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Summary:

Huawei filed suit Monday to stop Motorola Solutions from selling its wireless network business to Nokia Siemens Networks, because the sale would transfer trade secrets and competitive intelligence from the Chinese equipment firm to a competitor. Is this the start of a Chinese patent offensive?

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We never thought we’d see the day when a Chinese telecom company, which has in the past been accused of industrial espionage by U.S. companies, would sue a U.S. equipment maker. Well, that’s exactly what has happened.

Huawei filed suit Monday to stop Motorola Solutions from selling its wireless network business to Nokia Siemens Networks, because the sale would transfer trade secrets and competitive intelligence from the Chinese equipment firm to its competitor. (By the way, Motorola had accused Huawei of industrial espionage in July 2010.) The lawsuit, filed in U.S. District Court in Illinois, seeks to stop Motorola employees and information associated with Motorola’s UMTS and GSM equipment businesses from being transferred to Nokia Siemens Networks under the $1.2-billion deal. From the lawsuit:

Such a transfer, if consummated in its originally contemplated form, will result in the massive disclosure of Huawei’s confidential information to NSN, with irreparable harm to Huawei. A large number of Motorola employees, many carrying direct knowledge of Huawei’s confidential information, would become employees of NSN. Huawei hereby sues to obtain preliminary injunctive relief to prevent such harm pending an arbitration under the agreements, including an order that Motorola and NSN modify their transaction to prevent the transfer to NSN of the portion of Motorola’s wireless business related to GSM and UMTS networks until an arbitral tribunal is able to adjudicate the matter.

Huawei and Motorola had worked together for the last decade with Huawei providing gear for GSM-based 3G networks and Motorola providing services and acting as a reseller of the Huawei gear. Motorola Solutions and NSN have not responded to requests for comment yet.

The irony here is that Huawei, which has been considered a cut-rate Chinese telecommunications provider, is using an intellectual property offensive to stop this deal. As such, this lawsuit could be a wake up call to the rest of the world. Huawei owns more than 49,000 patents worldwide, and while it’s unclear if there are patents involved in this lawsuit (it looks primarily like a trade secret issue), Huawei is sending out a strong signal that it plans to defend its IP. It’s also yet another example of Huawei moving up-market, becoming more than a provider of cheap Chinese gear.

Huawei is not merely a private telecommunications company; it has direct and cultural ties to China’s government, and this suit could be an initial test of the IP firepower China has been gathering in the last few years. According to data from the World Intellectual Property Organization Magazine:

Since its establishment in 1985, China’s patent system has matured considerably, breaking new records and significantly improving the country’s innovative capacity. In the first decade of the 21st century, patent applications in China grew by an average annual rate of 22.3 percent. From January to October 2010 alone, the number of applications for invention patents totaled 295,275, up 25 percent over the same period in 2009. Of these, almost three quarters of the total (72.5 percent – 214,079 applications) were filed by domestic applicants.

The magazine illustrated this in the following chart:

In the suit filed Monday, Huawei drove the point home, saying it spends 10 percent of its revenue on R&D and noting that half its 100,000 employees are engaged in some type of research and development. But will Huawei use its “rich IP and patent portfolio” as a means to stop consolidation in the equipment world as it’s trying to do here, or could it start asserting its patents and IP among competitors such as Alcatel-Lucent, Cisco, NSN and Ericsson? As the consolidation among gear makers hits a wall, will the next phase in Huawei’s domination of the industry rely on patent warfare?

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  1. Any companies that think US/EU patents will help them against an increasingly unilateral China, are going to be in a bind when their “outsource everything” eventually outsources the IP.

    We need to bring manufacturing back to the US and end this faustian bargain with China.

  2. Huawei a cut-rate vendor? Do a little research next time. They are and have been in the major leagues of telecom suppliers for quite some time. Do you think every American is a gangster, too?

  3. Huawei hires world class engineers to suck/steal the knowledge out of them and then lets them go once they have learned all what the “Hired expert” knew. That is why they dont provide any tools to “experts” to do any actual work. Thats their R&D !

  4. Huawei Battles with Motorola as Infringement Cases Bombard Mobile Industry | SiliconANGLE Monday, January 24, 2011

    [...] to stall any illegal information transmission that might go along with the aforementioned deal. A segment from the lawsuit mentioned details on how sensitive and dangerous the deal could be for Huawei: “Such a transfer, [...]

  5. Excellent analysis. This could be a bellweather.

  6. You are so biased against a Chinese company. Do you think this will help your website? You’ve just lost one reader and I would like to suggest everyone to boycott this site.

  7. Good article Stacey – I forwarded this article to several colleagues and you probably gained several new readers to GigaOm as a result.

  8. Regardless of what you think of the content of the lawsuit, I think the most interesting thing is its timing.

    Why file a suit demanding arbitration right now?
    Why not earlier?
    (or, perhaps, later?)

    I think the answer is that it is to Huawei’s benefit to keep the delay game going.

    I’m guessing that MOFCOM (the Chinese Ministry of Commerce- the authority that is holding up the Motorola Networks sale to NSN) may be getting close to approval. This lawsuit is the last flourish to ‘extend the game’ (to borrow a basketball analogy) and provide yet more delay to the closure of the sale.

    Make no mistake- delay is a big deal. A delay is a ‘FUD injector’ for any company involved in a public transaction- particularly for the one being bought- because it prevents coherent discussions with its customers about the future.

    If I’m on the right track then we should see MOFCOM approval by the end of Jan and a painfully slow progression of the lawsuit and any subsequent arbitration.

  9. Huawei and ZTE are always at each other throat trying to steal each others IP. Who knows how much IP they have stolen from American and european companies to date. Its a known fact that you can buy any pirated SW from technology park in Shanghai.
    Another thing is that Chinese do not allow dissent of any kind and are not willing to even consider that there is some thing wrong with their government or management. Glass is always green so you’d only see green.

  10. Huawei Wins Some, Loses Some in the U.S.: Tech News and Analysis « Wednesday, February 23, 2011

    [...] Huawei, which for a decade has had a deal with Motorola to share certain wireless information, had sought the injunction to prevent its trade secrets from going over to a rival telecommunications gear firm. But will this [...]

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