US jury rules that Huawei stole trade secrets from company founded by ex-employee

Washington

HUAWEI Technologies Co stole trade secrets from a company co-founded by a former employee, a US jury said on Wednesday as it rejected claims that China's largest technology company was the real victim in the dispute.

The jury in Sherman, Texas, said that Huawei did not benefit from the theft and awarded no damages to the startup, CNEX Labs Inc. Still, the verdict following a three-week trial could provide ammunition to critics who say that Huawei does not play by the rules in the global technology playground.

Huawei said that it was evaluating the verdict. "We are disappointed that the jury didn't support Huawei's claims based on the evidence," Jason Ding, director of the company's intellectual property rights department, told reporters at its Shenzhen base on Thursday.

Huawei and CNEX had each accused the other of stealing inside information regarding data storage. The eight-person jury heard testimony involving duelling tales of intrigue, disloyalty and corporate espionage. The trial featured an inside look at the Chinese maker of smartphones and networking gear, as well as the sometimes cutthroat battle over highly skilled employees with the talent to develop the next generation of technology.

Overshadowing the case is Huawei's position firmly in the middle of the trade conflict between the US and China, with President Donald Trump seeking to sharply curtail the company's ability to do business. In the US, Huawei is fighting a criminal indictment which accuses it of stealing critical phone-testing technology from T-Mobile US Inc.

The trial in Sherman, about an hour north of Dallas, marks a rare instance in which Huawei has accused a former employee of stealing secrets.

The dispute concerns solid-state drives, which are made up of chips called Nand flash memory that store information on semiconductors. They access data much more quickly than traditional magnetic disk-based technology.

For CNEX, its reputation and relationships with technology companies such as Microsoft Corp were at stake. The company is working to develop a method to make the drives faster and cheaper, a crucial need when it comes to storing and retrieving the massive amounts of data kept on cloud storage.

"Because we are a new business without revenue or profits, the jury was not able to award CNEX any money damages," Matthew Gloss, general counsel for CNEX, said in a statement following the verdict. "This case was never about the money," he said after the hearing. "The case was about saving the company."

The jury said that Huawei, but not its US research unit Futurewei Technologies Inc, had stolen CNEX trade secrets. The jury found that CNEX had not proved that either of the companies were "unjustly enriched". Mr Gloss said that it was because CNEX was able to get its product sample back quickly.

CNEX was founded in 2013 by two former Marvell Technology Group Ltd executives and researcher Yiren "Ronnie" Huang, whose previous job at Futurewei in California was at the heart of the trial.

Huawei claimed that Mr Huang had wanted to set up his own business but could not get backing so he joined Futurewei in 2011. While there, according to Huawei, he used a team to develop new technology for the storage devices and then left the company to help start CNEX three days later. There, he and other CNEX founders claimed Huawei's ideas as their own and poached other Huawei employees, Huawei claimed.

The jury found that there were no Huawei trade secrets in the case. CNEX had argued that anything Huawei claimed was secret was actually public information. BLOOMBERG