Update

Sinovel Wind Group found guilty of IP theft, fined $1.5 million

While American Superconductor's data logs and stores were helpful in convicting Sinovel Wind Group of IP theft, a data loss prevention strategy could have identified the thieves' activities sooner.

Sinovel Wind Group found guilty of IP theft valued at $800 million
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Update July 9, 2018:

Sinovel Wind Group was fined the maximum statutory fine of $1.5 million for the theft of trade secrets from American Superconductor Inc by a federal judge on July 6, 2018, according to the Department of Justice. In addition, American Superconductor Inc and Sinovel Wind Group reached a settlement amount of $57.5 million. As of July 6, 2018, Sinovel had paid $32.5 million and has one year to pay the remaining $25 million.

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In a case of international intrigue — which covered the span of more than six years — Sinovel Wind Group, a manufacturer and exporter of wind turbines, and three of its employees have been convicted of trade secret theft following a 12-day jury trial in Wisconsin.

The path to justice for the victimized company, American Superconductor (AMSC), was long by any measure and damaging. The value of the technology stolen is estimated to be more than $800 million. In addition, AMSC lost more than $1 billion in shareholder equity.

Sinovel thieving backstory

In 2011, Wisconsin-based, AMSC filed both criminal and civil complaints against Sinovel. Sinovel had apparently breached the partnership agreement, and AMSC was unhappy because their intellectual property (IP) surrounding wind turbines had been taken and used to improve the Chinese electric grid.

Moving forward to 2013, the Department of Justice (DOJ) filed a criminal complaint against Sinovel for its role in attempting to “convert a trade secret that is related to a product that is used and intended for use in interstate and foreign commerce,” specifically the source code relevant to AMSC’s technology. This complaint was quicky followed by an indictment that showed Sinovel still owed AMSC $100 million for software, products and services and had contracted for an additional $700 million of business.

Individuals involved in the IP theft

Two Sinovel employees and one person employed by AMSC Windtec GmbH were convicted:

Su Liying — Deputy director of Sinovel’s Research and Development. Resident in China, Chinese national.

Zhao Haichun — Technology manager for Sinovel. Resident in China, Chinese national.

Dejan Karabasevic (aka Dan Karabasevic) — A Servian national who was employed by AMSC Windtec GmbH, located in Klagenfurt, Austria. AMSC Windtec is a wholly-owned AMSC subsidiary. Karabasevic submitted his resignation in March 2011, but he retained access to AMSC Windtec’s computer network into May 2011, with his final day within AMSC Windtec being June 30, 2011.

The crime — insider theft of trade secrets

From January 2011 through December 2012, Sinovel (their employees) and Karabasevic worked together to purloin the trade secrets of AMSC with the intent to produce Low Voltage Ride Through (LVRT)-compliant wind turbines and to retrofit existing turbines with LVRT technology. AMSC notes that the value of the stolen technology and business loss was in excess of $800 million.

Su and Zhao worked together to suborn Karabasevic, specifically providing him with a clandestine one-year contract in June 2011 to run through June 2012. Sinovel provided a laptop to Karabasevic for the purpose of adapting “AMSC’s intellectual property for Sinovel’s unrestricted use.”

The indictment shows that Karabasevic had no problem breaking his employer's trust and successfully sharing the desired PM3000 software to Sinovel between May and June 2011, and that Karabasevic adapted the software so that it could be used in an unlimited and unrestricted manner by Sinovel.

Sinovel, apparently happy with Karabasevic’s performance, offered him a contract with a salary of $1.7 million for him to work with Sinovel from May 2011 through June 2017. In an act to seemingly verify what Karabasevic had provided, in 2012 Sinovel commissioned and installed a number of wind turbines in Massachusetts.

Convictions

In late January 2018, AMSC and the DOJ had their day in court. Following an 11-day trial, a jury convicted Sinovel of conspiracy to commit trade secret theft, theft of trade secrets, and wire fraud. The court set the date of June 4, 2018, for sentencing. During the trial, it was shown how Karabasevic transferred intellectual property from AMSC in Wisconsin to a computer in Klagenfurt.

Zhao and Su are both residents in China and are not in U.S. custody. Karabasevic now resides in Serbia; he, too, is not in U.S. custody.

Cost to AMSC

AMSC had a loss of more than $1 billion in shareholder equity. The company lost over $800 million in revenue owed to it by the Sinovel contracts. And it had to lay off over half of its global workforce, more than 700 individuals. It would appear that Sinovel continues to have the AMSC technology but refrained from using it again in the United States once the Massachusetts projects became known to AMSC and the DOJ.

Lessons learned: Have a data loss prevention strategy

Having a data loss prevention (DLP) capability within the AMSC infrastructure may have identified the activities of Sinovel early, and not the fiscal foot dragging on accounts payable, and the flight of one of their technologists.

The fact that AMSC was able to reconstruct the events from the data logs and stores is commendable and no doubt assisted the prosecution of Sinovel. Similarly, the construction companies Sinovel had contracted with to assist in the erection of the wind turbines in Massachusetts were called out as being very cooperative in providing information on Sinovel’s building of the three wind turbines.

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