Taiwan's Hon Hai wages judicial battle against Chinese competitor

  • Business
  • Friday, 18 Jul 2008

TAIPEI (AP) - Taiwan's giant electronics manufacturer Hon Hai Precision Industry Co. appears to have a big advantage in the China market - its principals all speak Chinese and have an intuitive sense for the country's often bewildering business culture.

But last week the company took out half-page ads in major Taiwanese newspapers to complain about delays in a mainland court over the prosecution of a Chinese competitor.

Spokesman Edmund Ding said Hon Hai suspects that BYD Company Limited, a Chinese electronics maker based in the southern city of Shenzhen, is systematically looting its trade secrets.

The purpose of BYD's alleged actions, Taiwanese media have reported, is to give the Chinese company a leg up against Hon Hai in winning big parts orders from international mobile phone powerhouse Nokia.

The row is a stark reminder that even for the most sophisticated Taiwanese companies - in this case one employing 500,000 Chinese workers - doing business in China is not as simple as it seems.

Cheng Jung-wen, a senior official at the Taiwan Merchant Association in Shenzhen said the Hon Hai case reflected a tendency among some Chinese officials to favor local companies over outsiders in intellectual property rights disputes.

Cheng said intellectual property theft is a common problem suffered by Taiwanese businesses, but that provincial Chinese officials seemed unwilling to help them address it.

"We have long given up the thought of asking Chinese authorities for help,'' Cheng said.

"The only way we can avoid damages is to develop new products all the time.''

Hon Hai's saga began in 2006, when it sued BYD for infringing on its trade secrets after two former China-based Hon Hai employees allegedly took proprietary information with them when they went to work for BYD.

The employees have since been convicted in a Chinese court on infringement charges.

But according to Hon Hai, that may be only the tip of the iceberg.

Spokesman Ding said that 400 Hon Hai employees have moved to BYD over the past 4-5 years, and many are suspected of providing the company with Hon Hai trade secrets.

To protect its interests, Ding said, Hon Hai is now suing BYD in Hong Kong.

In parallel, Chinese prosecutors have opened a criminal investigation against BYD in Shenzhen, he said.

But Hon Hai fears that the cards may be stacked against it - at least in Shenzhen.

BYD's head is a member of the city's powerful People's Congress, "with the power to remove members of the judiciary,'' Hon Hai's recent newspaper ad said.

"This results in a certain degree of unwillingness among local judicial and police members to deal with the case,'' it said.

Hon Hai's advertisement of its troubles come at a bad time for newly installed President Ma Ying-jeou, who sees closer ties with China as providing a big boost to the island's economy, particularly after the Beijing-averse policies of his predecessor.

Ma certainly does not favor unity with the mainland - the two sides split amid civil war in 1949 - but he's strongly in favor of reducing restrictions on Taiwanese investment there, promoting Chinese investment on Taiwan, and opening up the island to new waves of Chinese tourists.

Hon Hai's China problems could make his program harder to sell among members of Taiwan's powerful business community - including those who now have investments in China or are considering jumping in soon.

Recent increases in the cost of doing business on the mainland are likely to have the biggest negative influence on investment plans for Taiwanese businesses, so Hon Hai may not be a make-or-break precedent for them.

But the company's huge China exposure means that its experiences won't be ignored either, particularly given the considerable respect in which it is held in the local business community.

BYD did not respond to the AP's e-mailed request for comment on the Shenzhen proceedings. In an April filing to the Hong Kong stock exchange on the two former Hon Hai employees convicted of providing it with Hon Hai trade secrets, it characterized them as isolated individuals whose actions did not reflect on BYD as a corporate entity.

Despite its China problems, Ding remains confident that a positive resolution in the Hon Hai matter will be found, largely because China's senior leaders are committed to protecting the interests of Taiwanese businesses on the mainland.

"We believe justice will eventually prevail,'' he said.

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