The Case for Huawei

Is Huawei an IP-stealing, technology bully conspiring with the Chinese government to spy on the western world? The recent headlines about Huawei might lead you to believe this fallacy but you may be surprised to find out the truth about Huawei.

 

What is Huawei?

Huawei Technologies is the world’s largest telecommunication equipment manufacturer. It was founded in 1987, is headquartered in Shenzhen, China and is employee owned. Huawei makes telecom and network equipment, smartphones, IT hardware and cloud computing software. Huawei customers include large corporations such as Telefonica, Vodafone and Telestra as well as everyday consumers in the case of smartphones. Huawei is a leader in the Chinese market and continues to expand internationally. 2015 Sales were reported at $60.8 billion dollars with 29.9% growth. Huawei’s competitors include Ericsson, Cisco Systems and Nokia, in the telecom equipment market, and Apple and Samsung in the smartphone market. Ren Zhengfei is the founder and current CEO. Hoover’s reports that “a cell phone call could travel completely over Huawei Technologies products, except for the air between cell towers.”

Huawei has three essential business segments:

  • Telecom carrier networks
  • Enterprise service, software and hardware solutions
  • Devices (smartphones and other electronics)

In 2015 Huawei spent $9.2 billion dollars on R&D. Many products come from its 16 R&D centers spread around the world. The company partners with its customers and channel partners in an “open ecosystem” to develop new products and services. It has developed 4G, 4.5G and LTE technologies as well as P-series, Mate and Honor lines of smartphones. It is beacon of Chinese technology success that has blossomed in Shenzhen.

 

 

There are three ongoing matters with Huawei that have raised public concern about Huawei:

 

  • Violating the UN economic sanctions on Iran:

On Oct 27, 2011, an article was published in the Wall Street Journal entitled “Chinese Tech Giant Aids Iran.” This exposé article showed how Huawei was increasingly supplying telecom equipment to Iran as most western countries were severing ties due to UN economic sanctions. The telecom equipment from Huawei permitted further state espionage from the Iranian government. Iran has had a history of human rights abuses, which initially led to UN economic sanctions. The article spelled out how such government espionage led to further human rights abuses such as arrest of dissidents once they powered on their cell-phones. Huawei responded: “We have never been involved and do not provide any services relating to monitoring or filtering technologies and equipment anywhere in the world.”

On December 1, 2018, Meng Wanzhou, Huawei’s vice-chairperson and CFO, was arrested in Canada at the request of the United States. She was accused of violating U.S. sanctions against Iran and in January 2019, the U.S. Department of Justice filed charges of fraud, obstruction of justice, and theft of trade secrets against Huawei Technologies. She was released on bail in December, but is under house-arrest in Vancouver while she awaits a trial to determine if she will be extradited to the U.S.

 

  • Cyber-security risks for telecom products and consumer devices:

Secondly, Huawei has been steadily expanding into the U.S. market. However, the U.S. Commerce Department barred Huawei from developing a national wireless emergency network because of “national security concerns.” The threat stems from the idea that Huawei equipment may be designed to allow unauthorized access by the Chinese government. In response, Huawei opened a Cyber Security Evaluation Centre in December 2010 to test its products from cyber security threats. More recently, the U.S. passed the National Defense Authorization Act for Fiscal Year 2019, which prohibits federal agencies from using equipment and services from Huawei. The U.S. government has also expressed concerns about the possibility of a Chinese company being forced into giving-up cyber secrets. Some software vulnerabilities within Huawei routers were reported during Defcon by Felix Lindner. The real concern expressed by Lindner is that such vulnerabilities have not been disclosed or tracked by Huawei and that there should be more transparency with regard to the fixes. Most importantly, there is not outright evidence that has been found in Huawei hardware or software which might raise cyber security concerns

In a 2014 New York Times article, Edward Snowden’s leaked documents provided anecdotal evidence that the NSA has operated an espionage program against Huawei. The NSA had infiltrated Huawei telecom networks which allowed for US espionage on Huawei technology and for US national security threats all over the world where Huawei networks are used.  Other countries have followed the US effort to ban Huawei products from use, including Australia, Canada, and New Zealand. Alternatively, Germany had found no evidence that Huawei had used their equipment for Chinese espionage purposes. In March 2019, Huawei countered the U.S. ban with a lawsuit in federal court alleging that it was denied due process. Rotating Chairman Guo Ping further stated: “The U.S. Congress has repeatedly failed to produce any evidence to support its restrictions on Huawei products. We are compelled to take this legal action as a proper and last resort.”

