UPDATED: AMSC Charges Sinovel With IP Infringement In China

Mark Del Franco
Written by Mark Del Franco
on September 15, 2011 No Comments
Categories : New & Noteworthy

8585_sticky_boxing UPDATED: AMSC Charges Sinovel With IP Infringement In China Citing clear evidence of what it calls ‘stolen intellectual property,’ Devens, Mass.-based American Superconductor (AMSC) has filed criminal and civil suits in China against its largest customer, Sinovel Wind Group Co., relating to intellectual property (IP) infringement and for delinquent payments.

AMSC plans to seek a cease-and-desist court order against Sinovel to prevent infringement on its IP, and the company is also pursuing compensation for monetary damages. Sinovel licenses its 1.5 MW turbine design from Germany-based Fuhrlander, for which AMSC provides the turbine's core controller systems and parts.

During a conference call Sept. 15, Dan McGahn, AMSC's president and CEO, made several strong claims against Sinovel, citing ‘clear evidence of theft.’

AMSC's most recent claims come as the company tries to recoup payment from Sinovel, whose non-payment has caused significant hardship for the troubled publicly traded company. AMSC, which has eliminated 30% of its staff since August, will restate significant portions of its financial statements from 2009 and 2010, and has received a delisting notification from NASDAQ in June.

AMSC says business with Sinovel represented about 70% of its revenue in fiscal 2009.

‘Over the spring, we made repeated attempts with Sinovel to rectify the situation,’ McGahn says, referring to Sinovel's refusal to accept contracted shipments of core electrical components and spare parts for 1.5 MW wind turbines. ‘Then, over the summer, we learned that Sinovel was in possession of stolen property, and that changed everything.’

McGahn claims that Sinovel was already demonstrating signs of financial distress. ‘And then they went and compounded its troubles by stealing our intellectual property,’ he states.

McGahn says evidence shows that Sinovel engaged and paid an Austria-based AMSC systems integrator to provide source code data that would allow Sinovel to upgrade hundreds of turbines in order to meet more stringent Chinese grid requirements.

Sinovel did not immediately return requests for comment.

AMSC says these actions potentially enable Sinovel to deploy, independently of AMSC, wind turbine control software, including a low-voltage ride-through capability on all of its 1.5 MW wind turbines in the field.

The Austria-based AMSC employee is being detained locally and is facing charges of economic espionage by Austrian authorities. AMSC – which is working with U.S. and Chinese authorities – says the evidence was obtained through an internal investigation and a criminal investigation conducted by Austrian authorities.

AMSC has filed an arbitration claim relating to the unpaid shipments in Beijing with the Beijing Arbitration Commission. AMSC has also filed civil complaints in China against Sinovel and is in the process of filing a criminal complaint against Sinovel and a civil complaint against other parties, including Dalian Guotong Electric Co., which is owned by Sinovel.

In addition, by having the control source code, McGahn says, Sinovel could potentially allow the use of core electrical components, including power converters, from other manufacturers.

Furthermore, AMSC claims that its PM1000 converters in certain Sinovel turbines have been replaced by converters produced by Dalian Guotong Electric Co. Because the converters are being used in wind turbines containing AMSC's control software, AMSC believes that its copyrighted software is being violated.

According to Tim Smith, patent attorney at Houston-based Osha Liang, "AMSC is alleging that the software, including the source code, was sold to Sinovel
by one of AMSC's employees, along with the corresponding encryption keys,
which provide access to the source code. Sinovel subsequently modified the source code to create a new turbine control system, which it is now using in its facilities in China."

AMSC is seeking to compel Sinovel and the other parties, including Guotong, to cease and desist from infringing upon its intellectual property and is also seeking compensation for economic losses resulting from the infringement.

‘As of today, Sinovel is no longer a customer,’ McGahn says. ‘Customers pay their bills and respect intellectual property.’

The China question
AMSC's decision to file in China raises the question of how a U.S. entity will fare in the Chinese courts. Although there have been few instances of successful litigation resulting from suits filed by U.S. companies, such instances are not unprecedented. McGahn cites a previous case won by Cisco Systems against a major China-based telecommunications provider as precedent.

However, despite the negative impact resulting from the Sinovel debacle, AMSC says it will continue to pursue business in China, and the company counts Dongfang, XJ Group, Shenyang Blower Works and JCNE as customers.

‘The actions of Sinovel are not a referendum on Chinese wind,’ McGahn says. ‘The economic reality is that we must continue to do business in China.’

At the same time, the Chinese market has slowed, notes Andy Wickless, associate director of energy at Navigant Consulting.

‘Chinese original equipment manufacturers (OEMs) had a rough first half of the year,’ Wickless says, adding that Sinovel's earnings in the first half of the year were down 48% year-over-year and that Goldwind, the No. 2 Chinese turbine manufacturer, saw its profits plummet 45% during the same period.

‘Oversupply is occurring in the Chinese market," he continues. "On one hand, in the domestic market, transmission build-out can't keep up with wind farm installations. On the other hand, Chinese OEMs have had limited success to date in penetrating new markets. That translates into lower sales volumes and, given the fierce competition in the Chinese market, lower margins.’

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