American Superconductor and the Case of Chinese Industrial Espionage


Last year I had a chance to sit down with Jason Fredette of American Superconductor about their state of the art technology which allows wind turbines to be more efficient. Moreover the company talked about its strong focus on superconductor wire which is a small fraction of the size of traditional copper wire. I was intrigued – I figured this is the sort of company that becomes the next major tech innovator… One that will do very well for investors.

Fast forward a year and a company trading at more than $30 per share a year ago is now trading at around $3.82 and just had another round of layoffs.

Turns out the company is in a major lawsuit with Chinese Sinovel – the country’s largest wind turbine manufacturer and once American Superconductor’s largest client. On a recent conference call this past November 9th, 2011 the company detailed its lawsuits, shared that they caught a past employee sending proprietary information to Sinovel and the fact that this employee is in a European jail for economic espionage and fraudulent misuse of data.

Company President and CEO Daniel McGahn said the company is seeking nearly $1.2B for contracted shipments and charges. Moreover, AMSC has filed 2 copyright infringement lawsuits. He said, “We believe the strength of our cases are undeniable.” He continued:

We have hundreds of e-mails and messages between senior-level Sinovel staff members and our now incarcerated former employee. These messages give a detailed account and timetable of the crime. They demonstrate that Sinovel requested this stolen IP. They show that certain senior-level Sinovel employees knew that this IP was obtained illegally. And they provide evidence that Sinovel employees were aware of the damages that the theft could potentially inflict on AMSC. We have the contracts that were signed by our former employee with Sinovel and parties related to Sinovel, promising to pay him in excess of $1.5 million. We also have the e-mails containing the actual IP transfer. And we will share with the courts evidence from multiple wind farms in China demonstrating that Sinovel has been utilizing the stolen software to upgrade its wind turbines in the field with LVRT functionality that we developed.

We believe the case is clear cut and the evidence is very damning. We have confidence that the Chinese courts and arbitrators will consider all of these facts and that we will achieve a favorable outcome. While we acknowledge that this is a commercial matter, many have pointed to this case is an important litmus test for future energy cooperation between China and the West.  

How China deals with this issue which has been going on since this past March will determine the fate not only of both companies but send a signal to the world about how serious China is about protecting intellectual property.

Of course, it is too soon to condemn China or Sinovel but it does seem the evidence is damning if what McGahn says is accurate.

There seems to be incredible potential for superconducting cable to make wind turbines more efficient and moreover to dramatically increase the efficiency of the power grid. As with any new technology – it will likely have unforeseen benefits in many areas. It is a shame these lawsuits and espionage have distracted American Superconductor as they continue to develop leading-edge technology.

I reached out to Daniel McGahn for more and did not hear back immediately – I will update the post when or if I hear back.


My past blog posts on related topics:

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