Japanese electronics firms look to re-engineer their design mojo

TOKYO (Reuters) – Akihiro Adachi, a 31-year-old audiovisual equipment designer at Panasonic Corp, longed for some personal space during his lengthy train rides from Osaka to Tokyo. So when his company set out to encourage innovation, he joined with some colleagues and came up with “Wear Space,” a headset that limits noise and peripheral vision.

A designer of Panasonic demonstrates a prototype of ‘Wear Space’ during a photo opportunity in Tokyo, Japan, October 29, 2018. Picture taken October 29, 2018. REUTERS/Kim Kyung-Hoon

Many at Panasonic were puzzled.

“Someone said the office full of people wearing this would look weird,” said Kang Hwayoung, another member of the 10-person design team.

But the prototype unexpectedly won a global design award and received positive feedback from unexpected quarters, such as sake tasters who wanted to limit sensory input.

The project is among a range of efforts in the Japanese electronics industry to reinvigorate industrial design. After years of losing ground to design-first rivals such as Apple and Dyson, Japanese companies are now trying to recover the processes and creative flair that produced iconic products such as the Walkman.

Panasonic, Sony and Mitsubishi Electric are among those implementing practices that have been routine at many U.S. and European companies, such as engaging designers at every step and treating packaging as part of the product.

“We used to have designers involved only in final stages of our product development process, just for an aesthetic fix,” Yoshiyuki Miyabe, Panasonic’s technology and manufacturing chief, told reporters. “We are revamping the process so that designers can join us from the planning phase.”

The Japanese government is promoting the efforts: a report in May urged corporate executives to pursue “design-driven management, whereby a company leverages design as a primary driver of competitiveness.”

It also called for tax incentives for design-related investments and new laws to better protect intellectual property. The government is set to revise such laws next year.

“Of course, we had an argument over how much the government can do and should do with private-sector issues like this,” said Daisuke Kubota, director at the government’s design registration system planning office, who was involved in the panel.

“But a lot of design experts asked us for government initiatives, saying that this is really the last chance and Japan would never be able to catch up with global rivals if this opportunity is missed.”

Another member of the panel, Kinya Tagawa, visiting professor at the Royal College of Art and co-founder of design firm Takram, says there has been a sharp increase in major companies’ requesting design lectures for their executives.

“I’m seeing a sign of change,” he said.

THE ROAD AHEAD

All agree there is a long way to go. C-suite designers remain a rarity at most electronics companies while technologists reign supreme, company officials and industrial designers say.

Japan last year received 31,961 applications for design registrations, only a fraction of China’s 628,658 and half of South Korea’s 67,374. In the heyday of the Japanese electronics industry in the early 1980s, Japan had nearly 60,000 applications every year.

Tagawa said the root of today’s problems was the failure of Japanese firms to absorb lessons from the software revolution, which showed the importance of user-centered design principles and easy-to-use products such as Apple’s iPhone. Instead, they remained fixated on engineering.

Ryuichi Oya, who retired as design chief of Sharp Corp last month, says he saw that attitude up close when he moved to Sharp four years ago after a long stint at automaker Mazda Motor.

“Designers at home electronics companies have little say compared to engineers,” he said. “When engineers dismiss design proposals as too costly or difficult from an engineering point of view, designers easily succumb.”

Oya said he found it particularly hard to convince management of the need for a design vision.

“It’s not about whether you like this color or that shape,” he said. “There have to be design principles unique to Sharp and consistent across its product line.”

COMPETITION

Japanese designers cite the contrast with South Korea’s Samsung Group, where its patriarch, Lee Kun-hee, said in 1996 that design was a core management resource “imperative for a company’s survival in the 21st century.” He sharply boosted both the number and status of designers.

At Sony, insiders say design began its return to the forefront after chairman Kaz Hirai took over in 2012. Change has been slow as the company went through a painful restructuring, but the results can be seen its approach to the revival of Aibo, a robot dog.

Designers worked to craft a holistic user experience, starting from the moment a customer opened the box, tapping into a community of Aibo owners, Sony design chief Yutaka Hasegawa said.

“We had intense discussions over how Aibo should be packaged, to make it look closer to a living creature. It’s important because opening the container box marks the customer’s first encounter with the dog.”

Slideshow (6 Images)

They decided to lay Aibo sideways with its head tilting to the left, a more expensive option than placing it face down because the interior packaging must be asymmetrical.

