Huawei Loses Trade Secret Case Versus Ex-Employee's Startup CNEX

(Bloomberg) — Huawei Technologies Co. stole trade secrets from a company co-founded by a former employee, a U.S. jury said Wednesday as it rejected claims that China’s largest technology company was the real victim in the dispute.

The jury in Sherman, Texas, said Huawei didn’t benefit from the theft and awarded no damages to the startup, CNEX Labs Inc. Still, the verdict following a three-week trial could provide ammunition to critics who say Huawei doesn’t play by the rules in the global technology playground.

Huawei and CNEX had each accused the other of stealing inside information regarding data storage. The eight-person jury heard testimony involving dueling tales of intrigue, disloyalty and corporate espionage. The trial featured an inside look at the Chinese maker of smartphones and networking gear, as well as the sometimes cutthroat battle over highly skilled employees with the talent to develop the next generation of technology.

Overshadowing the case is Huawei’s position firmly in the middle of the trade conflict between the U.S. and China, with President Donald Trump seeking to sharply curtail the company’s ability to do business. In the U.S., Huawei is fighting a criminal indictment that accuses it of stealing critical phone-testing technology from T-Mobile US Inc.

The trial in Sherman, about an hour north of Dallas, marks a rare instance in which Huawei has accused a former employee of stealing secrets.

The dispute concerns solid-state drives, which are made up of chips called Nand flash memory that store information on semiconductors. They access data much more quickly than traditional magnetic disk-based technology.

For CNEX, its reputation and relationships with technology companies like Microsoft Corp. were at stake. The company is working to develop a method to make the drives faster and cheaper, a crucial need when it comes to storing and retrieving the massive amounts of data kept on cloud storage.

“Because we are a new business without revenue or profits, the jury was not able to award CNEX any money damages,” Matthew Gloss, general counsel for CNEX, said in a statement following the verdict.

“This case was never about the money,” he said after the hearing. “The case was about saving the company.”

Huawei lawyers at the trial had no comment and company officials didn’t immediately respond to queries seeking comment. The jury said that Huawei, but not its U.S. research unit Futurewei Technologies Inc., had stolen CNEX trade secrets. The jury found that CNEX had not proved that either of the companies were “unjustly enriched.” Gloss said it was because CNEX was able to get its product sample back quickly.

Founded Startup

CNEX was founded in 2013 by two former Marvell Technology Group Ltd. executives and researcher Yiren “Ronnie” Huang, whose previous job at Futurewei in California was at the heart of the trial.

Huawei claimed that Huang had wanted to set up his own business but couldn’t get backing so joined Futurewei in 2011. While there, according to Huawei, Huang used a team to develop new technology for the storage devices and then left the company to help start CNEX three days later. There, he and other CNEX founders claimed Huawei’s ideas as their own and poached other Huawei employees, Huawei claimed.

The jury found there were no Huawei trade secrets in the case. CNEX had argued that anything Huawei claimed was secret was actually public information.

Huang, who is on leave from CNEX, said he came up with the ideas long before joining Futurewei, and left when he realized the company didn’t have much to offer.

The jury found that Huang was in violation of his employment agreement’s patent application disclosure provision, but that Futurewei wasn’t harmed by that failure. Huawei had said Huang began seeking patents in the months after joining CNEX, and told the jury it was based on work he had done at Futurewei.

CEO Testified

CNEX Chief Executive Officer Alan Armstrong said he asked Huang to help found CNEX after being introduced by a mutual friend because of Huang’s work with other companies. Any former Huawei employees who joined CNEX did so because they were “very unhappy where they were working and wanted to come to a startup,” Armstrong told the jury.

CNEX contends that Huawei posed as a potential customer to get secret details of its plans and, when that didn’t work, persuaded Xiamen University to work as a research partner with CNEX so it could surreptitiously turn over plans.