Massachusetts-based American Superconductor seemed to be riding high in early 2011, reaping strong sales and even praise from the White House for successfully cracking the Asian import markets.
Then, one day that April, employees were called to a meeting where they heard some very disturbing news.
Their largest customer, Beijing-based Sinovel, which provided three-quarters of the company's revenue, had refused to accept a shipment of electronic components for its wind turbines " and wouldn't pay millions of dollars it owed for them. The reasons it gave were ambiguous.
Within weeks, the company concluded that Sinovel had somehow obtained the source code for its electronic components and was installing a pirated version in the wind turbines it sold.
"American Superconductor provided sort of the brains of the turbines, so if Sinovel could do it themselves, using cheaper components, yeah, they could produce these turbines more cheaply," says Assistant U.S. Attorney Timothy O'Shea, who would later prosecute Sinovel in federal court.
American Superconductor's CEO, Daniel McGahn, says what happened didn't come as a complete surprise " he knew that intellectual property theft was always a big risk when doing business in China. But the components sold by American Superconductor featured sophisticated encryption technology, and the company was pretty sure that no one at Sinovel could have cracked its source code.
Instead, someone at American Superconductor had to have illegally leaked its technology.
A 2013 indictment alleged that an engineer at the company's Austrian subsidiary, Dejan Karabasevic, was given a multi-year contract worth $1.7 million by Sinovel to steal his employer's trade secrets. The money essentially doubled his salary, the indictment said.
"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," McGahn says.
Sinovel also said that no evidence existed that Karabasevic had taken the source code without authorization, and that the Massachusetts company had failed to take adequate steps to protect its source code.
Still, a federal jury in Wisconsin found Sinovel guilty of stealing trade secrets on Jan. 24.
Even as it struggled to survive, American Superconductor was fighting back against Sinovel, taking its complaints about the theft to the Chinese government, part-owner of Sinovel. Nothing happened, McGahn says. The company also complained to the Obama administration and Congress, who did nothing.
McGahn is sometimes asked by other executives about the Chinese market. He tells them China is a trap.
"The rules are set up in a way that the local brands will win," he says. "Participation in the Chinese market is for Chinese companies only. 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."