HTC Employees Detained Amid Trade-Secret Investigation

HTC Corp. (2498) employees were detained by Taiwan authorities after the smartphone maker alleged that some of its trade secrets were leaked.

Two product design executives were detained, Huang Mou-hsin, the deputy chief prosecutor at the Taipei District Prosecutor’s Office, said today. A director and another senior manager in the design and research-and-development divisions were questioned and released on bail. A fifth person working outside the company also is a suspect, said Huang, who declined to comment on the person’s role. Shares fell 5.8 percent to NT$147.50 in Taipei.

HTC, which peaked in 2011, has plunged 88 percent since then as it lost market share in smartphones to Samsung Electronics Co. (005930) and Apple Inc. (AAPL) The Taoyuan City, Taiwan-based company has revamped its marketing strategy and shuffled executives to rebuild the brand after its global ranking in smartphones fell to ninth.

“We believe the investigation and detention of HTC’s key R&D executives will have damaging impact on its new model roll-out in the next 6 months,” Richard Ko, an analyst at KGI Securities Co. in Taipei, said in report to clients today.

HTC, the first maker of phones using software from Google Inc. (GOOG), said its operations aren’t affected and its fourth quarter products are on schedule, according to an e-mailed statement today.

Photographer: Maurice Tsai/Bloomberg

A customer tries out a HTC Corp. One X+ smartphone with a pair of Beats Electronics LLC headphones at one of the company's stores in Taipei. Close

A customer tries out a HTC Corp. One X+ smartphone with a pair of Beats Electronics LLC... Read More

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Photographer: Maurice Tsai/Bloomberg

A customer tries out a HTC Corp. One X+ smartphone with a pair of Beats Electronics LLC headphones at one of the company's stores in Taipei.

The company filed complaints to the Ministry of Justice’s Investigation Bureau last month, accusing employees of leaking commercial secrets and using fake receipts to seek reimbursement, Huang said Aug. 31. Investigators searched HTC offices and the employees’ homes on Aug. 30, according to Huang.

“Protecting the company’s proprietary and intellectual properties, privacy and security is a core fundamental responsibility of every employee,” HTC said in a statement on its website. “The company expects employees to observe and practice the highest levels of integrity and ethics.”

The company didn’t specify what secrets were involved in the alleged breach.

To contact the reporters on this story: Cindy Wang in Taipei at hwang61@bloomberg.net; Aaron Clark in Tokyo at aclark27@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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