US charges Huawei with racketeering and conspiracy to steal trade secrets

The US Department of Justice has charged today Huawei and four of its subsidiaries with racketeering and conspiracy to steal trade secrets.

The new charges today represent an escalation in the US' legal battle against the Chinese telecommunications giant.

The US first charged Huawei and its CFO in January 2019.

Initial charges included money laundering, conspiracy to defraud the US, obstruction of justice, and sanctions violations.

Today, the US added new charges and expanded the defendants list, which now includes Huawei CFO Wanzhou Meng, Huawei, and four official and unofficial subsidiaries -- Huawei Device Co. Ltd. (Huawei Device), Huawei Device USA Inc. (Huawei USA), Futurewei Technologies Inc. (Futurewei), and Skycom Tech Co. Ltd. (Skycom).

Huawei CFO Wanzhou Meng was arrested on the initial charges last year in Canada. Meng is still fighting her extradition to the US.

New charges

The US DOJ claims it uncovered a "decades-long efforts by Huawei, and several of its subsidiaries, both in the US and in the People's Republic of China, to misappropriate intellectual property, including from six US technology companies, in an effort to grow and operate Huawei's business."

The DOJ says stolen information includes trade secret information and copyrighted works, such as source code and user manuals for internet routers, antenna technology, and robot testing technology:

"The means and methods of the alleged misappropriation included entering into confidentiality agreements with the owners of the intellectual property and then violating the terms of the agreements by misappropriating the intellectual property for the defendants' own commercial use, recruiting employees of other companies and directing them to misappropriate their former employers' intellectual property, and using proxies such as professors working at research institutions to obtain and provide the technology to the defendants."

Investigators also claim that Huawei ran a bonus program to reward employees who obtained confidential information from competitors. Those who wanted to participate were supposed to send stolen data to an encrypted email to a special @huawei.com inbox, according to the DOJ's indictment. The program ran since 2013.

"A 'competition management group' was tasked with reviewing the submissions and awarding monthly bonuses to the employees who provided the most valuable stolen information. Biannual awards also were made available to the top 'Huawei Regional Divisions' that provided the most valuable information. A memorandum describing this program was sent to employees in the United States.

The new superseding indictment also includes detailed examples of alleged Huawei theft of intellectual property (IP) from US companies. Some of these examples include:

• The use of proxies (professors, research institutes, or third-party companies) to reach out to US companies and obtain proprietary information, and then transfer the data to Huawei.
• Huawei allegedly stole source code, command-line interfaces, and device manuals from a router manufacturer (believed to be Cisco), created its own equipment, and sold it at discounted prices in the US. By mistake, Huawei engineers left version numbers and other identifiers in the stolen code, user interface, and manuals, revealing the theft, and forcing the company to recall products from the US. When sued, Huawei destroyed evidence in the lawsuit by recalling and wiping routers, and sending the infringing devices back to China. In court, Huawei claimed they received the stolen code from a third-party.
• In another case, Huawei poached an employee from another company and demanded documents from his former employer, including details about a base station technology.
• In July 2004, a Huawei employee broke into a Chicago trade showroom in the middle of the night and took photos of a networking device's internal circuitry. When the employee was caught, Huawei claimed the employee was acting on his own.
• A Huawei subsidiary entered into a non-disclosure agreement (NDA) with a US company, gained access through this partnership to proprietary data about a wireless antenna technology used for cellular telephony, and then transfered the data back to Huawei, breaking its NDA. US officials claim Huawei made an estimated $22 million by selling devices that incorporated the same technology.
• The same scheme was applied in the case of another company (believed to be AT&T), with a Huawei subsidiary entering a partnership that allowed Huawei employees access to the company's proprietary robotic phone-testing system. According to the indictment: "once inside, Engineer-3 photographed and gathered technical information about the robot before Company 5 personnel discovered the breach and escorted him out of the facility." Days later, another Huawei employee "accessed the laboratory and surreptitiously placed a robot arm into a laptop bag and removed the robot arm from the laboratory."
• Another strategy used by Huawei also included "continuously recruit[ing] people from [Company 6]" in order to cause "internal turmoil." The DOJ says this tactic was used against a US developer of architecture for memory hardware, and a direct competitor of Huawei.
• Huawei also invited employees from competing companies to hold talks in China, asked access to presentation slides, copied proprietary data, and shared the info with its engineers working on competiting products.
  

According to the DOJ, Huawei also had a plan in place for dealing with the fallout and disguising its IP theft operations. US officials say Huawei had a manual labeled "Top Secret" that instructed Huawei employees to conceal their employment with the company when meeting with foreign law enforcement officials.

In addition, the DOJ claims that in order to prevent civil and criminal liability, as well as reputational harm, Huawei often publicly blamed IP thefts on "rogue employees" every time it was confronted with evidence of their wrongdoing.

DOJ: IP theft helped Huawei cut R&D costs

The DOJ says Huawei's efforts were successful, and allowed the company to cut research and development (R&D) costs and gain an advantage over its competitors. Officials say reinvested the profits it made from the stolen information to boost its own business, including in the US, harming the victims of their theft further.

The DOJ say that when US officials confronted the company about its practices, the company lied to US officials, the FBI, and representatives from the US House Permanent Select Committee on Intelligence.

The new charges come after the FBI revealed it was investigating more than 1,000 cases of Chinese theft of US technology.

Answering a request for comment from ZDNet, Huawei said the charges are merritless.

"This new indictment is part of the Justice Department's attempt to irrevocably damage Huawei's reputation and its business for reasons related to competition rather than law enforcement," the company said. "These new charges are without merit and are based largely on recycled civil disputes from last 20 years that have been previously settled, litigated and in some cases, rejected by federal judges and juries. The government will not prevail on its charges, which we will prove to be both unfounded and unfair."

Updated on February 14, at 05:45am ET with statement from Huawei.