Chinese maker of radios for police, firefighters struggles to outlast Trump trade fight

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Linwood Lothrop, a county official in rural Maine, is shopping for several hundred new digital radios for local police, fire and ambulance personnel. Among the models he’s field-testing are hand-held devices made by Hytera, a Chinese company that equips emergency first responders in China and around the world.

“The radio itself is simple to use and a lot better audio quality than what we’ve had,” said Lothrop, director of regional communications for Knox County. “Everybody seems to like them.”

Not everybody. In Washington, Hytera has emerged in the wake of more prominent Chinese companies like Huawei and ZTE as the latest symbol of the unfair trade practices the president says tilt trade with China against American firms — and may now threaten U.S. national security.

Earlier this month, the International Trade Commission barred Hytera from importing several of its products after concluding that the Chinese company had “wrongfully copied” trade secrets from Motorola Solutions, the U.S. company that dominates the $5 billion mobile digital radio market.

Even as U.S. and Chinese diplomats are scheduled to resume trade talks Wednesday amid mounting hopes for a deal, this little-known manufacturer illustrates how the fight for global technology dominance could escalate. Administration officials are preparing to continue the battle by pushing for new measures against Chinese companies like Hytera, according to several people familiar with the discussion.

Unlike state-controlled ZTE, Hytera has no links to the Chinese government. It is also tiny compared with global telecom giant Huawei — which the U.S. Justice Department hit Monday with a pair of criminal indictments  and has just $30 million to $40 million in U.S. sales.

The company’s predicament reflects the administration’s determination to reshape the U.S.-China economic relationship by refusing to treat any Chinese technology company as just another commercial competitor.

Instead, even companies like Hytera, which is listed on the Shenzhen stock market, may be treated as arms of a hostile government.

President Trump accuses China of trying to replace the United States as the global innovation leader by stealing American technology and forcing American companies to surrender their trade secrets in return for access to the Chinese market.

“There’s a set of actions we could take,” said Derek Scissors, a China expert at the American Enterprise Institute and occasional outside adviser to the administration. “We’re not going to do all of them. But we’ll probably do something along with any deal.”

The most likely targets include companies like Hytera that have been publicly accused in court of violating U.S. intellectual property rights and that pose a potential national security threat, he added.

Over the summer, Congress barred Hytera from receiving federal contracts along with four other Chinese telecom and video surveillance manufacturers: Huawei, ZTE, Hikvision and Dahua. The move was “the result of classified information the committee reviewed in the course of our regular oversight activities,” Claude Chafin, spokesman for the House Armed Services Committee, which originated the measure, said in an email.

Rep. Vicki Hartzler (R-Mo.), who wrote the provision in the fiscal 2019 defense spending bill, said “the federal government ran the risk that Hytera equipment would have become embedded in the communication networks of first responders and other critical infrastructure providers in the United States.”

The blacklist followed Hytera’s 2017 acquisition of two U.S. military suppliers, Sepura Group of the United Kingdom and Norsat, a Canadian satellite communications manufacturer.

The Defense Department reviewed Norsat’s contracts and “took appropriate measures where necessary” in response to the change of ownership, according to Pentagon spokesman Lt. Col. Mike Andrews, who offered no details.

Hytera’s push-to-talk radios, which are also found on construction sites and oil rigs, are used by police in Weston, Conn., and rural Washington County, Mo. Officials in both towns did not respond to requests for comment.

In Maine, Lothrop said he had been unaware of the federal contracts ban but would consider “every angle out there” before deciding whether to buy Hytera products.

Some analysts worry that equipping first responders with Chinese communications gear could leave them vulnerable to Chinese hacks or eavesdropping.

“You don’t really know who it’s talking to,” James Lewis of the Center for Strategic and International Studies said, referring to the Hytera radios. “Is there a way to disrupt it at a crucial moment?”

Hytera Communications in Shenzhen depends upon its home market for roughly 40 percent of an estimated $1 billion in annual revenue. French and Brazilian public safety officials also use the company’s hardware.

The company has no government owners. But Chinese laws on cybersecurity, counterintelligence and national security, which require companies to comply with Beijing’s orders for information, blur the line between the public and private sectors.