The result was a buzz among Aibo owners, with some posting on the Internet videos showing a “ceremony for opening the Aibo container.”

($1 = 112.7200 yen)

Reporting by Makiko Yamazaki; Additional reporting by Yoshiyasu Shida; Editing by Jonathan Weber and Gerry Doyle

Foxconn not in settlement talks with Qualcomm in Apple battle: attorney

SAN FRANCISCO (Reuters) – The lead attorney for the group of Apple Inc device assemblers seeking at least $9 billion in damages from Qualcomm Inc said on Sunday the contract manufacturers are not in settlement talks with the mobile chip supplier and are “gearing up and heading toward the trial” in April.

FILE PHOTO: A motorcyclist rides past the logo of Foxconn, the trading name of Hon Hai Precision Industry, in Taipei, Taiwan March 30, 2018. REUTERS/Tyrone Siu/File Photo

The conflict is but one aspect of the global legal battle between regulators, Apple and Qualcomm, which supplies modem chips that help phones connect to wireless data networks.

Last week, Qualcomm secured a preliminary victory in a patent lawsuit in China that forced Apple to change its software for iPhones in that country or else face a ban on selling phones there.

But Qualcomm was also handed another setback in an antitrust lawsuit brought against it by the U.S. Federal Trade Commission when a judge said it will not be able to mention that Apple ditched Qualcomm chips for competing ones from Intel Corp when the case goes to trial next month.

The group of contract manufacturers – which includes Foxconn parent Hon Hai Precision Industry Co Ltd, Pegatron Corp, Wistron Corp and Compal Electronics Inc – became embroiled in the dispute between Apple and Qualcomm last year.

In the supply chain for electronics, it is the contract manufacturers who buy Qualcomm’s chips and pay royalties when they build phones, and they are in turn reimbursed by companies like Apple. Qualcomm sued the group last year, alleging they had stopped paying royalties related to Apple products, and Apple joined their defense.

The contract manufacturers have since filed claims of their own against Qualcomm, alleging the San Diego company’s practice of charging money for chips but then also asking for a cut of the adjusted selling price of a mobile phone as a patent royalty payment constitutes an anticompetitive business practice. The manufacturers are seeking $9 billion in damages from Qualcomm for royalties they allege were illegal. That figure could triple if the manufacturers succeed on their antitrust claims.

Ted Boutrous, a high-profile partner at Gibson, Dunn & Crutcher LLP who is representing the contract manufacturers, said statements from Qualcomm executives suggesting there were meaningful settlement talks with the contract manufacturers were “false.”

“To the extent Qualcomm has indicated there have been licensing discussions with the contract manufacturers, they’ve basically made the same sort of unreasonable demands that got them to where they are right now, which impose significant preconditions to even discuss a new arrangement,” Boutrous told Reuters on Sunday.

In July, Qualcomm’s chief executive, Steve Mollenkopf, told investors on the company’s quarterly earnings call that Qualcomm and Apple itself were in talks to resolve the litigation. Last month, a source familiar with Apple’s legal strategy told Reuters there were “absolutely no meaningful discussion taking place between us and Qualcomm, and there is no settlement in sight.”

Reporting by Stephen Nellis in San Francisco; editing by Chris Reese

Cyber Saturday—IBM Quantum Computers, Facebook Photo Bugs, Multimillion-Dollar Cyberattack Disputes

Inside the stark and sweeping Eero Saarinen-styled exterior of the Thomas J. Watson Research Center in Yorktown Heights, IBM’s blue jeans-wearing boffins are assembling a new generation of super-powered computers built on quantum mechanical principles. These otherworldly machines dangle from sturdy, metal frames, looking like golden chandeliers, or robotic beehives. The devices perform their magical-seeming operations inside vacuum-sealed, super-cooled refrigerator encasements. It’s a technology that combines both brains and beauty.

Future iterations of these quantum computers will be able to solve mathematical problems ordinary computers have no hope of computing. They will vastly speed up classical calculations, accurately model complex natural phenomena like chemical reactions, and open as yet unexplored frontiers for scientific inquiry. Despite seeming arcane, machines like these will touch every aspect of our lives—from drug discovery to digital security.

