HTC's prospects rocked by trade secrets case

TAIPEI - Reports of suspected fraud and espionage by HTC executives erupted last Friday, with prosecutors raiding the company's offices after the day's trading, rounding up a number of executives for questioning, and detaining two.

According to prosecutors, HTC is initiating litigation against a number of its design department executives for alleged industrial espionage and fraud. HTC claims that unscrupulous employees have stolen information relating to features and specifications of its upcoming handset models, including pictures and icons used in the company's upcoming Sense 6.0 user interface.

In addition, the company is also accusing a manager involved in the case of fraud, setting up falsified transactions in an attempt garner design fees exceeding NT$10 million (S$4.28 million) from the handset maker, said prosecutors.

Prosecutors released all personnel on bail ranging from NT$100,000 to NT$300,000, with the exception of two high-ranking HTC managers, Chien Chih-lin and Wu Jian-hong, whom authorities deemed were at flight risk.

According to prosecutors' findings, after receiving their year-end bonuses, Chien and Wu were poised to leave HTC, with plans to start a smartphone venture in China. Prosecutors suspect that the pair of corporate defectors planned to divulge information stolen from HTC to mainland collaborators for personal gain.

Chien and Wu acknowledged plans to start their own company in China, but denied all allegations of fraud and industrial espionage.

HTC stated that it has always strived to instill loyalty to uphold a high standard of ethical conduct among its employees, in particular concerning practices relating to proprietary trade secrets and intellectual property. The handset maker declined to comment on ongoing investigations. It also stated that the launch of its One Max handset will not be affected.

Shares of HTC last Friday mounted an encouraging rally, surging NT$8.5, or 5.74 per cent, and closing at NT$156.5, with intraday trading volume surging to 17 million shares, marking the end of a four-day tumble. However, following reports of compromised internal control within the company, the market is poised to scrutinize the incident and is expected to render repercussions in sessions to come.

According to industry observers, the incident may have severe repercussions in the company's marketing strategy, as the launch of its anticipated One Max flagship model may be delayed by two or three months, possibly missing the critical Christmas season, as HTC may be unwilling to carry on releasing features that have already been leaked.

Market commentators are also concerned over the possibility that the information stolen may include details on the company's products slated to be released in the first quarter of next year. The company is likely to be compelled to release the One Max on schedule in the fourth quarter; however, its early 2014 product lines may require significant readjustment, said market commentators.