China’s Huawei sues to challenge US security law

SHENZHEN, China — Chinese tech giant Huawei is challenging a U.S. law that limits its sales of telecom equipment in the U.S. on security grounds as the company steps up efforts to preserve its access to global markets for next-generation communications.

Huawei Technologies Ltd.’s lawsuit, announced Thursday, asks a U.S. court to reject as unconstitutional a military-spending provision that bars the U.S. government and its contractors from using Huawei equipment.

It comes as the biggest global maker of network equipment fights a U.S. campaign to persuade allies to shun Huawei. That threatens to block access to major markets as phone carriers prepare to invest billions of dollars in next-generation cellular networks, known as 5G.

The complaint filed in Plano, Texas, the headquarters of Huawei’s U.S. operations, says the law is an unconstitutional “bill of attainder,” or a measure that singles out a specific entity for punishment. It says that denies the company due process and amounts to a “death penalty.”

The American Embassy in Beijing said it had no comment on pending litigation.

Steven Schwinn, a professor at the John Marshall Law School in Chicago, said the lawsuit is likely to be dismissed by a judge. He said the “bill of attainder” claim, or punishment without due process, would be hard to prove.

But Schwinn said the lawsuit is one of Huawei’s only remaining options, short of trying to get Congress to reverse the ban.

“This strikes me as a last-ditch effort to do something,” he said.

Franklin Turner, a partner at law firm McCarter & English, said there are parallels to a lawsuit filed by Kaspersky Labs in 2017 that was eventually thrown out as well. The U.S. government had barred federal agencies from using Kaspersky’s anti-virus products because of concerns about its ties to the Kremlin and Russian spy operations.

Turner said Huawei will likely keep fighting, but “to keep it going, is the legal equivalent of scaling Mount Everest without a rope.”

Huawei, China’s first global tech brand, is at the centre of U.S.-Chinese tensions over technology competition and cyberspying. The company has spent years trying to put to rest accusations it facilitates Chinese spying or is controlled by the ruling Communist Party.

“We are compelled to take this legal action as a proper and last resort,” the company’s rotating chairman, Guo Ping, said at a news conference. Guo said the ban would limit competition, slowing the rollout of fifth-generation communications and raising consumer prices.

Huawei has pleaded not guilty to U.S. trade-theft charges unsealed by a federal court in Seattle in January.

The company’s chief financial officer, Meng Wanzhou, was arrested Dec. 1 in Canada on U.S. charges of lying to banks about dealings with Iran. She is fighting extradition to the United States.

Huawei denies wrongdoing.

A foreign ministry spokesman said the Chinese government also objects to the law but he had no information on whether it would join Huawei’s lawsuit.

“We believe that it is perfectly proper and fully understandable for companies to defend their legitimate rights and interests through legal means,” Lu Kang said.

Huawei has about 40 per cent of the global market for network gear. Its U.S. sales evaporated after a congressional panel in 2012 cited the company and a Chinese competitor, ZTE Corp., as security risks and told phone carriers to avoid dealing with them.

Huawei says the new law would shrink its potential U.S. market further by prohibiting the government from buying the Chinese vendor’s technology and from buying goods or services from or giving grants or loans to companies or other third parties that do. The United States accounts for 20 to 25 per cent of the global market for computer and telecom technology.

The ban is “based on numerous false, unproven and untested propositions,” the company’s chief legal officer, Song Liuping, said at the news conference. “Huawei has an excellent security record and program. No contrary evidence has been offered.”

Australia, Japan, Taiwan and some other governments also have imposed curbs on use of Huawei technology.

Guo complained Washington was “sparing no effort to smear” the company but has released no evidence.

Huawei wants to negotiate with Washington to resolve its security concerns but the law blocks President Donald Trump from restoring market access, Guo said. He noted Trump has said he opposes using “artificial security reasons” to exclude Huawei.

Lifting the ban “will give the U.S. government the flexibility it needs to work with Huawei and solve real security issues,” Guo said.

Huawei, based in Shenzhen, near Hong Kong, is a leading developer of 5G, along with rivals Nokia Corp. of Finland and Sweden’s LM Ericsson. Industry analysts say excluding the Chinese vendor from markets for 5G equipment would reduce competition and might lead to higher prices.

Founded in 1987 by a former military engineer, Huawei overtook Ericsson in 2017 as the biggest global supplier of network gear. It says it supplies 45 of the world’s top 50 phone companies and has contracts with 30 carriers to test 5G wireless technology.

Chinese authorities and some industry analysts say Washington might be exaggerating security concerns to limit competition with Western vendors.

European governments are balking at U.S. pressure to ban Huawei. The company has announced contracts with customers including the United Arab Emirates in the Middle East for network technology.

China’s government arrested two Canadians, a former diplomat and a businessman, on Dec. 10 in what was widely seen as an attempt to pressure Canada to release Meng, the company’s CFO.

On Monday, Beijing accused the two men of acting together to steal state secrets. That followed the Canadian government’s announcement Friday that the extradition proceeding for Meng would be allowed to proceed.

Huawei executives say American security warnings have yet to affect sales outside the United States. The company’s 2018 revenue forecast is $100 billion and its founder, Ren Zhengfei, said last month this year’s target is $125 billion.

Some European officials and others cite a Chinese security law requiring companies to co-operate with intelligence agencies. They say that might oblige Huawei and other tech companies to install “backdoors” in equipment to allow eavesdropping.

Huawei denies altering its equipment to facilitate spying. It has set up testing centres in Britain, Canada and continental Europe to allow governments to examine its technology.

“Huawei has not and will never implant ‘backdoors,”’ said Guo, the chairman.

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