Huawei refuses U.S. panel's advice to divest from 3Leaf

Huawei's purchase of intellectual property from a U.S. start-up has raised national security concerns

Chinese network supplier Huawei has declined a U.S. panel's recommendation that it voluntarily divest from a business acquisition that has raised national security concerns, likely putting the fate of the deal in the hands of President Barack Obama.

The Committee on Foreign Investment in the United States (CFIUS) had been reviewing Huawei's deal with 3Leaf Systems, a U.S. start-up that specializes in grouping servers together to run as more powerful mainframe computers.

Huawei paid US$2 million to buy intellectual property and hire staff from the start-up last May, but CFIUS now wants the Chinese company to divest from the deal. Huawei said it has refused the U.S. panel's recommendation, "in light of the possible further damage to the Huawei brand and reputation," the company said on Tuesday.

CFIUS does not disclose information on cases to the public. However, the committee was poised to recommend to President Obama that he reverse Huawei's acquisition from 3Leaf Systems, according to a report in The Wall Street Journal on Friday.

Huawei's troubles securing its deal with 3Leaf Systems could potentially be another setback in the U.S., caused by perceptions that the company is linked to the Chinese military. In 2008, the company abandoned a deal to purchase network equipment vendor 3Com, following security concerns voiced by the U.S. government.

Huawei, however, stresses that the company is completely employee-owned and has no connection with any government or the Chinese military.

"Huawei has great respect for and trusts the fairness and impartiality of the U.S. Government and American due process and we welcome the next step in the 3Leaf transaction review," the company added in its statement.

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Tags governmentregulationbusiness issuesMergers / acquisitionsHuawei Technologies

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Michael Kan

IDG News Service
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