Chinese EV startup XPeng is at the center of major trade secret disputes with Apple and Tesla

Last summer, a former Apple employee was indicted by the FBI for allegedly stealing trade secrets related to the company's secret auto-handling project. This week, Tesla sued a former employee for allegedly stealing trade secrets related to the autopilot. Although they occurred many months apart, both sets of accusations have something in common: employees allegedly tried to obtain information from a Chinese electric car company called Xiaopeng Motors.

Xiaopeng Motors, or XPeng, is not well known in the West, but has rapidly increased its profile in China despite a field too crowded in the EV start space. Now it is near the heart of these two great battles of trade secrets. Therefore, it is worth taking a step back and better understanding what exactly the company is about.

What is XPeng?

China spent the last few decades relying mainly on state-owned car makers to develop its auto industry, according to Michael Dunne, who heads automotive consultancy ZoZo Go. But everything changed two or three years ago when the Chinese government began encouraging big technology investors to enter the auto sector, he added, adding "a new and fresh dimension to China's auto industry." Well-funded technology giants such as Tencent and Alibaba were seen as a potential response to China's ambitions to build world-class vehicles, he says.

It was from this change that XPeng was born. The company was founded in 2014 as Guangzhou Xiaopeng Motors Technology by Henry Xia and Tao He, and funded (and now is in charge of) the mobile internet entrepreneur He Xiaopeng. It has several different names, such as Xiaopeng Motors (the Chinese holding company) or XMotors (the US subsidiary), but its marketing brand, XPeng, refers more frequently to the industry.

He Xiaopeng is known to have sold a mobile browser company called UCWeb to the e-commerce giant Alibaba in what was, at that time, the largest Internet merger in the history of China. Alibaba then led a financing round of $ 350 million (which also included Foxconn) for the next XP project, XPeng.

XPeng debuted its first electric car at CES 2018, an all-electric SUV called G3 that looks a lot like Tesla's Model X, both inside and out. It has the shape of the Model X, and also has a very similar cabin design, with a giant touch screen tablet oriented to the portrait integrated in the dashboard. The car recently began to be sent to the first owners.

The connection to Tesla

These similarities are not accidental. "Tesla has created a great impact on me," he said in a 2018 interview with Quartz . In fact, he said that one of the reasons he founded XPeng was because Tesla opened its patents in 2014. According to reports, the company has gone so far as to destroy Tesla's cars to better understand how they are built.

Tesla has noticed. In the lawsuit Tesla filed against his former employee this week, he acknowledged that XPeng has "designed its vehicles according to Tesla's open source patents and transparently imitated design, technology and even its business model," including the fact that the Chinese The start-up is building a network of fast chargers and selling directly to consumers.

Tesla also noted in the lawsuit that XPeng introduced the software "Autopilot-like", which the company calls "X-Pilot", and that the Chinese company employs "at least five" former Autopilot employees (including the one being sued).

While Tesla encouraged other companies to use their patented EV technology, Autopilot was never really part of the deal. The acquisition and use of the confidential source code that feeds Autopilot "would give a competitor a huge advantage in trying to replicate Tesla's current automatic driving technology and anticipate future developments," the company wrote in this week's lawsuit.

The connection to Apple

There is less direct connection with Apple beyond the employee who was accused last summer. However, new Chinese companies that are acquiring talent from Silicon Valley, whether national or not, have been a common theme in recent years, according to James Andrew Lewis, a senior fellow at the Center for Strategic and International Studies, a bipartisan research organization. of non-profit policies. And sometimes, he says, they bring more than their polished skills with them.

"It is a common practice for Chinese employees to learn some useful skills, and if they want to go home, or maybe they want to retire, take some kind of commercial or technological secret and bring it back to China." Says Lewis. "This has been going on for a couple of decades. It's par for the course. "

Last summer, federal prosecutors arrested and accused former Apple employee Xiaolang Zhang of stealing circuits and more than 40GB of data related to The secret of the company Self-driving project Zhang had told Apple and federal investigators that he was trying to get a job at XPeng, but initially it was not clear if he ever did before being arrested. when XPeng finally responded to the charges, he admitted that Zhang had started a job at the company.

Was XPeng directly accused of stealing trade secrets?

No. The former employees of Apple and Tesla are the defendants in the respective positions and demands, not the company itself.

There are also some important distinctions between the two cases.Zhang, who worked for Apple in California from December 2015 to May 2018, was accused In a federal court by the FBI last summer for alleged theft of trade secrets. Guangzhi Cao worked for Tesla in California from April 2017 until January 2019, and was sued in California civil court this week. He has not been criminally charged with theft of trade secrets.

A key difference with Cao's case is that, at the time of this writing, he is still employed by XPeng. Tesla alleges that he stole hundreds of thousands of files and directories that contained the source code of the autopilot when he was still employed by Tesla, and that XPeng could benefit from that theft, but only Cao is named as a defendant.

For its part, XPeng said in a statement to The Verge that it "fully respects the intellectual property rights and confidential information of any third party," and that it has initiated an internal investigation of the alleged theft of Cao . XPeng said that "it has in no way caused or attempted to cause Mr. Cao to make inappropriate trade secrets, confidential and proprietary information of Tesla," and that "he was not aware of any alleged misconduct by Mr. Cao."

He offered a similar statement after Zhang's arrest last year. XPeng "attaches great importance to the protection of intellectual property rights and has always considered compliance as the basic principle for all employees," the company wrote in a statement. "Zhang signed the intellectual property compliance documents on his first day at the company in early May. The records show that he has not reported any sensitive information or that he infringes XPeng. "

The EV startup denied any involvement and now says it helped in the investigation.The criminal case against Zhang is still progressing in court

These cases have something to do with numerous accusations of attacks sponsored by the Chinese government on American technology companies?

Not directly, according to Dunne, it is likely that it is more due to market conditions and pressure Chinese automotive boom (and highly competitive).

Three years ago, says Dunne, it was "great and very advanced to build an electric vehicle like Tesla." But founders like Him quickly realized that electrification is not an technology unique enough to differentiate itself from the dozens, or even hundreds of automotive companies that sprout in China, says Dunne.

Advanced technologies such as autonomy could help distinguish a player like XPeng from the rest. "So they are looking for technologies they have not been working on and with which they should acquire or develop quickly," says Dunne. "There is an urgency" that could explain why some companies take shortcuts, including intellectual property theft, he says.

Lewis agrees. "When Beijing says that everyone should start manufacturing electric cars," many companies are eager to win the favor, one of the ways to do it is to move forward, and one way forward is to recruit people from American companies that provide skills or knowledge they can use, "he says.

Dunne also says that, while XPeng and its competitors are, on paper, "independent actors struggling to compete on an intensely competitive and increasingly crowded scene", it is important to remember that it is difficult to really operate outside of the Chinese government. "China is China, so that they can obtain financing and loans, in the end, there is a way back to the government," he says. "The local government or the provincial government would direct the state banks to grant loans to this type of companies."

Knowing what we know about the Chinese government, which has sponsored decades of "economic espionage" attacks that raised crucial and confidential intellectual property. The information of the main technology companies, government entities and contractors is not difficult to imagine Beijing encouraging this behavior, or at least turning a blind eye. "The Chinese government is not always willing to arrest people who bring valuable technology back to the homeland," says Lewis.

Update March 24, 12:15 p.m. ET: XPeng's enlightening information on its founders and company names was added everywhere.

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