Siemens Energy stock tumbled on Friday, after General Electric sued the German company over the alleged theft of trade secrets it claims were used to win contracts worth billions of dollars.
Shares in the company, a spinoff of Siemens that listed in September last year, were 6.3% lower in early trading. Despite the fall, the stock has still risen 44% since its listing.
The lawsuit, filed with a U.S. District Court in Virginia on Thursday, alleges that Siemens Energy obtained the U.S. giant’s trade secrets when both companies were competing over a gas turbine contract for Virginia-based power utility Dominion Energy in May 2019. It claims that a senior Dominion employee shared details of GE’s contract bid with a Siemens employee, who then forwarded the trade secrets to ‘dozens’ of colleagues, including those responsible for Siemens’ own bid.
Read:GE Stock Won’t Go Anywhere in 2021. Here’s Why J.P. Morgan Still Pans It.
Those secrets were then used to improve Siemens’ own bid, eventually winning the contract worth between $225 million and $340 million, according to the lawsuit. “Compounding this injustice, Siemens then waited 16 months before disclosing to GE that it possessed GE’s trade secrets in September 2020 in a ‘nothing to see here, folks’ letter, in which Siemens misrepresented and minimized the scope and impact of its unlawful scheme,” according to the filing.
The suit claims that between May 2019 when the proposed spin off was announced through to its completion in September 2020, Siemens Energy was “highly motivated” to secure as many energy contracts as possible to boost its financial outlook and raise its projected stock price ahead of its initial public offering.
It alleges that the trade secrets are relevant to at least eight other gas turbine contracts “unfairly won” by Siemens Energy over General Electric in the 16-month period before the German company notified GE. It added the secrets were still relevant to a pending contract award in South Carolina, being competed for by the two companies, adding that the company has “steadfastly refused” to assure GE the secrets have been destroyed.
In total, it alleged the theft has enabled Siemens to win “billions of dollars” of contracts at the expense of GE’s ability to compete fairly.
Citi analysts said the lawsuit was a negative for sentiment on Siemens Energy, which has been among the sector’s best performers recently, while noting that litigation can take a long time to play out.
“However, in terms of share price sensitivities, a $1 billion fine—potentially at the upper end of possible scenarios—would equate to around €1.1/share, or a 3% hit to the closing price on 14 January,” they said. “This should be seen in the context of the >50% increase in Siemens Energy’s share price in the past three months,” they added.
Siemens Energy said it had not yet been officially served with the lawsuit but had learned of it through media reports.
A spokesman told Barron’s the company identified the use of the trade secrets “through its own robust compliance processes,” before conducting an internal investigations and disclosing the findings to both Dominion and GE.
Read:Siemens Spins Off Its Power Unit. What That Means for GE Stock.
The company said it had implemented “extensive remedial measures” in response, disciplining the employees involved—including separation from the company—removing the “confidential competitor information” from all its systems and providing additional compliance training for all employees in the U.S.
“Siemens Energy’s integrity is foundational to our operating principles and will not be compromised under any circumstances,” the spokesman added.
A GE spokesperson said: “At GE, we aggressively protect and defend our Intellectual Property. As this litigation is ongoing, we have no further comment at this time.”
Dominion Energy declined to comment.
