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February 11, 2011

Federal Panel May Back Reversing Huawei Acquisition

An acquisition by China's Huawei (News - Alert) Technologies may be undone after the Pentagon expressed concerns about the wisdom of the deal, according to media reports.

The deal allows Huawei to purchase key parts of a U.S. company – even though the Chinese firm allegedly has dealt with known terrorists.

A letter from U.S. Senators Jim Webb (D-Va.) and Jon Kyl (R, Ariz.) said that the sale of a U.S. computer technology company, 3Leaf, to a Chinese firm posed a “serious risk” for national and economic security.

Huawei purchased 3Leaf’s intellectual property and hired a number of its employees in May 2010, the letter said.

They explain in the letter, which was sent to Obama Administration officials, that the Chinese firm has a “history of illegal behavior and ties with the People's Liberation Army, Taliban and Iranian Revolutionary Guard.”

Several lawsuits have been filed in U.S. courts against Huawei that allege it has taken part illegal activities “from patent and trademark infringement to fraudulent inducement,” claimed the Senators.

The Senators further suspect that Huawei’s acquisition of just parts of 3Leaf was designed to avoid increased scrutiny by U.S. regulators, according to the letter.

“Allowing Huawei and, by extension, communist China to have access to this core technology could pose a serious risk as U.S. computer networks come to further rely on and integrate this technology,” the Senators said. “Huawei, and its Chinese government sponsors, must understand that it will not be permitted to attempt to exploit loopholes it perceives in our laws.”

“We are convinced that any attempt Huawei makes to expand its presence in the U.S. or acquire U.S. companies warrants thorough scrutiny,” the Senators added. “Moreover, the 3Leaf acquisition appears certain to generate transfer to China by Huawei of advanced U.S. computing technology.”

Under the Foreign Investment and National Security Act of 2007 (FINSA), the Committee on Foreign Investment in the United States (CFIUS) has the power to “undo” Huawei’s acquisition.

The Wall Street Journal reported that Huawei did not ask for review for the 3Leaf purchase in advance, because, it argues, “it only bought intellectual property and hired staff but didn't acquire the Bay Area start-up outright.”

Pentagon officials disagreed and asked the company in 2010 to retroactively seek clearance, The Journal added.

William Plummer, vice president of government affairs for Huawei, said the letter "rehashes unfounded innuendo in a seeming attempt to undermine the integrity of the CFIUS process," quoted the Journal. "As Huawei has stated in the past, the company is 100% employee-owned and has no ties with any government, nor with the PLA."

In other company news, TMCnet reported that Huawei has asked a federal court judge to prevent Motorola (News - Alert) from transferring Huawei's intellectual property to Nokia Siemens Networks.

Ed Silverstein is a TMCnet contributor. To read more of his articles, please visit his columnist page.

Edited by Janice McDuffee

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