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On February 13, 2020, the United States brought new criminal charges against Chinese telecom giant Huawei Technologies Company, alleging that the company participated in a racketeering conspiracy and conspired to steal trade secrets from companies in the United States. The new charges are in addition to the government’s previous allegations that Huawei committed financial fraud and deliberately evaded U.S. sanctions on Iran and North Korea.

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According to the allegations in the superseding indictment, Huawei used various methods to misappropriate intellectual property from its U.S. corporate victims, including by entering into confidentiality agreements whereby it falsely promised that it would not use intellectual property for its own commercial use, by recruiting employees from victim companies to obtain access to confidential intellectual property, and by using proxies, such as scientists at research institutions or third-party companies, to gain access to victims’ intellectual property and then provide the confidential information to Huawei. According to the indictment, one way that Huawei incentivized the misappropriation of trade secrets was by implementing a bonus program for its employees who obtained confidential information from competitors. Under the program, Huawei created a formal reward scale that paid employees of Huawei affiliates for stealing information from competitors based on the value of the information provided. The superseding indictment further alleges that Huawei engaged in a formal program to cover up and conceal its misappropriation by providing false information and false affidavits in various investigations and litigation.

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The racketeering, or RICO, charges allege that Huawei deliberately engaged in a pattern of unlawful conduct, including wire fraud, financial fraud, obstruction of justice, witness tampering, theft of trade secrets, money laundering and copyright infringement, all as part of a scheme to dominate the telecommunications and consumer electronics markets in the countries in which it operated. Criminal RICO charges, historically used to prosecute the Mafia and other organized crime groups, are rarely brought against corporations. The charges are significant because they allow the government to introduce evidence of past conduct that would otherwise fall outside the statute of limitations.

The charges against Huawei reflect the Justice Department’s increased interest in prosecuting trade secret theft and forced technology transfer, as detailed in <a href="https://www.thompsonhine.com/publications/us-probes-scientists-and-academics-with-overseas-ties-targets-trade-secret-transfers" target="_blank" rel="noopener">our previous client alert</a>. The government’s efforts, however, have had decidedly mixed results. Two recent cases in which scientists were charged with trade secret theft ended in acquittals, and the United States voluntarily dismissed a separate case against several individuals. In addition, while President Trump has been actively pressuring other countries not to do business with Huawei, he recently tweeted that he supported the sale of U.S.-made jet engines to China, reflecting a division within the government on how to tackle piracy issues involving high-tech products.

While the government is stepping up its enforcement efforts, companies must remain vigilant and ensure that they have adequate safeguards in place to protect their intellectual property from theft or misappropriation by employees or external business partners. Equally important, they should conduct periodic audits to ensure that policies are being followed and, where necessary, appropriately enforced.

As part of a comprehensive plan to protect its trade secrets, a company should consider taking the following steps:

Steven Block 312.998.4242 <a href="mailto:Steven.Block@ThompsonHine.com">Steven.Block@ThompsonHine.com</a>

Joan Meyer 202.263.4115 312.998.4240 <a href="mailto:Joan.Meyer@ThompsonHine.com">Joan.Meyer@ThompsonHine.com</a>

Matthew David Ridings, CCEP 216.566.5561 <a href="mailto:Matt.Ridings@ThompsonHine.com">Matt.Ridings@ThompsonHine.com</a>

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

This document may be considered attorney advertising in some jurisdictions.

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U.S. Alleges Huawei Involved in Long-Running Scheme to Steal Trade Secrets

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