Hidden world of technology theft

The White House blocked a Chinese company from operating a wind farm near a sensitive Navy base in Oregon. Next, the House Intelligence Committee said two Chinese telecommunications firms were manufacturing equipment that could be used to spy on the United States, and Defense Secretary Leon E. Panetta told business leaders that the country faced the risk of a “cyber-Pearl Harbor” — an attack that could come from terrorist groups or a country like China. Finally, during Monday’s presidential debate, Mitt Romney warned that the Chinese were “stealing our intellectual property, our patents, our designs, our technology, hacking into our computers.”

United Technologies Corp., and two subsidiary units agreed in federal court to pay a $75-million fine for illegally selling embargoed software and components to China that the country used to build a sophisticated attack helicopter called the Z-10.

Last June, three men squeezed inside a wind turbine in China’s Gobi Desert. They were employees of American Superconductor Corp. (AMSC), a Devens (Mass.)-based maker of computer systems that serve as the electronic brains of wind turbines. From time to time, AMSC workers are required to head out to a wind farm in some desolate location—that’s where the wind usually is—to check on the equipment, do maintenance, make repairs, and keep the customers happy.

On this occasion, the AMSC technicians were investigating a malfunction. They entered the cylindrical main shaft of the turbine, harnessed themselves to a ladder, and climbed 230 feet in darkness up to the nacelle, an overpacked compartment that holds the machinery used to convert the rotation of the blades into electricity. AMSC had been using the turbine, manufactured by the company’s largest customer, China’s Sinovel Wind Group, to test a new version of its control system software. The software was designed to disable the turbine several weeks earlier, at the end of the testing period. But for some reason, this turbine ignored the system’s shutdown command and the blades kept right on spinning.

The AMSC technicians tapped into the turbine’s computer to get to the bottom of the glitch. The problem wasn’t immediately clear, so the technicians made a copy of the control system’s software and sent it to the company’s research center in Klagenfurt, Austria, which produced some startling findings. The Sinovel turbine appeared to be running a stolen version of AMSC’s software. Worse, the software revealed that Sinovel had complete access to AMSC’s proprietary source code. In short, Sinovel didn’t really need AMSC anymore.

In August, workers at Samsung Electronics (005930) in the South Korean city of Suwon swathed 60 next-generation televisions in bubble wrap and nailed them into wooden crates. Two weeks later, when the boxes were opened at a Berlin trade show, two TVs were missing. The 55-inch prototypes—each costing $10,000 and weighing about 43 pounds—featured breakthrough technology known as organic light-emitting diode displays, which make TVs thinner and help project brighter and sharper images. The suspects: corporate spies.

Thefts of TV sets, diagrams, and circuitry are on the rise, and that’s bad news for Samsung and LG Electronics—the only companies that can commercially produce OLED displays, which the $110 billion flat-screen TV industry expects to wow consumers and revive slumping sales. South Korea’s National Industrial Security Center, part of the country’s intelligence agency, last year reported 46 cases involving attempts to steal local companies’ secrets overseas, up from 32 in 2007.

Paragon Dynamics Inc., an Aurora, CO defense contractor, is paying $1.15 million to settle allegations it stole bid information from Raytheon Corp. about spy agency projects over which the companies competed in 2009.


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