BUSINESS Trial Over Theft of Wind Technology Spotlights U.S.-China Tensions

American Superconductor says Sinovel stole source code for turbine software; The loss of Sinovel’s business caused AMSC’s stock to plunge more than 40% overnight, and led to hundreds of layoffs.

A dispute over the alleged theft of wind-turbine technology is slated to go to trial in Wisconsin on Monday in a test case for intellectual-property battles between the U.S. and China.

Federal prosecutors accuse Chinese wind-turbine maker Sinovel Wind Group Co. 601558 -4.29% Ltd. of stealing the source code for software that controls wind turbines from American Superconductor Corp. AMSC 2.42% , a Massachusetts-based engineering company that once counted Sinovel as its biggest customer.

The trial in U.S. District Court for the Western District of Wisconsin could result in billions of dollars in fines for Sinovel, which has previously denied wrongdoing.

Prosecutors in 2013 indicted the company, along with two of its executives and an American Superconductor employee, on criminal charges of stealing trade secrets.

John W. Vaudreuil, then U.S. Attorney for the Western District of Wisconsin, called it “nothing short of attempted corporate homicide.”

James Pooley, a former president of the American Intellectual Property Law Association, said the case is likely to garner political attention, given that it comes just months after the Trump administration moved to take a harder line on intellectual-property theft by China.

“They are going to want to treat it as a very important exemplar in the process of demonstrating what they believe to be China’s lack of adherence to the rules,” Mr. Pooley said.

A 2017 report by the nonprofit National Bureau of Asian Research estimates intellectual-property theft could cost the American economy as much as $600 billion a year, with China the biggest culprit.

The Sinovel indictment alleges that the theft cost American Superconductor more than $800 million. If found guilty, Sinovel could be fined a multiple of that loss, up to $4.8 billion.

A win in the U.S. for AMSC, as American Superconductor is now known, could bolster its chances of winning several civil complaints it has filed in China under which the company is seeking $1.2 billion in damages.

AMSC declined to comment ahead of the trial in Wisconsin, but speaking to investors in late 2016 CEO Dan McGahn said the evidence against Sinovel “is overwhelming.”

Neither Sinovel’s media representative in China nor its lawyers in the U.S. responded to requests for comment.

The case stems back to March 2011, when Sinovel suddenly stopped accepting deliveries of electrical-control systems for its turbines from AMSC, saying the technology didn’t comply with new Chinese power-grid requirements. The loss of business caused AMSC’s stock to plunge more than 40% overnight, and led to hundreds of layoffs.

AMSC began to suspect Sinovel of theft a few months later, after a field team in China found an imperfect replica of AMSC’s software in a Sinovel turbine.

Investigations led to an AMSC employee based in Austria who, according to internet chat transcripts and emails later submitted as evidence, allegedly conspired with Sinovel executives to steal and recreate AMSC’s technology in exchange for a total of $1.7 million. The AMSC employee, Dejan Karabasevic, pleaded guilty before an Austrian court in late 2011 and served time in prison.

Then in 2012, FBI agents discovered four Sinovel turbines in Massachusetts operating with what an analysis showed to be modified versions of the software taken from AMSC—evidence that helped lead to Sinovel’s 2013 indictment.

AMSC was worth just over $200 million by that time, a fraction of its $1.5 billion market value in early 2011. Today, it is worth roughly $80 million, with less than half the employees it had in early 2011—but has diversified its product line to include systems that help connect new resources to the electric grid.