This latter area presents significant challenges. One advantage quantum computers have over traditional ones is a knack for factoring large numbers, an operation so difficult for present-day computers that it has become the foundation for almost all today’s encryption schemes, the code-making that underpins data confidentiality. A sufficiently advanced quantum computer, on the other hand, can chew through these math problems with the destructive force of that metal-melting Xenomorph blood in the Alien film franchise. The prospect of quantum computing necessitates a complete rethinking of cryptography.

Today’s encryption may be rendered obsolete sooner than most people anticipate. As Adam Langley, a senior software engineer at Google, has pointed out in a recent blog post, some experts predict this latter-day Y2K could occur within the decade. Michele Mosca, cofounder of the Institute for Quantum Computing in Waterloo, Ontario, has estimated a 1-in-7 chance that quantum breakthroughs will defeat RSA-2048, a common encryption standard, by 2026. If that’s true, then the time to begin reengineering our digital defenses is now. As Langley writes, waiting around for guidance on standards “seems dangerous.”

Buttressing Langley’s view is a recent paper out of the National Academies of Sciences, Engineering, and Medicine. The research organization determined that, while the advent of an encryption-busting quantum computer is unlikely within the decade, preparations to defend against one must be undertaken as soon as possible. Since web standards take more than a decade to implement, a press release accompanying the paper warned, developing new, attack-resistant algorithms “is critical now.”

The era of quantum computation fast approaches. Fortune 500 companies like IBM, Google, Microsoft, and Intel, are plugging away on the tech alongside smaller startups, like Calif.-based Rigetti. Nation states like China are, meanwhile, dumping billions of dollars into research and development. Whichever entity achieves so-called quantum supremacy first will find itself in possession of unprecedented power—the equivalent of X-Ray goggles for the Internet. That is, unless we act with urgency to armor up.

Have a great weekend.

Robert Hackett

@rhhackett

[email protected]

Welcome to the Cyber Saturday edition of Data Sheet, Fortune’s daily tech newsletter. Fortune reporter Robert Hackett here. You may reach Robert Hackett via Twitter, Cryptocat, Jabber (see OTR fingerprint on my about.me), PGP encrypted email (see public key on my Keybase.io), Wickr, Signal, or however you (securely) prefer. Feedback welcome.

This Study of 195 Billion-Dollar Companies Found 6 Counterintuitive Truths About Building a Unicorn

Ali Tamaseb, a founder turned venture capitalist at Data Collective VC, recently spent 300 hours gathering data on billion-dollar startups. He generated 100 charts exploring their history and outlined dozens of valuable insights–all in a quest to learn what billion-dollar startups look like at inception. 

Tamaseb gathered data on 65 key factors from all 195 unicorn startups based in the U.S. His work included all startups since 2005 that have publicly reached a valuation of more than $1 billion. The least surprising finding is that almost 60 percent of billion-dollar startups were created by serial entrepreneurs. In fact, he found that 70 percent of billion-dollar founders were “superfounders,” or founders with at least one previous exit of more than $50 million. This aligns with both traditional thinking and my experience.

I can also attest to some of the other trends from this study based on my investment history, but several of Tamaseb’s findings are contrary to my experience and to widely accepted investor wisdom. These counterintuitive findings are the most valuable in my mind:

1. Industry knowledge isn’t required.

Contrary to what I’ve always believed, Tamaseb found that most founders of billion-dollar startups don’t have direct experience in the industry or domain they are trying to disrupt (except in healthcare and pharmaceuticals, where 80 percent of founding CEOs had direct experience in the target market.)

2. Technical CEOs aren’t necessarily more successful.

Tamaseb’s data addresses a widely debated topic: do technical founding CEOs do better than non-technical founding CEOs when it comes to creating a billion-dollar startup? His data showed a 50-50 split.

I had always believed that a technical startup (biotech, SaaS, mobile apps, etc.) should be led by someone who could build the product, but this research showed that non-technical founders can also succeed. So I went back into our portfolio at Ryerson Futures and found that some of our most successful startups to date had technical CEOs, but many more had business-minded or domain experts in the CEO role. So perhaps I need to revisit this bias, and perhaps you should too.

3. You don’t need to be capitally efficient. 

In the world of startups, capital efficiency refers to how much money a startup needs to spend in order to be able to sustain itself on internally generated funds. A startup that is capital efficient spends a little to make a lot. 

While VCs often focus on investing in capital efficient companies, less than 45 percent of the billion-dollar companies in Tamaseb’s pool were capital efficient. The rest required a high level of investment to scale–indicating that a company doesn’t need to be self-sufficient to be worth $1 billion.

