Undesirable Technology Transfer through Chinese Investment

The method is familiar, what is new is that a lawsuit is being filed over it. Highly innovative U.S. company Icon Aircraft has filed a lawsuit in Delaware Chancery Court against its Chinese majority shareholders, including major shareholder Shanghai Pudong Science and Technology Investment (PDSTI). Icon developed the A5 amphibious aircraft, which set new standards in aviation with innovations such as its spin-resistant airframe, panel-mounted angle-of-attack indicator and foldable wings.

PDSTI joined Icon as a minority shareholder in 2015 and within 2 years became the controlling shareholder through share purchases. The Americans’ allegation: the Chinese shareholders breached their fiduciary duties and sought to transfer Icon’s intellectual property in aircraft design, aircraft manufacturing, and advanced carbon fiber structure manufacturing to China-all focal points of China’s innovation strategy.

According to the lawsuit, PDSTI executives portrayed themselves as venture capitalists interested in starting a successful business in the United States. But then the Chinese executives would have expressed a desire to transfer Icon technology to China and indicated they would let the low-production U.S. company run dry and set up a joint venture in China. PDSTI also would have refused to invest the money needed for the U.S. company to succeed and to allow outside investment.

For Icon Aircraft, Chinese shareholders are trying to gain access to U.S. technology disguised as venture capitalists and take over the Americans’ intellectual property. The goal of the lawsuit, he said, is to stop the transfer of intellectual property, prohibit Chinese mismanagement, and make that experience known as a cautionary tale for other Western companies. Anyone looking to secure investment from Chinese companies should be warned. We await the Delaware Chancery Court’s ruling with great interest.

Picture: H. Michael Miley

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