First impressions are important. And that's especially true for this week's visit to the United States by China's vice president, Xi Jinping. By all accounts, Xi is the frontrunner to become president of the People's Republic when Hu Jintao's term ends this year. Xi's visit gives each side a chance to size up the other and gauge whether the relationship will become more or less contentious.
US Vice President Joe Biden set a combative tone from the start when he said at a State Department luncheon on Tuesday that cooperation “can only be mutually beneficial if the game is fair.”
It's an election year, and Biden was playing to the domestic audience, but the US has been growing frustrated for some time now with China's stance on a number of trade and geopolitical issues. Whether it's rampant counterfeiting, IP protection, China's suspect rule of law, human rights violations, support for Syria, or an unwillingness to let its currency appreciate, the US has been demanding more vocally that China become a better global citizen and trading partner.
Of course, China doesn't see it quite like that. In a speech on Wednesday, Xi said the two nations need to respect each other's “core interests.” This means, among other things, that the US should back off from its support of independence for Taiwan and Tibet and reconsider its restrictions on the export of high-technology products to China.
Given China's inability — or unwillingness — to protect intellectual property, the US is unlikely to relax its high-tech restrictions soon. At the heart of the issue is China's poor track record on protecting foreign companies' rights in its courts. Until China can demonstrate it's serious about a strong rule of law, nothing will change.
That system is being tested now by a case brought by American Superconductor (AMSC), a struggling Massachusetts developer and manufacturer of next-generation technology for wind turbines and power grids. Last year, AMSC filed three civil suits in Chinese courts accusing Sinovel Wind Group Co., formerly its largest customer, of breach of contract and IP theft. The US company is seeking to recover more than $1.2 billion for contracted shipments and damages from Sinovel.
One of those cases, a civil action against Sinovel for software copyright infringement, has been filed with the Beijing No. 1 Intermediate People's Court. The case alleges that Sinovel illegally used portions of AMSC's wind turbine control software source code developed for Sinovel's 1.5 MW wind turbines and the binary code of AMSC's software for its PM3000 power converters. AMSC is seeking a cease-and-desist order and damages totaling $6 million in this case.
AMSC alleges that Sinovel acquired the software illegally from Dejan Karabasevic, who worked at AMSC Windtec in Austria. Karabasevic was arrested in Austria in July and pleaded guilty in September to passing information to Sinovel.
Sinovel denied any wrongdoing and vowed to “actively respond” to any legal action brought by AMSC. In November, Sinovel filed a motion to remove this case from the Beijing court and transfer it to the Beijing Arbitration Commission. On Tuesday, the court denied Sinovel's motion to remove the case.
This is good news for AMSC, but it's just a very small step in a long and costly battle. Technology corporations around the world will certainly be watching it closely. AMSC's future is in the balance, and Sino-US relations may be, too.