“It has a lot to do with Hytera’s ties to public security agencies in China,” said Dean Cheng, a China specialist at the Heritage Foundation. “They are a provider of equipment, which means they have been vetted and will put in whatever software is needed.”

Dylan Liu, a Hytera spokesman, says the company has “never been informed by any U.S. government entity that its equipment could pose any national security risk.”

Hytera also says the public safety market in the United States is a lower priority than the larger commercial market for digital radios. Its commercial customers include the University of Southern California and Barclays Center in New York.

Hytera and Motorola Solutions, which controls an estimated 70 percent to 80 percent of the U.S. market for this type of radio, have been trading legal and public relations blows for several years. U.S. District Judge Jeffrey Cole last year likened the dispute to “the Punic Wars — albeit without the elephants and the Alps and the sheer drama.”

Motorola in 2017 sued Hytera in federal court in Illinois for trade-secret and copyright infringement, saying the Chinese company had developed its digital radio products only after hiring three Motorola engineers from the American company’s Malaysian facility.

The three men — Gee Siong Kok, Samuel Chia and Yih Tzye Kok — took with them more than 7,000 internal documents detailing the source code, technical details and marketing plan for the American company’s products, Motorola alleged.

When deposed in the separate ITC proceeding, the three all invoked their Fifth Amendment right not to testify against themselves. But the commission sided with Motorola, ruling that Hytera had infringed on three of its patents.

“There can be little doubt that there is sufficient circumstantial evidence in combination with direct evidence to permit an inference that the former Motorola engineers wrongfully copied and took with them to Hytera patented Motorola technologies,” Administrative Law Judge MaryJoan McNamara wrote.

Hytera, which has about 70 employees in California, Florida and Illinois, maintains its innocence and has sued Motorola alleging unlawful anti-competitive behavior.

Motorola charges “monopoly prices in the United States unconstrained by competitive forces” and has waged a campaign of “disinformation” against the Chinese upstart to undermine its dealer relationships, Hytera said in court filings.

Motorola denies acting improperly and says Hytera filed the antitrust suit “in retaliation” for its trade secrets complaint.

Hytera executives, meanwhile, dismiss the ITC import ban as having “zero” impact on their business, noting it does not apply to an “iSeries” product line introduced in November. Those radios are physically identical to the banned products but are functionally distinguished by updated software, according to Tom Wineland, Hytera’s vice president for sales.

The Trump administration may take additional action that affects Hytera, according to several analysts and one industry executive, who asked not to be identified to discuss internal government deliberations.

Garrett Marquis, a spokesman for the National Security Council, said last week that the administration was working “across government” to reduce risks associated with communications infrastructure.

“Communications networks form the backbone of our society and underpin every aspect of modern life. The United States will ensure that our networks are secure and reliable,” he said in a statement.

In recent months, the United States has moved on multiple fronts to crack down on Chinese intellectual-property violations.

The Justice Department in November established a group of five U.S. attorneys and FBI agents to tackle Chinese trade secret cases and related instances of economic espionage. Federal prosecutors “are redoubling our efforts to aggressively investigate Chinese companies and individuals for theft of trade secrets,” Brian Benczkowski, assistant attorney general for the department’s criminal division, said at the time.

The Commerce Department also has moved against Chinese companies found to have engaged in wrongdoing. In April, officials barred ZTE, a prominent telecommunications company based in Shenzhen, from buying U.S. parts for its servers. Trump later reversed the order, which would have crippled the company, following a personal plea from Chinese President Xi Jinping.

Months later, the Commerce Department banned Fujian Jinhua, a Chinese computer chip maker backed by the Fujian provincial government, from buying components from U.S. companies. Micron Technology, a Boise, Idaho-based memory chip maker, had sued the Chinese company in 2017, accusing it of stealing its trade secrets.

Fujian Jinhua countersued Micron.

Further legal wrangling lies ahead for Hytera and Motorola. The American company’s trade secrets claim is scheduled for trial in November, while Hytera’s antitrust suit also awaits action.

As the U.S.-China trade talks race against a self-imposed March 1 deadline, the Chinese company says it hopes the two sides can resolve their differences.

“We’re in this market to stay,” Wineland said. “We’re not going to walk away.”

By David J. Lynch
Washington Post

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