4. It’s (usually) not OK to be a copycat.

Tamaseb found that more than 60 percent of billion-dollar startups had a very high level of product differentiation compared to what was already in the market. He also found that the worst competition case comes from copying what another startup is doing, especially when that other startup is well funded.

While that makes sense, it is not consistent with some billion-dollar startups, such as Rocket Internet, that were created in China, India, Germany and elsewhere over the last decade and were clones of startups like eBay, Amazon, Tinder, and Facebook.

5. You don’t have to be first to market.

Only 30 percent of the billion-dollar startups in the study were first to market, and just under 40 percent entered markets with five or more competitors.

Contrary to widely held beliefs, the best markets for billion-dollar startups already have a number of large incumbents, and often the startup uses the inefficiencies of these incumbents as a point of disruption.

Timing is always key when launching a startup. Too early and the market won’t buy; too late, and all the early adopters will already be using another startup’s products. The majority of billion-dollar startups went after markets that were already large and growing.

6. You don’t need to be part of an accelerator to be successful.

Accelerators are all the rage worldwide. As of 2018, there are more than 1,500 programs to accelerate startups. Despite the marketing produced by accelerators like Techstars and Y Combinator, the majority of billion-dollar startups in the U.S. did not participate in a formal accelerator program. I find this surprising, since unicorns like Airbnb, Dropbox, Quora, Stripe, and Twilio all came from accelerators. So why are so few unicorns on this list coming from accelerators?

I think the answer comes from the fact that 70 percent of billion-dollar founders are superfounders. Perhaps founders with a previous exit don’t need the network, knowledge and mentorship that accelerators offer. Maybe that means not being a superfounder is just one more reason to apply to accelerators–to learn from others. That is certainly what I focus on. 

Richard Branson Says He Will Travel to Space in Mid-2019, With Tourists to Follow Soon After

Following a successful test launch of Virgin Galactic’s SpaceShipTwo Thursday, Richard Branson said he’s planning on heading up to space “in the middle of next year” and that space tourists will also make the trip shortly afterward.

Thursday’s test, the fourth so far by Virgin Galactic, carried two pilots and a passenger dummy on a spacecraft more than 50 miles into the air, high enough to meet the Federal Aviation Administration’s definition of space. Afterward, Branson was asked on CNBC when the company would start ferrying human passengers.

Branson said that SpaceShipTwo would first be examined to see if changes are needed before facing a few more rounds of tests. “Then we will move the operation to a space port in New Mexico,” he said. “Then I will then go up, and we’ll do another set of tests. If every box is ticked we will start to be able to take members of the public up.”

In the past, Branson noted, his timing estimates have erred on the side of the optimistic. “I always get these estimates wrong. It’s been 14 years to get to this stage. I thought it would be seven,” he said. “But I would hope sometime in the middle of next year, I’ll be going up and quite soon after that members of the public will go up.”

The cost of a trip on a Virgin Galactic spacecraft has been estimated to be between $200,000 and $250,000. In the interview, CEO George Whitesides said that the price for early trips might be higher than that range, although the company hopes it will eventually be lower in the longer term.

To accommodate more passengers, Virgin Galactic is building two more spaceships. Branson said all three may be taking humans to space “in the not too distant future.”

Bitcoin ransoms just are not what they used to be

(Reuters) – Give me bitcoin or your life. Seriously?

FILE PHOTO: A collection of Bitcoin (virtual currency) tokens are displayed in this picture illustration taken December 8, 2017. REUTERS/Benoit Tessier/File Photo

The people behind a rash of bomb threats made across the United States and Canada on Thursday demanded a $20,000 ransom to be paid in bitcoin. Authorities said none of the threats – emailed to hundreds of businesses, public offices and schools – appeared credible.

Frankly, the perpetrators would have been better off asking for Turkish lira.

Bitcoin and other cryptocurrencies have long been a favorite ransom tender for cyber criminals thanks to the currencies’ anonymous nature. U.S. cyber security firm Chainalysis estimates that from 2012 through 2017, global ransom payments using bitcoin totaled at least $31 million.

Anonymity aside, of course, the big appeal was an incredible run-up in bitcoin’s value over that time. It shot from $5 a coin at the start of 2012 to nearly $20,000 at this time last year, according to data from Bitstamp, one of the larger bitcoin exchanges.

