A little-known dispute between a U.S. renewable energy company and its Chinese customer over the theft of trade secrets could prove to be a significant test of China's intellectual property laws, and the success of Western companies in pursuing claims in China.
American Superconductor Corp, which makes wind turbine components and transmission grid systems, is seeking to recover $1.2 billion from Chinese wind turbine maker Sinovel Wind Group Co Ltd in four separate legal actions in China. The U.S. company has accused its former biggest customer of stealing the software AMSC makes to power wind turbines and illegally canceling contracts.
The first hearing in the cases was scheduled to be held on Monday by the Beijing Arbitration Commission, but was postponed at the last minute due to a death in the family of a key Sinovel lawyer. Once it gets under way in the coming weeks, the case could cause reverberations in the race to dominate the fast-growing market for clean energy technology.
"What's at stake here is not just the interest of the two companies, but who is going to become the big supplier in the renewable energy market," said Colleen Chien, a patent law professor at Santa Clara University School of Law. "It has broader implications even for energy security."
Much of the underlying technology for solar, wind and other renewable energy technologies was developed in the West, though China is now a major player in the industry. For instance, the country is now the world's largest maker of solar panels, though solar energy technology was developed in the United States.
Theft of intellectual property is among the thorniest issues in the U.S.-China relationship, alongside U.S. accusations that China is dragging its feet in allowing its currency to appreciate, and that the nation's subsidies unfairly favor domestic industries.
But Western companies rarely sue Chinese companies over trade secret theft in China - in part because of perceptions they will not be viewed fairly, but also out of fear of retaliation in the marketplace, according to Chien.
"Once you make accusations, you have to be prepared for the fallout from that."
American Superconductor, which is based in Devens, Massachusetts, said it has amassed a mountain of evidence against Sinovel in a case that its chief executive said has played out "like a major motion picture."
A former American Superconductor employee, Dejan Karabasevic, is in an Austrian jail after admitting to providing the software code for wind turbine control systems to Sinovel. American Superconductor also accused its erstwhile partner of unlawfully and unilaterally terminating agreed-upon supply contracts.
For its part, Sinovel spokesman Xiao Qiang said the company terminated its contracts legally because American Superconductor's equipment fell short of quality standards, adding that its intellectual property rights "are protected by the law."
In the meantime, both companies are suffering. Beijing-based Sinovel accounted for about three-quarters of American Superconductor's revenue, which slid to $20.8 million in the latest quarter from $98.1 million a year earlier. The U.S. company has been forced to lay off half of its staff, while its share price has plummeted to under $4 from about $30.
Meanwhile Irish wind developer Mainstream Renewable Power said it has put a massive 1-gigawatt supply deal with Sinovel on ice pending the resolution of its dispute with American Superconductor.
"Mainstream has discussed the issue in depth with both parties and looks forward to Sinovel and AMSC settling this very serious matter as early as possible," the company said in an emailed response to Reuters' questions.
American Superconductor Chief Executive Daniel McGahn said the company has continued to drum up business in China and has received assurances from government officials that the legal process will be fair. He said the company would not be pursuing the claims if it thought it could not get a fair shake.
He acknowledged, however, that those concerns still weigh heavily on investors.
"On Wall Street there is some concern: Will AMSC be treated fairly?" McGahn said in an interview.
Of the 11 analysts who follow AMSC on Wall Street, there are nine "hold" ratings and two "sell" ratings. No one is recommending the stock, even though it currently trades below book value.
But McGahn said the company is recovering, and will double revenue in the current quarter from the previous period due to a strategy of diversifying its customer base.
It is still focusing on China, McGahn said, but is also expanding in India, South Korea, Australia, the United States and Europe.