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An American wind-turbine designer’s recent decision to sue its biggest customer—a major Chinese manufacturer—for corporate espionage is the latest sign of the turmoil sweeping through the renewable-energy industry.

Citing what it said was an intellectual-property theft scheme that stretched around the globe, the U.S. company, American Superconductor Corp. of Devens, Mass., said Thursday that it had filed suit in Beijing against China’s biggest wind-turbine maker, Sinovel Wind Group Co. It said it doesn’t know if the suit will be accepted, and a copy of the suit hasn’t yet been released to the public.

The U.S. company accuses Sinovel of agreeing to pay more than $1 million to a 38-year-old American Superconductor employee in Austria, who now faces criminal charges. The employee allegedly stole valuable software that controls turbines and gave it to the Chinese company, which was expected to account for 70% of American Superconductor’s revenue this year.

In a prepared release, translated from Chinese by The Wall Street Journal, Sinovel denied any wrongdoing and accused American Superconductor of selling it shoddy parts and not fulfilling its agreements.

American Superconductor’s unusual accusation comes as renewable-energy companies in the U.S. are struggling in the face of slumping demand at home and difficulty competing in the vast Chinese market.

Last month, solar-panel producer Solyndra Inc. filed for bankruptcy after receiving more than $500 million in federal loans, and it is now being investigated by the Federal Bureau of Investigation at the request of irate Republican congressmen. The Obama administration has looked to renewable energy to create manufacturing jobs; Solyndra cited fierce competition from Chinese companies as a reason for its collapse.

The dispute also exposes one risk of American Superconductor’s business strategy, which was to survive in the global business by licensing its technology to others and helping them set up manufacturing facilities. It has licensed its advanced turbine designs and furnished core electronics to companies in China, Korea, Taiwan, India, Turkey and Czech Republic.

The relationship between American Superconductor and Sinovel dates to 2006, when Sinovel was a young company. Last year, it surpassed General Electric Co. as the second-biggest maker of wind turbines globally, with an 11% market share. Only Denmark’s Vestas Wind Systems A/S is larger.

The current dispute began in March when Sinovel rejected $60 million of parts from American Superconductor, representing about 20% of the company’s expected annual sales of about $300 million.

American Superconductor says it launched an internal investigation in June, helped by Austrian police, and concluded that an employee had been stealing and modifying proprietary software that had been protected by encryption.

American Superconductor Chief Executive Daniel McGahn, in a briefing for analysts and an interview Friday, said that the employee gave the stolen software to Sinovel, which in turn furnished it to a newly formed Sinovel affiliate that competes with American Superconductor in the sale of power electronics for the wind industry. Some of that purloined software, Mr. McGahn said, has already appeared in turbines sold by Sinovel in China.

The Austrian employee, a Serbian citizen, is facing criminal espionage charges and is in custody in Klagenfurt, Austria. A document released by the Klagenfurt court on Friday said the unnamed defendant was cooperating with investigators and claimed he was a “victim of the Chinese” firm.

Mr. McGahn said that the automation engineer was “one of the few people” with access to the complete code. He had been an employee for seven years.

The company is seeking civil and criminal redress through Chinese and Austrian courts and the Beijing Arbitration Commission, which mediates commercial disputes. American Superconductor said it is owed at least $250 million for breach of contract alone.

Sinovel declined to respond to American Superconductor’s accusations. It did say that it was unhappy with American Superconductor products and that “the failure rate” of some of American Superconductor’s parts “has always been high, and they’ve never been able to solve this problem.” Sinovel also said the U.S. firm “did not fulfill [its] responsibilities.”

In response, Mr. McGahn said, “We stand behind our products. This [dispute] is really about theft.”

Sinovel has become a major wind-turbine manufacturer, in part by licensing technology from companies like American Superconductor. The competitive landscape has changed dramatically as the Chinese renewable-energy market has grown and as Chinese companies have expanded their manufacturing capability in hopes of building an export business.

Mr. McGahn said the dispute should not be regarded as “a referendum on China” and his company still has many valued customers in China with whom it will continue to do business.

American Superconductor has “a healthy business, and we’re getting orders,” he said, adding that the company has no intention of abandoning the wind industry, which accounts for the bulk of its business.

Analysts agree that the company should regain its footing, and they say it’s getting orders from other turbine makers. It also had a $240 million cash trove in March that should tide it over, said analyst Pavel Molchanov at Raymond James.

American Superconductor’s stock has been hammered this year. It traded above $30 a share early in the year but slumped to about $6 a share last week, falling sharply on news of the legal actions.

The company has shed 30% of its work force and cut its costs by $30 million this year.

The Wall Street Journal, 19 September 2011