Theft in Technical Innovation Research Blueprints

"These are [now] Huawei employees associated with great technological accomplishments ... and I recognized so many of them. At one level you're proud to be a Canadian, at the same time you're upset to be a Canadian."

"They [Nortel Telecommunications] lost sales not because of technology copying, not because of inferior technology, they lost because the customers lost faith in them. They did not believe that Nortel would be alive in ten years."

Jonathan Calof, business professor, University of Ottawa

"What people need to hear is that economic espionage caused Nortel's failure."

"So others better beware lest they succumb to the same fate. It was sickening hen and it is sickening now to see what was stolen."

Brian Shields, security advisor, Nortel

Huawei Canada’s VP, corporate affairs Alykhan Velshi. Wayne Cuddington/Postmedia

"None of our products or technologies have been developed through the theft of trade secrets."

"Huawei's development is the result of our huge investment in R&D and the hard work of our employees over the past three decades."

Alykhan Velshi, spokesman, Huawei

"What we knew from my point of view was about the agents, the people, human actors in and around Nortel. Definitely Nortel was targeted."

"To this day, I believe there might have been one or more agents of influence controlled by the Chinese which succeeded in neutralizing our warning [of] spying activities the Chinese were conducting [against Nortel]."

Michel Juneau-Katsuya, then head, CSIS (Canadian Security Intelligence Service) Asia-Pacific desk

"That's what threw all the alarms. We just knew that we had a major problem, that an executive's credentials are being hacked and being used to infiltrate documents."

"This was a very capable adversary. You have to be pretty darn good to achieve such a level of stealth."

Larry Bill, Nortel security staff, Raleigh, North Carolina

Some have warned against Chinese tech giant Huawei's operations in Canada. Now, a new perspective from someone who says he's seen the damage spying did to Nortel. CBC

Professor Calof was on a trip to China and with him MBA students, touring Huawei Technologies' Shenzhen, China campus. Despite rumours -- and despite his own previous investigation into the possibility that Nortel employees and employees of Huawei who were then networking and where Nortel had given over an entire floor of its operations in Ottawa to Chinese technology operatives in a cooperative venture -- was shocked to recognize so many faces at the Huawei headquarters that had been familiar to him when they were working for Nortel years earlier.

Both companies produced similar equipment for telecommunications and ended up competing for contracts and through their history together negotiated joint ventures. Nortel had achieved impressive advances in its technology, becoming a giant in the field of telecommunications. Now, Nortel is gone, no longer in business, while it is Huawei whose technological advances and business enterprise represents a colossus in the field, internationally established and respected as Nortel once was.

Nortel, it seems, was victimized through an invasion of hackers based in China for at least ten years, according to information unveiled in 2012. Sensitive internal documents belonging to Nortel mysteriously ended up with Huawei, unbeknownst to Nortel's top executives. Nortel had received warning from the Canadian Security Intelligence Service as well, of spies within its operations working for China, but that warning appeared to have been given short shrift.

When the spacious Nortel headquarters building was being renovated to be transformed to a new headquarters for Canada's National Defence department, listening devices were found within the building. Ex-Nortel staff are convinced that Nortel was destroyed partly as a result of plundering on the part of the Chinese of Nortel's intellectual property, enabling Huawei to benefit hugely from Nortel's research and development and to grow into a worldwide telecommunications giant.

Just incidentally, U.S. prosecutors filed a new indictment recently accusing Huawei of using surreptitious methods to purloin the intellectual property of other companies for decades. Professor Calof and some of his colleagues at the Telfer School of Management at University of Ottawa had once undertaken a major study into the collapse of Nortel, a blow to Canadian high-tech and communications industries.

The study, when completed, made no mention of hacking or espionage; it was felt that Nortel's stellar reputation in the development of cutting-edge technology aside, sales fell because clients failed to be impressed with its performance. As for Huawei and its $15-billion annual research and development budget, $650 of that budget, Huawei reminds us, has been spent in Canada over the last decade where Huawei has 1,200 employees. 

Nortel, at the height of its industry success, provided a wide array of Internet-based networking solutions and had 90,000 employees working for it, with a market capitalization accounting for a third of the value of companies on the Toronto Stock Exchange. Nortel researchers in Ottawa developed the Orbiter, a mobile phone with a user-interface screen years before the iPhone revolutionized the cellphone market.

Huawei founder Ren Zhengfei Shenzhen, China June 17, 2019. REUTERS/Aly Song

The 2000 Internet bubble suddenly burst, taking Nortel with it as the company's stock plummeted overnight, triggering thousands of Nortel layoffs. During that time frame of a slow demise for Nortel, Huawei flourished. Founded by a former People's Liberation Army engineer, Ren Zhengfei, Huawei began life as a small producer of phone switches in 1987, eventually branching into building telecommunications networks and producing mobile phones. Low prices gave it an outsize market share.

In 2004 a Nortel employee in the U.K. noted documents he had stored in the "LiveLink" dababase for Nortel had been downloaded by a senior executive in Canada. He emailed the manager offering help with any questions about the material, but the manager had no idea what he was talking about. Another person on Nortel's security team based in Raleigh noticed the same manager had signed into the Nortel system from multiple global locations. That manager's account had been hacked.

Seven Nortel executives had been hacked and an alarming volume of sensitive material had been plucked out of the company's databases. Most of the hacks were later traced back to IP addresses and four Internet service providers in China, mostly appearing to wind up at an ISP in Shanghai. A hugely sophisticated theft of Nortel files undetected for years, pointing to the involvement of government-directed skilled thieves. 

In 2013, a report was produced by cybersecurity firm Mandiant, revealing the existence of a major Internet-espionage organization in Shanghai, ostensibly "Unit 61398" of the People's Liberation Army. Thefts of data were tracked by Mandiant from 141 companies in twenty major industries. Among the reams of material from Nortel was a document laying out Nortel technology, various products, sales proposals including pricing and network design, along with technical papers on optical circuits and an analysis of Nortel's lost contract with former Internet firm Genuity.

Security advisor Brian Shields describes one document pilfered in 2004 was "high speed data over UMTS Quad". Huawei beat out Nortel on a Telus/Bell contract four years later; its first major project in North America, involving a form of mobile data transmission called universal mobile telecommunications service; UMTS.

Blue lights illuminate a Huawei Technologies Co. NetEngine 8000 intelligent metro router on display during a 5G event in London, U.K., on Thursday, Feb. 20, 2020. Chris Ratcliffe/Bloomberg