Troubles for HTC as insiders alleged to have stolen secret interface designs

Two senior design professionals at HTC, Taiwan's largest smartphone maker, were detained this past weekend on charges of violating the Securities and Exchange Act and the Trade Secrets Act, according to Taipei District Court.

Reports from the Far East claim HTC's vice president of product design Thomas Chien, research and development director Wu Chien-Hung and senior manager of design and innovation Justin Huang were arrested on Friday after their offices and homes were searched in relation to the alleged theft of "key interface technology”. Bureau investigators said that they had received a complaint from HTC earlier this month that said the three suspects had set up design companies in both Taiwan and mainland China, and may have stolen the trade secrets of a crucial new interface, which is due to be released later this year. HTC alerted authorities after a company named ‘Xiaoyu’ was setup and aimed at reproducing interfaces in the mainland Chinese market. HTC is alleged to have caught Chien secretly downloading files which appeared to have related to the Sense 6.0 user interface design. He then appeared to have shared the design with external contacts via e-mail. Additionally, smartphone maker claims that the men have illegally claimed more than $330,000 in design fees from the firm with "falsified vouchers." According to engadget.com, the three men used an external design firm to invoice HTC for over US$334,000 worth of commission fee between May and July, and then they split the money between themselves. This was despite the design being completed in-house.

Mr Chien is alleged to have been a naughty boy

Design law is significantly different in China than here in the UK. Unlike with UK or Registered Community Design (RCD) registrations, the classification of the product is considered significant under Chinese law. Under UK and European law, protection is granted for the design in respect of its use on any product. However, in China there can be no infringement of a design through use of the design on a product which is in a dissimilar category from that for which the applicant has designated his design. Secondly, in applications for a UK registration and RCDs , the description attributed to the design has no impact on the legal scope of protection, yet in China the Court will make use of the description provided by the applicant.The news appears to be the latest in bad news for the troubled phone maker. HTC, thanks to the high costs associated with its flagship phone, predicted an operating loss in Q3, following Q2 results registering a net income slide of 83 per cent to NT$1.25 billion ($41 million) and Q1 profit of only $2.85 million -- a 98 per cent drop from last year. ZDNet reported that delays in the launch of the HTC One and fierce competition by rivals including Samsung and Apple have contributed to a far-from-healthy HTC balance sheet. HTC released a statement in the aftermath of the arrests: "The company expects employees to observe and practice the highest levels of integrity and ethics. Protecting the company's proprietary and intellectual properties, privacy and security is a core fundamental responsibility of every employee. The company does not compromise nor condone any violation at any level of our organization and the company shall act in accordance to the law. As this matter is currently under investigation by the relevant authorities, we therefore refrain from further comments. In addition, the company has sufficient resources in our design team and this situation will not impact the company's operations, product portfolio plans and our overall business performance."Chien and Wu were taken into custody, whereas the others were released on bail.

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