As prized as it is intangible, intellectual property (IP) is perhaps the most intensely guarded possession a business can have. Referring to any valuable creations of human intellect, IP can range from a painting, to a song, to a design for a new computer chip — any novel idea with the potential to generate wealth for whoever holds it is considered IP. It should come as little surprise then that organizations of every stripe, from hardware manufacturers and software developers, to highly regulated firms, to government agencies, work diligently to safeguard their IP.
The reason for this is simple: losing control of one’s IP can have a dire financial and reputational impact, and there are bad actors out there looking to swipe valuable IP for themselves. In a global marketplace, where business is conducted across international borders, finding legal remedies for IP theft can be difficult and costly, which means proactively working to safeguard IP is a must.
Coming into 2011, American Superconductor was riding a wave of success. The Massachusetts-based clean energy firm was seeing historically strong sales and had earned praise from the White House for being one of the few American firms to create inroads into the Asian import markets. CEO Daniel McGahn was overseeing a global, billion-dollar business with a factory in China, a design center in Europe, and hundreds of employees around the world.
Then, in March, it began to fall apart. “Their strategy was to kill us,” McGahn told CNN.
McGahn was referring to Sinovel, a Beijing-based firm that American Superconductor had been working with since 2007. The relationship between the two companies was simple and lucrative: American Superconductor would provide the technology behind modern wind turbines, while Sinovel would manufacture the turbines themselves. Until this point, the relationship had been a successful one that helped American Superconductor grow tremendously, but by March 2011 Sinovel owed American Superconductor approximately $70 million for a shipment it had already received. Unexpectedly, Sinovel refused to pay while also refusing shipment of a second delivery that had already been prepared.
American Superconductor stock would plummet by half nearly overnight. 700 jobs would be cut over time, and the total cost to the firm would total more than $1.8 billion. “Wall Street had written us off as dead,” McGahn said. Blindsided by Sinovel’s decision, American Superconductor began to investigate why the Chinese firm would suddenly cut ties with its American counterpart.
“We looked inward and said, ‘Who would have access, motive and capability to do this?’ And then we looked at the travel to China and being present and all that, and it really came down to one person,” McGahn told NPR.
That person was Dejan Karabasevic, an employee who would later confess to selling American Superconductor’s source code to Sinovel employees in exchange for “$2 million, women, apartments, and a whole new life in China,” according to a 2013 indictment. Skype messages sent by Karabasevic were presented in court and they convincingly paint a picture of a disgruntled employee out for revenge. “I feel like someone who failed a lot, like a loser, but I know it is temporary and all of the people who laugh now will stop laughing later when I leave,” one message read.
“If you look at what the executives of the Chinese company made, they’re offering him more money than they make themselves. And they’re not doing that because they want him to be a consultant. They want him to steal,” McGahn stated.
In January of 2018, a federal jury in Wisconsin found Sinovel guilty on all charges, including conspiracy, trade-secret theft, and wire fraud. Shortly after the January ruling, Sinovel and American Superconductor reached a settlement agreement in which the former company would pay the latter $32.5 million. Then in July, a jury awarded American Superconductor an additional $57.5 million. A drop in the bucket compared to the $1 billion in stock value and $800 million in revenue American Superconductor ultimately lost, these rulings come as the United States studies its potential options in dealing with IP theft in the burgeoning Chinese market.
In a global business landscape IP theft and corporate espionage are modern realities. According to the United States Trade Representative, China alone costs American firms between “$225 and $600 billion each year” due to IP and trade secret theft — and it’s not just high-tech industries affected. In 2014, federal prosecutors launched an industrial espionage investigation into Dupont chemical engineer Walter Liew who was charged with selling details about the company’s Titanium Dioxide production facilities to a Chinese Communist Party official over the course of two decades. That same year, six Chinese nationals were arrested after attempting to steal genetically modified corn seeds from a experimental farms owned by Dupont and Monsanto.
The story of American Superconductor’s woes underlines the importance of protecting intellectual property and working to reduce the potential for corporate malfeasance. Preserving electronic communications is an important and proactive safeguard for organizations generating IP. As Karabasevic demonstrated, all it takes is one disgruntled employee to do major damage to a firm’s reputation and bottom line. Appropriate oversight however, can help catch corporate espionage before it wreaks havoc — which is why it’s crucial that your firm create acceptable use policies for permitted communications channels and that you utilize modern, comprehensive supervisory tools like the Connected Suite from Smarsh. With support for over 80 communications channels, AI-driven capture directly from the source with native context intact, and fully defensible audit trails, the Connected Suite ensures you’re prepared to capture and review any relevant communications whenever necessary.
A global client base, including the top 10 banks in the United States and the largest banks in Europe, Canada and Asia, manages billions of conversations each month with the Smarsh Connected Suite. Government agencies in 40 of the 50 U.S. states also rely on Smarsh to help meet their recordkeeping and e-discovery requirements.
The company is headquartered in Portland, Ore. with nine offices worldwide, including locations in Silicon Valley, New York, London and Bangalore, India. For more information, visit www.smarsh.com.
Latest posts by Smarsh (see all)
- 10 Years! Smarsh Extends Its Streak as One of Portland’s Fastest Growing Companies - June 14, 2019
- Disrupted Communications: Surviving the EOL of Your Old Communications Tools - April 9, 2019
- What Brexit Means for Compliance in the UK - January 28, 2019