shocking 28-page document amounts to a how-to guide for those seeking to steal intellectual property from their best customers. 

The indictment also contains the amazing revelation that, in the midst of a dispute over intellectual property theft with T-Mo USA, Huawei implemented a company-wide policy of paying bonuses to employees to reward them for stealing the intellectual property of competitors. This revelation confirms what many of us have known for years, that Huawei built its business by copying and stealing the intellectual property of rivals, especially its American competitors, and that IP theft is deeply embedded in Huawei’s DNA. Further, when commentators and pundits tell us that Huawei and its billionaire founder Ren Zhengfei are widely admired in China, they fail to mention the success and brazenness by which Huawei violates western IP conventions and laws. This enables them to turn out products based on competitor IP and and build a $100 billion tech equipment empire. 

Here is my summary of the key points we learn from the indictment on how to successfully steal IP:

1. Teamwork.

Successful intellectual property theft doesn’t happen by chance. It requires planning and teamwork. In 2011, T-Mobile began offering Huawei smartphones to its US customers, making it one of Huawei’s top distributors in the US market. T-Mobile had in its labs in Seattle a robot called Tappy that tested all the cellphones it offered, partly by repeatedly tapping a rubber contact finger on the screen. In 2012, Huawei began developing its own robot to perform similar tests. But the Huawei robot, named xDeviceRobot, was not performing as well as T-Mobile’s Tappy.  Huawei phones were failing T-Mobile’s tests more than other smartphones, so a better robot was needed. A senior Huawei engineer in China, known only as “F.W.” in the indictment, summoned an international team, including Huawei’s US staff working with T-Mobile, and assigned them the task of gaining access to Tappy’s secrets. 

According to the indictment: “HUAWEI CHINA engineers continued to task HUAWEI USA employees with determining the technical specifications of the Tappy robot, despite having been made aware that T-Mobile was unwilling to disclose confidential technical information about Tappy.” 

Huawei’s Director of Device Testing Management “H.P.” told his US colleagues, “The main point is to figure out the [Tappy] Robot’s specifications and functions. These are the benchmarks of products developed by ourselves.” In other words, H.P.’s plan was to illegally copy T-Mobile’s designs for the Huawei robot.

2. Among the tools of the spy, a tiny digital camera is especially helpful.

Huawei engineers in China continued to email the US team demanding more information about Tappy, including a PowerPoint presentation detailing robot design and pointing out what the engineering team needed to know about Tappy to improve the design of the Huawei version. Finally, on November 16, 2012, an enterprising engineer known as “A.X.” delivered the goods. 

“A.X. sent an email to J.Y. and other HUAWEI CHINA engineers with multiple unauthorized photos of the Tappy robot and its software interface system that A.X. had taken inside of the secure T-Mobile lab, in violation of the nondisclosure agreements HUAWEI USA signed.”

3. Tell your customers whatever they want to hear, but don’t stop spying!

The China-based engineering team was still not satisfied, and demanded more information on Tappy. T-Mobile was by now aware that Huawei was up to something and putting up strong resistance. Huawei US engineers emailed the China team with comments like: “we CAN’T ask TMO any questions about the robot. TMO is VERY angry…” Another comment was: “Due to answering headquarters’ questions, our employees have had two complaints raised against them, and it was declared that if we inquired again, Huawei’s credentials for using the TMO Robot Laboratory would end.”

But the China team was undaunted. They continued to press the US team. Finally on May 29, 2013, the Huawei spies got their big break: 

“The HUAWEI CHINA engineer asked A.X. to determine the diameter of a part of Tappy’s robot arm…A.X. used his badge to access the T-Mobile Tappy laboratory. As he was preparing to leave the laboratory, A.X. surreptitiously placed one of the Tappy robot arms into his laptop bag and secretly removed it from the laboratory. T-Mobile employees discovered the theft later that day, and contacted A.X. A.X. initially denied taking the robot arm, but then later claimed he had found it in his bag. A.X. described the incident a `mistake’ and offered to return the part.”

The theft finally led T-Mobile to recognize reality. They revoked all Huawei access to their labs and initiated an investigation. Huawei responded to T-Mobile’s angry complaints by carrying out their own “investigation,” which falsely concluded that the behavior of two US-based Huawei engineers were “isolated incidents.” T-Mobile sued Huawei over the IP theft and won a judgment of $4.8 million in a Seattle court in 2017. 

4. Never stop spying.

Here comes the bombshell: in the midst of this investigation, when Huawei must have realized that it was close to losing all its business with T-Mobile (a huge company with 79.7 million customers in the US today), Huawei launched a worldwide program to incentivize its employees to steal confidential information. 

According to the indictment: 

“HUAWEI CHINA launched a formal policy instituting a bonus program to reward employees who stole confidential information from competitors…Employees were directed to post confidential information obtained from other companies on an internal Huawei website, or in the case of especially sensitive information, to send an encrypted email to a special email mailbox. A ‘competition management group’ was tasked with reviewing the submissions and awarding monthly bonuses to the employees who provided the most valuable stolen information.”

For six years, I was a marketing executive at a US company that competed directly with Huawei in optical networks. Fiber-optic networking is one of the core technologies that make the Internet possible. The major technological breakthroughs that created this industry took place in the US, Canada, Europe, and Japan. My former employer manufactures specialized microchips with dozens of lasers on a single chip. Those chips, every one of them made in Sunnyvale, California, are still the only commercial chips for long-distance networks with dozens of optical components on a single chip. 

Huawei seized market share all over the world by offering Chinese government-subsidized copycat products roughly 30% cheaper than everybody else. While the US government has made it impossible for any telecom company wishing to do business with the federal government to use Huawei network equipment, industry publication Fierce Wireless has identified seven small rural telecom companies in the US with about 200,000 customers in total currently using Huawei gear for wireless and Internet networks. 

There are always telecom companies so strapped for cash that they will choose copycat products that are well behind the cutting edge in order to save money. Perhaps they also will turn a blind eye to the unethical behavior of intellectual property theft in their own labs and Chinese-inspired spying on their subscribers’ Internet usage. 

In cases like this, only federal government action can solve the problem. 

 

Check out our other stories on Chinese IP theft:

Top Ten Cases of Chinese IP Theft

Top Five Cases of Huawei IP Theft and Patent Infringement

Experts Say China Telecom Diverted US Internet Traffic Through China

 


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  • Dave Hancock
    well we know HUAWEI Employees have no ethics and can be bought; so, turn the tables.
  • Cathy Gardino
    This President is shining light into he dark places. Thank you President Trump.