 

  • Intellectual property theft:

There were a few incidents in regard to intellectual property theft. First, in 2003 Cisco and Huawei were involved in a software source code dispute that was eventually settled. Second, in 2004 a Huawei employee was caught diagramming and photographing circuit boards at a trade show and was later fired. There were 2 other intellectual property lawsuits, 1 with ZTE and 1 with Motorola that were settled. The most notable case comes from T-Mobile US. In 2014, T-mobile claimed that Huawei employees snuck into a T-Mobile lab and stole parts and technology from its smartphone testing robot called “Tappy.” T-mobile cancelled contracts with Huawei. After three years in court, a jury found that T-mobile trade secrets were used by Huawei and that Huawei had committed industrial espionage and was fined $4.8 million.

 

Conclusion:

It is no surprise that Chinese culture is quite different than western culture. Significant differences include an individually-focused society such as in North America versus a communally-based society in Asia. With this in mind, subjects like patent law can be interpreted very differently. With patents, there is a tradeoff where the patent holder profits versus when the patent is released to society for open use. In the U.S., legislators have selected 20 years for this tradeoff to be appropriate whereas in China it is 10 years (in the case of a utility patent). Patent infringement may not be enforced as strictly in China as it is in the US. In the U.S., business and profiteering are found to be the chief motivator and this method works very well for that society. In China, high-speed innovation and overall economic benefit are a chief motivator. This broad economic benefit has the ability to raise the average class of citizens from poor to middle class and wealthy. In short, the ideology in which public benefit comes before or along with private benefit is counter to individual-based western thought. It strikes fear in the hearts of many North Americans to prioritize social benefit over individual benefit. These undertones weigh onto the facts about the Huawei incidents.

The fact of the matter is that Huawei violated the terms of the U.N. sanctions on Iran. However, it is foolhardy for the U.S. to pursue these via arresting Meng Wanzhou as it becomes an international crisis of U.S. vs China (and western ideals vs eastern ideals). Broad UN effort condemning this action should be taken such that it becomes the UN vs Huawei action where levying a fine on the company is the end result. Secondly, the U.S. NSA has already spied into Huawei and can exploit vulnerabilities in Huawei networks. They know how to manipulate Huawei technology already so they know it is only a matter of time that other governments can manipulate them as well. Furthermore, it is hardware and software that was developed with a different ideal in mind, that of open information and fewer barriers. It leads to different product design and may not be over-engineered to U.S. national security standards. Huawei should be extended due-process rights to access U.S. markets. Lastly, the intellectual property threat is essentially a problem of different ideals which must be explored and addressed on a large scale. China may need to get better at enforcing international IP law for it to be revered as a world technology provider; however, the U.S. may be wise to adopt faster-paced and open-source technology law or risk being left behind in a world that evolves more quickly in getting technology to the most innovative companies.

 

 

Louis C. Schneider

Tulane MBA 2019

 

 

Works cited:

 

Huawei Company Website: https://www.huawei.com/us/. Accessed 22 Mar 2019.

 

Huawei Investment & Holding Co., Ltd. Profile. Hoover’s. Sept 23, 2018.

 

Stecklow, Steve (19 October 2011). “Chinese Tech Giant Aids Iran”. The Wall Street Journal. Retrieved 19 October 2011.

 

Jiang, Sijia; Wolfe, Jan (March 6, 2019). “Huawei fights back against US black out with Texas lawsuit”. Reuters. Retrieved March 7, 2019.

 

David E. Sanger and Nicole Perlroth (22 March 2014). “N.S.A. Breached Chinese Servers Seen as Security Threat”. The New York Times. Retrieved 23 March 2014.

 

Orlowski, Andrew (19 May 2017). “Huawei spied, US federal jury finds”. The Register.