As the smartphone market continues to get even more competitive, especially in China, Huawei Technologies has shaped up to be one of Apple’s chief rivals in that space, surpassing Apple to become the second-largest smartphone manufacturer in the world. Not surprisingly, however, it would appear that the Chinese company, which has recently been in the crosshairs of the U.S. government for stealing trade secrets, has actually had a longstanding reputation of not playing by the rules when it comes to the technology it incorporates into its products.
A new investigative report by The Information sheds some light on exactly how far Huawei is willing to go to “acquire” technology from Apple in order to maintain a competitive advantage, including trying to coax Apple’s suppliers into releasing confidential information by offering them lucrative business deals in exchange, bribing former Apple employees, and even going so far as rewarding its own employees with bonuses for stealing information and posting it on an internal company website.
While intellectual property theft isn’t a new thing — patent lawsuits have gone for years between companies like Apple and Samsung over who has copied what from whom — when it comes to stealing trade secrets, it would appear that Huawei has no shame at all.
The Information cites one particular example where Huawei was attempting to copy the heart rate sensor technology used in the Apple Watch to bolster the heart rate monitor on its own languishing smartwatch. The report explains how a Huawei engineer sought out a supplier that makes components of Apple’s heart rate sensor, offering them a “lucrative manufacturing contract” in exchange for details about the Apple Watch. The attempt was unsuccessful, but this is also likely the only reason that it came to light; the details were provided to The Information by an executive at the supplier who likely wouldn’t have been quite so forthcoming had the bribery attempt succeeded.
The executive at the supplier, which requested anonymity due to its non-disclosure agreement with Apple, outlined exactly out the attempt went down, including sharing messages between Huawei and the supplier that began by requesting a meeting to discuss a potential business deal, stating that they were designing a smartwatch “similar to Apple’s” and wanted to “talk generally about the cost of a prototype” before getting into specifics, while promising sales of one million units.
The Huawei engineer then went onto make subtle requests for information from the supplier, such asking the supplier to “feel free to suggest a design [they] already have experience with” after providing a photo of material that Huawei was considering using in its own heart rate sensor. Once the parties got together for a face-to-face meeting, the Huawei engineer arrived with four Huawei researchers, and the group spent about 90 minutes pressing the supplier for details about the Apple Watch, according to the executive.
In conducting research and development, Huawei employees must search and use publicly available information and respect third-party intellectual property per our business-conduct guidelines.Huawei spokesman
Naturally, Huawei was quick to deny any wrongdoing, adding that it spends more on research and development than “most of its competitors.” However, the company has also been embroiled in the trade war between the U.S. and China, with U.S. authorities insisting that the company steals its technology, and at least one indictment by the U.S. Justice Department accusing Huawei of pilfering trade secrets from T-Mobile.
In the indictment, the U.S. Justice Department notes that Huawei has a formal program to reward employees for stealing information that provides bonuses as compensation, based on how secret the information is. An internal web site and email address provides a place for employees to submit stolen information, which is then reviewed by Huawei’s euphemistically-named “competition management group.”
Former Apple employees involved in the company’s supply chain have also reported shady attempts by Huawei to gain information on Apple’s products and technologies. One former employee describes an interview with Huawei immediately after leaving Apple, noting that Huawei executives asked more questions about Apple’s upcoming products and technological features than the person’s own resume. The former Apple employee stopped the interview when it became obvious what the Huawei executives were actually after.
It was clear they were more interested in trying to learn about Apple than they were in hiring me.Former Apple employee who interviewed with Huawei
Huawei also has a longstanding reputation for approaching workers at Apple’s assembly plants, such as Foxconn, to attempt to gain proprietary information such as sketches of parts and description of materials. While Apple’s assembly lines are isolated and secured with cameras and metal detectors, it’s almost impossible to prevent assembly line workers from sharing information that’s stored in their heads. Huawei is also far from alone in this approach, however, with many competitors, including those from South Korea, also having a long history of trying to glean information from assembly line workers.
So it’s perhaps understandable why Apple needs to take such serious precautions at its Chinese factories, with strict security guidelines that are actually based on the same standards that the U.S. government employs for the export of military and defence technologies. According to current and former Apple employees, suppliers are required to keep extremely detailed logs, store all sensitive components under lock and key, and maintain video surveillance. Apple’s global security team also regularly conducts audits and even goes so far as to send undercover agents into black markets to repurchase stolen components and trace them back to their sources. Suppliers are also required to sign bonded security contracts that can see them facing penalties of more than $1 million if leaks are traced back to their plants.
Unfortunately, despite the high security risks involved with doing business in China, the low labour and production costs mean that companies like Apple have little choice but to operate there and deal with the leaks as best as they can. Presumably, the extra money Apple needs to spend on security is easily offset by the savings on manufacturing costs, but with aggressive companies like Huawei regularly targeting Apple’s trade secrets, it would be naive to assume that Apple could get away with significantly lower security costs anywhere else in the world.