It Was A Company With A Lot Of Promise. Then A Chinese Customer Stole Its Technology When a Chinese wind turbine maker stole vital trade secrets from American Superconductor, the damage was enormous. The theft cost the firm hundreds of millions of dollars and resulted in mass layoffs.

It Was A Company With A Lot Of Promise. Then A Chinese Customer Stole Its Technology

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We've been reporting a lot on the U.S. threat to impose tariffs on some $150 billion worth of goods imported from China. Beijing is promising to retaliate. One big source of tension is that the Trump administration says for too long China has gotten away with stealing trade secrets from American companies. NPR's Jim Zarroli has the story of what happened to one Massachusetts company that was nearly destroyed when a Chinese company stole its most important technology.

JIM ZARROLI, BYLINE: In 2009, President Obama wanted to encourage American companies to sell more overseas. One company in particular, he said, was doing things right.


BARACK OBAMA: This is already happening with businesses like American Superconductor Corporation, an energy-technology startup based in Massachusetts that's been providing wind power and smart grid systems to countries like China, Korea and India.

ZARROLI: American Superconductor made electronic components for wind turbines, and by far its biggest customer was Beijing-based Sinovel. It brought in three-quarters of its revenue. Dan McGahn is the company's chief executive.

DANIEL MCGAHN: It was a very profitable business. It was profitable for them. It was profitable for us. There was basically a boom in China over wind. So they had made clear indications that they wanted our product. They needed it, and they were going to buy more and more of it in the future.

ZARROLI: Then one day near the end of March 2011, everything changed.

MCGAHN: We were notified by Sinovel that they were not going to accept the shipment that was brought to their factory and denied.

ZARROLI: Sinovel told him they had inventory problems.

MCGAHN: And they weren't very clear about what those were.

ZARROLI: And Sinovel, which is partly owned by the Chinese government, refused to pay for the components it had ordered. McGahn said the company suspected what had happened. Sinovel had somehow obtained the source code used to operate wind turbines and was building its own components. Federal prosecutor Tim O'Shea.

TIMOTHY O'SHEA: American Superconductor provided sort of the brains of the turbines. So if Sinovel could do it themselves using cheaper components, yeah, than they could produce these turbines more cheaply.

ZARROLI: American Superconductor knew its technology could be stolen. It was a risk you took doing business in China, but the products it sold were kept secret through encryption. So the company suspected that someone on the inside had leaked its source code.

MCGAHN: We looked inward and said, who would have access, motive, capability to do this? And we got down to a very small set of employees. And then we looked at the travel to China and being present and all that. It really came down to one person.

ZARROLI: Prosecutors say that person was Dejan Karabasevic, an engineer in the company's Austrian subsidiary. He was indicted in 2013, along with Sinovel. The federal indictment alleged that Karabasevic agreed to turn over the company's technology to Sinovel. In court, U.S. prosecutors presented messages sent over Skype suggesting that Karabasevic was angry at American Superconductor. In one, he said, I have slight feeling of revenge. The indictment said Sinovel offered him a multi-year contract worth $1.7 million, essentially doubling his salary. Again, Dan McGahn.

MCGAHN: I mean, 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.

ZARROLI: Karabasevic never stood trial in the United States. Federal officials believe he is now in his home country of Serbia. The theft ended up costing American Superconductor dearly. With Sinovel no longer a paying customer, McGahn says its revenue plummeted. Wall Street analysts said the company was finished.

MCGAHN: The fix is in. These guys are going to die, which really, I think, is what the Chinese were hoping for.

ZARROLI: The company was devastated. At one time, it had almost 1,000 employees. By the end of its ordeal, fewer than 300 remained. Like many tech companies, American Superconductor had recruited employees by offering them stock options. Suddenly, they were worthless. Product manager Tron Melzl says the waves of layoffs took a huge toll on the little startup.

TRON MELZL: People made a lot of investment in the company in terms of - they believed in, you know, what was going on. So it was hard to see, you know, people who had worked hard being shown the door.

ZARROLI: Today, the company is smaller, but it has survived. It has pressed China for compensation unsuccessfully so far. Sinovel's lawyer didn't respond to a request for comment, but the company argued in court that it had severed its ties with American Superconductor because it didn't live up to its contract. And it said the company had failed to take steps to protect its source code. In January, a federal jury in Wisconsin found Sinovel guilty of stealing trade secrets. It will be sentenced in June. McGahn says he often warns other CEOs about doing business in China.

MCGAHN: Your participation as a Western company, at least to date, is a mirage. They're there to bring you in, be able to figure a way to harvest whatever they can from you and then spit you out when you're no longer useful.

ZARROLI: McGahn stresses he's not political, but he approves of the tough stance that President Trump is taking on China. He says it's the only way to prevent other companies from suffering the same fate that American Superconductor did. Jim Zarroli, NPR News.


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