The US Case Against Huawei: The Copyright Angle

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For those of us who find copyright to be a fascinating field of study, copyright issues lurk everywhere. Thus when the US crusade against China’s leading technology company, Huawei, hit the headlines with the arrest in Vancouver in December of the company’s CFO Meng Wanzhou, I couldn’t help but wonder if past allegations about the company’s history of IP theft figured into the equation and whether there was a copyright angle to the story. Guess what? I think there is.

Much ink has been spilled about the standoff between the US and China over Huawei. Founded only in the late 1980s, Huawei is now the world’s largest electronics manufacturing company and the second largest supplier of smartphones. Accusations against Huawei on grounds of IP theft, violation of sanctions legislation and wire and bank fraud have become a major issue in US-China relations at a time when a broader trade war is going on, and have simultaneously led to the worst crisis in Canada-China relations since the two countries established diplomatic relations in 1970 as Canada has become collateral damage in the dispute.

On January 28 of this year, the US Justice Department unsealed indictments against Huawei and specifically against Ms. Meng, the daughter of the company’s founder, Ren Zhengfei. She is accused of bank fraud for deliberately misleading US financial institutions as to the relationship between Huawei and a subsidiary company, Skycom Technology, based in Hong Kong. The allegation is that Ms. Meng assured representatives of various US financial institutions that Huawei had severed all business linkages with Skycom, which was engaged in trade with Iran contrary to US sanctions legislation. On the basis of these reassurances the banks continued to do business with Huawei. However since Huawei had not divested control of Skycom, by continuing to finance Huawei activities, the banks were unwittingly breaking US sanctions laws, or so it is alleged. It’s all a bit convoluted, and has yet to be proven in court but it has led to Canada finding itself as the meat in the sandwich of an escalating dispute between China and the US owing to Meng’s arrest by Canadian authorities, on behalf of the US government, while she was in transit in Vancouver enroute to Latin America. She will soon face a hearing to determine if she will be extradited to the US.

In the face of the arrest, China went ballistic, accusing Canada of violating Meng’s human rights even though she was released on bail and now resides comfortably, subject to some travel limitations, in her multi-million dollar home in Vancouver. In retaliation, China arrested two Canadians on vague national security grounds and has been holding them ever since without charge or access to a lawyer, in very uncomfortable circumstances. They are in effect being held hostage by Beijing. Meanwhile, the Canadian government has said that Meng’s case will be dealt with according to the rule of law and under those rules she will be given every opportunity to mount a legal defence against extradition.

Then the former Canadian ambassador to China, John McCallum, waded into the debate, stating publicly that he thought she had a good chance of fighting extradition, especially given President Trump’s ill-considered comments that he would consider intervening in the US Justice Department’s case against Meng if it would help conclude a trade deal with China. McCallum’s enthusiasm for Meng’s cause put him at odds with the official Canadian position that the case would be dealt with strictly in accordance with the law, and should not be politicized. This cost him his job. He was fired by Prime Minister Trudeau the same day he went public with his view that it would be “great” if the US just dropped its extradition request.

That didn’t happen. Indeed just two days after McCallum’s forced resignation the US DOJ unveiled a litany of charges against Huawei, and formally filed for Meng’s extradition. These charges included the aforementioned charges against Meng but also other related charges brought through a separate indictment in Seattle relating to Huawei industrial espionage against T-Mobile, specifically the illegal acquisition of proprietary information about a cellphone-testing robot known as “Tappy”. The Tappy case is not new, dating back to 2014 when T-Mobile brought a civil case accusing Huawei employees of illegally accessing the secure facilities where Tappy was stored, photographing the device, disassembling it and accessing software source codes. Two years later a jury awarded T-Mobile $4.8 million in damages, and Huawei apologized, stating that its employees had violated company policies. They were then fired.

Firing “rogue employees” seems to be part of Huawei’s playbook. The same thing happened recently in Poland where Huawei fired a Chinese employee who was detained (along with a Polish national) for spying, stating that he had brought the company into disrepute. Rogue employees or not, the US Justice Department alleges that theft of IP is part of the company’s standard operating procedure and that employees are specifically incentivized to search out and illicitly obtain proprietary information belonging to other companies. Huawei is accused of instituting a system of rewards for employees providing stolen information, with the degree of incentive tied to the value of the information provided.

