Apple Accused of Poaching Chinese Know-How Paid for by US Taxpayers

Lu GuanqiuSince 2011 NLPC has tracked the stimulus-funded fiascoes that were/are battery-maker A123 Systems and luxury electric automaker Fisker Automotive, who at one point were business partners (or stuck with each other, depending on your perspective). Both eventually went bankrupt, and cost taxpayers millions of dollars from Department of Energy awards that were never paid back. Chinese company Wanxiang Group ended up with both failed enterprises, buying their assets for cheap.

While the Obama administration declared the two bankruptcies (among others, such as Solyndra) part of their “successful” green energy investment strategy, two Republican Senators – Charles Grassley of Iowa and John Thune of South Dakota – have applied pressure to DOE over the fate of American jobs and intellectual property created by A123 and Fisker, but paid for with U.S. tax dollars.

Now, as the Senators continue to express concern about DOE policy over innovations created thanks to government funding, Chinese-owned A123 is suing over the “theft” of its intellectual resources by an American company – Apple! The Cupertino, Calif. computer giant is said to be secretly working on its own electric vehicle, and A123 has alleged in a lawsuit that Apple is “poaching” its best-and-brightest – led by former A123 Chief Technology Officer Mujeeb Ijaz – in violation of non-disclosure and non-compete agreements.

“It appears that Apple, with the assistance of defendant Ijaz, is systematically hiring away A123’s high tech PhD and engineering employees, thereby effectively shutting down various projects/programs at A123,” read the legal complaint, filed in Massachusetts state court but moved to federal court. “They are doing so in an effort to support Apple’s apparent plans to establish a battery division that is similar if not identical to A123’s, in competition with A123….”

As the Boston Herald reported, among the talent lured away by Apple includes an A123 scientist that earned $600,000 last year, plus living expenses. A Forbes.com analysis pondered why the battery innovator/manufacturer was so incensed that it felt it necessary to sue Apple over a few scientists. Technology writer Michael Kanellos reviewed A123’s history, which grew out of MIT, and explained that the company’s lithium phosphate cells did not perform as well as competing technologies. Also, larger and deeper-pocketed competitors like LG Chem and Johnson Controls worked their ways into alternative energy, and A123 struggled to get automotive clients – their only “success” was Fisker.

Nevertheless, post bankruptcy, Wanxiang moved aggressively to acquire A123 at a steep discount (but not necessarily a pittance) – for $260 million. As NLPC concluded in December 2012, “it’s not far-fetched to think that Wanxiang believe(d) the biggest worth of A123 remains in the head knowledge of its scientists and engineers who will now report to them.” That would go a long way toward explaining the Apple lawsuit.

Before the U.S. government approved the sale of A123 to Wanxiang, members of Congress (including Grassley and Thune) expressed concern about the technology transfer over national security concerns, besides the loss of taxpayer-funded resources.

“A123 Systems also works hand-in-hand with U.S. power plants on energy storage and efficiency improvements,” Tennessee Republican Rep. Marsha Blackburn wrote in The Hill. “Its products and technology serve the telecommunications markets through battery backup systems that support telecommunications controllers and Internet servers, transceiver stations and central hubs. Allowing Wanxiang to acquire this company’s technology could leave us vulnerable to cyber attacks.”

Despite the concerns, the bankruptcy court and the Committee for Foreign Investment in the United States approved the deal. But Grassley and Thune are still pressing DOE for more stringent measures to assure that taxpayer-financed innovations are properly protected investments preserved for the public benefit.

“A more complete audit would allow DOE to register and claim title to subsequent inventions that trace back to federal support and may otherwise escape disclosure,” the Senators wrote to DOE Secretary Ernest Moniz. “This accountability is especially important to track taxpayer-funded intellectual property through transfer of ownership from an awardee company to a foreign entity.”

The Energy Department responded with an explanation for plans to create rules to address control of such technology, while also stating that other areas of law limit the government’s ability to retain the property or require its manufacture on U.S. soil.

Wanxiang, which does operate A123 in the U.S. and has maintained its identity for “The New Fisker” at its “Wanxiang America” base in Chicago, has aspirations for a re-launch of the electric “Karma” model. Company chairman Lu Guanqiu (pictured) has expressed his passion and commitment for becoming the first successful Chinese automaker.

“I’ll put every cent that Wanxiang earns into making electric vehicles,” Guanqiu said at the company’s Chinese headquarters last June. “I’ll burn as much cash as it takes to succeed, or until Wanxiang goes bust.”

But the effort to get the new Karma to market has been a struggle, apparently. Earlier this week sources told Reuters that the Fisker name would be changed to Elux, and that the hoped-for 2015 relaunch would be delayed at least a year. Wanxiang was also said to be spending millions of dollars updating the Karma’s years-old hardware.

Add to that the lawsuit against cash-rich Apple over “brain drain,” it appears Mr. Lu believes his dream is imperiled. Maybe we’re seeing the beginning of the bizarre scenario of an American company overtaking a Chinese one, whose assets were largely paid for by U.S. taxpayers.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.