(Bloomberg) — When three Chinese nationals were jailed in Beijing nearly a decade ago and accused of selling fake Hewlett-Packard Co. networking equipment, it seemed like an example of American companies getting what they had long demanded: aggressive protection of intellectual real estate in the world’s most populous nation.
A protracted lawsuit en route to a trial in Massachusetts paints a much muddier picture. The three, who were acquitted in China, accuse the former Silicon Valley icon of setting them up. They claim it was HP units that colluded to sell counterfeit equipment and then blamed them.
HP is disputing the claims and asking a US federal judge to dismiss the lawsuit because the story was fabricated by Integrated Communications & Technologies Inc., the Massachusetts-based company that employed the three Chinese nationals, for its own criminal obscure behavior. U.S. District Judge Leo T. Sorokin can rule on the dismissal request at any time. If he lets the case go through, a trial is scheduled for February.
Western companies have been calling on China to fight counterfeiting and take action against those who steal their intellectual property for years. One of the triggers for former US President Donald Trump’s trade war was the technology industry’s lobbying of the US government to help protect their IP. A loss to both sides in the lawsuit would tarnish their reputation in the world’s largest computer market by marking them as an organization that fraudulently sold counterfeit goods.
The US Trade Representative’s office identified China as the “primary source” of counterfeit goods in a 2020 report. With Hong Kong, document details show, China is responsible for 92% of the value of counterfeit goods cleared by US customs in 2019. and border protection have been confiscated. In this case, the networking equipment made by an HP affiliate in China was leased out to India and then sold back to the Chinese market.
According to court documents, including affidavits, the saga that led to the lawsuit began in 2011, when IT workers Jade Cheng and Jason Yuyi were notified of a major opportunity: HP Financial Services India would sell them used computer networking equipment for resale to their customers around the world.
Preparing for the deal involved hours of backbreaking work: “As long as there were potential buyers, Jason and I spent days and nights calling, emailing, and creating online advertisements to prepare for the ‘big future,'” said Cheng. in court documents.
But when some of the equipment was delivered, it became apparent that the equipment was not as advertised. ICT customers complained that the equipment was in poor condition and defective, resulting in damage to the company’s profits and reputation, Cheng said. The first piece of equipment was purchased for $250,000, with plans to sell it for $1.5 million. But ICT’s customers withdrew when they realized the equipment was faulty.
The argument with customers after the discovery of the problematic equipment cost Cheng and Yuyi’s time. Cathy Yu joined ICT in 2012 and she too worked all year on restoring customer relationships.
One day – December 10, 2012 – Cheng noticed that his two colleagues were not logged in to their work computers.
Cheng, the former Asia-Pacific ICT director, at first thought they had slept well. They were young and it was Monday morning. After repeated attempts to reach them by phone, including calling their parents, “I started to get nervous, that kind of feeling when your gut tells you something isn’t right,” Cheng said in an affidavit.
His feeling was correct. Cheng’s colleagues had been arrested by the Chinese Public Security Bureau and placed in the Haidian Detention Center in Beijing, on charges of selling fraudulent equipment. Cheng would soon join them as a prisoner as he traveled from the city of Rushan to the capital of China to find out what was going on.
Cheng said in his affidavit that after his arrest he lived in several cells in the detention center, slept on the floor and had to share a blanket, missed Christmas and New Years with his family, sat on wooden planks for hours on end, drank filthy water, had to have ice cold taking showers and was threatened by other inmates.
“I felt like I had stepped into hell,” Cheng said in the affidavit.
File a complaint
These circumstances continued until Cheng and his colleagues were released on bail in July 2013. In 2014, Cheng, Yu and Yuyi received a no-crime letter from the police, essentially exonerating them. In 2015, they sued HP’s successors: Hewlett-Packard Enterprise Co. and HP Inc.; as well as subsidiary HP Financial Services India and H3C, a joint venture of the company in China.
In interviews and affidavits, Cheng and his imprisoned colleagues and their boss ICT founder and Chief Executive Officer Alex Styleler said they believe that HP’s Indian subsidiary sold them fake equipment, which presents it as authentic, and the Chinese joint venture has confirmed this. reported to the authorities.
“This put them in a tricky spot,” Styleler said in an interview with Bloomberg about the Hewlett-Packard-related companies. “If they admitted that they had sold us counterfeit equipment, it would be a violation of the law in India. It would also damage their reputation in China, a very important market for them, and would mean that their reckless selling of that equipment would have imprisoned three innocent people.”
According to the HP companies, those allegations are “a remarkable counterfeiting and conspiracy story” that is not supported by the facts. deprive employees of legal protection; smuggling of goods through customs officers; tax evasion and selling counterfeit transceivers not from HPFS India,” the defendants said in their resignation request. Representatives of the companies declined to comment further.
Sorokin tossed in a false claim by the ICT workers in 2017, saying there was no evidence that the HP-related companies intended to lock up the employees: “The court finds it unlikely that the individual plaintiffs bare any suggestion that the defendants did not make sufficient efforts to obtain their release because they intended to imprison them.”
The ICT group filed a revised lawsuit to try to get the judge to reconsider that rejection.
ICT said the years of quarrels in court and failed settlement talks with the HP-related companies represent the defendants’ efforts to use their muscles to wear out a smaller company and cover their tracks. The defendants, whose resignation request affects the legality of the lawsuit, said the sharing of information ahead of the trial revealed that both sides agree that there is no evidence that HP provided the counterfeit equipment. That, in turn, shows that ICT leaders are the real fraudsters, say the HP-related companies.
The history of ICT
Styleler started ICT in 1993, three years after he fled the Soviet Union as a political refugee, to “give new life to old technology” and supply equipment to companies that could not afford the full price for new equipment. Since then, ICT says on its website that it has processed nearly £5.4 million of e-waste and that the company’s business dealings are “fully compliant with regulations and standards”.
Still, this isn’t the company’s first legal confusion with an American tech titan. Microsoft Corp. sued ICT in 2015 for selling computers with unauthorized copies of Windows 7, and the lawsuit was settled out of court. That case was resolved “amicably” and “quickly,” allowing ICT to become a registered Microsoft renovator, Styleler said in the interview.
The case is Integrated Communications & Technologies Inc. v. Hewlett-Packard Financial Services Company, 16-cv-10386 U.S. District Court, District of Massachusetts (Boston).
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