The most recent indictment in Washington State accuses Huawei of conspiracy to steal trade secrets, attempted theft of trade secrets and wire fraud (for communicating plans to steal trade secrets and to cover them up). The indictment points out that Huawei violated non-disclosure agreements with T-Mobile in which it promised that it would not “(a) photograph T-Mobile’s Tappy robotic testing system; (b) attempt to copy or discover Tappy’s software source codes or trade secrets; (c) attempt to reverse engineer Tappy’s software or hardware components; and (d) attempt to circumvent any security measures that prevented unauthorized access to Tappy”.

The potential theft of copyright in this litany of alleged transgressions is admittedly only a small part of the picture and not part of the formal charges. For one thing, theft of trade secrets lends itself more readily to criminal charges. In addition a number of the allegations go beyond copyright theft so theft of trade secrets is more encompassing. (None of the charges against Ms. Meng personally involve IP infringements but instead relate to financial fraud arising from violation of the Iran sanctions law.) Nonetheless, copying unauthorized confidential technical information from T-Mobile, while a violation of trade secrets legislation if proven, is also likely an infringement of T-Mobile’s copyrights in its software source code as well as the way in which the software works. As lawyer Chad Rutkowski has written in his commentary for his law firm Baker Hostetler:

Many lawyers hold on to the notion that copyright protection for software is weak because such protection inheres in the source code of computer programs. Because most companies that generate code take extensive (and often successful) measures to keep source code out of the hands of third parties, the utility of copyright protection for code is often viewed as limited. However, copyright also extends to the “non-literal elements” of computer programs, such as their sequence, structure and organization, as well as to things such as screen displays and certain user interfaces. In other words, copyright infringement can occur when copying certain outputs of the code without there ever having been access to the underlying code itself.

Given the charges that Huawei did knowingly and without authorization “copy, duplicate, sketch, draw, photograph, download, replicate, deliver, send, communicate and convey” T-Mobile’s trade secrets including its computer software code and sequencing of computer commands, there is every reason to believe that copyright theft has also occurred. One of Huawei’s employees wrote back to his superiors in China, “I think we have a lot of work to improve our robot performance. The difference between (the) two is not only hardware but also (most importantly) the software. TMO (T-Mobile) has spend (sic) much more money on software than hardware”. Copyright infringement is not new to Huawei. Cisco sued them back in 2003, but subsequently dropped the suit after Huawei agreed to drop production of products (routers etc) that directly competed with Cisco. Patent infringement was also part of this case.

The US dispute with Huawei has many dimensions that go well beyond the case against Ms. Meng, accusations of theft of trade secrets, and infringement of copyright. The US government is concerned that use of Huawei equipment in 5G infrastructure represents a security threat because of “backdoors” that could be installed into the equipment. Such backdoors could permit illegal access to communications or even crippling of critical infrastructure, it is alleged. While Huawei has vigorously denied any installation of backdoors and bugs, and challenged western countries to come forward with proof, the bottom line seems to be that because Huawei is a Chinese company, and thus ultimately answerable to Beijing, it cannot be trusted. The US government has banned Huawei equipment from installation in government infrastructure, and is likely to require US companies not to use Huawei as a supplier. It is also leaning on its allies within the intelligence community (notably the UK and Canada) to do the same.

Copyright is only one piece of this complex puzzle that has many dimensions; international politics, the future of 5G technology, a high profile extradition, Canada-China relations and a US-China trade and technology war. It is difficult to predict how it will all be resolved. However, as I noted at the outset, what is fascinating about copyright is its connection to so many other issues. Copyright infringement may not be at the top of Huawei’s list of problems but its apparently cavalier attitude toward the protection that copyright and other forms of IP provide to rights holders appears to lie at the root of its miseries.

© Hugh Stephens, 2019. All Rights Reserved.

 

 

 

One thought on “The US Case Against Huawei: The Copyright Angle”

  1. Thanks for pointing this out Hugh. I imagine that in the absence of proof of copying, copyright claims are not being pursued. Theft of source code is a trade secret issue. Since it is an industrial product, we may never know if the code was misappropriated and used.

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