Today? Not so hot.

Bitcoin on Thursday was trading at around $3,250, down more than 80 percent from its record high. In the last three months alone it has plunged 50 percent.

Even the currencies of some crisis-hit economies like Turkey have done better: The lira is up 30 percent since August.

(GRAPHIC: Bitcoin falls on hard times – tmsnrt.rs/2zWLEJH)

Reporting by Gertrude Chavez-Dreyfus and Anna Irrera in New York; Writing by Dan Burns; Editing by Matthew Lewis

U.S. tribunal to review ruling on Qualcomm request for iPhone ban

WASHINGTON (Reuters) – The U.S. International Trade Commission (ITC) said on Wednesday it would review a ruling that a ban on imports of some iPhones into the United States was not in the public interest, even if Apple Inc (AAPL.O) infringed a Qualcomm (QCOM.O) patent.

FILE PHOTO: People look at iPhones at the World Trade Center Apple Store during a Black Friday sales event in Manhattan, New York City, U.S., November 23, 2018. REUTERS/Andrew Kelly

Apple and Qualcomm are locked in a wide-ranging legal dispute in which Apple has accused Qualcomm of unfair patent licensing practices. Qualcomm has in turn accused Apple of patent infringement.

Qualcomm initiated the ITC case against Apple in July 2017, alleging that iPhones containing Intel (INTC.O) chips infringed six patents describing technology that helps smartphones perform well without draining the battery.

Qualcomm did not allege that Intel chips violate its patents, but that the way Apple implemented them in the iPhone does. It later dropped three of the six patents from the case.

Administrative law judge Thomas Pender, a now-retired member of the ITC tribunal that hears patent infringement cases, ruled in September that Apple infringed one of the patents, but cleared the company of infringing the other two.

Pender recommended the agency not grant Qualcomm the relief the San Diego, California-based chipmaker had sought, saying it was not in the U.S. interest.

The ITC said on Wednesday it would review whether the one patent was indeed infringed and also whether it was right to not grant Qualcomm relief. Pender’s decision on the other two patents would not be reviewed, it said.

The agency would also consider how long it would take Apple to design around Qualcomm’s patented battery-saving technology, what national security concerns would be implicated by an sales ban and whether a limited import ban could be adopted, it said.

“We are pleased that the Commission is going to review the Administrative Law Judge’s recommendation that no ITC remedy should result from a finding of infringement,” Don Rosenberg, Qualcomm’s executive vice president and general counsel, said in a statement after the announcement.

Apple declined to comment.

A final ruling is due before February 19, the ITC said.

Reporting by Jan Wolfe; Editing by Sonya Hepinstall

Hertz and Clear Bring Facial Recognition to the Rental Car Industry

The pain of car rentals could soon get easier thanks to a new program from Hertz that lets members bypass the counter, and drive away using nothing more than their face.

On Tuesday, Hertz announced a plan to install facial recognition units at airports around the country, beginning this week at Hartsfield–Jackson International Airport in Atlanta. In 2019, the company will roll out the service, known as Hertz Fast Lane, to 40 more airports, including ones in New York (JFK), San Francisco (SFO), and Los Angeles (LAX).

Hertz is launching the service in partnership with the biometrics company Clear, which is already a fixture at many airport security lines and a growing number of sports stadiums around the company.

Using the facial recognition checkout requires the rental to be a member of Hertz Gold Plus and also to enroll inClear. According to a company spokesperson, eligible customers can simply walk to the vehicle they have reserved and drive to a check out terminal. Here’s how that looks in practice:

Customers will also have the option of using a fingerprint instead of their face to prove their identity at checkout.

“The new service…uses biometrics to drastically speed up the car rental process, so travelers can get through the exit gate and on the road in 30 seconds or less—a time saving of at least 75 percent,” said Herz in a statement.

If facial recognition catches on at airport terminals, it’s likely to spread to other car rental locations. While the technology raises numerous privacy issues, it appears many consumers are willing to tolerate that risk in favor of the greater convenience it provides.

Cyber Saturday—Marriott’s Data Breach Baloney, Quora Hack, Aussie Encryption Law

Happy weekend, Cyber Saturday readers.

I’m back stateside after a week-and-a-half stay in China, where I helped host Fortune‘s 2018 Global Tech Forum. I hope you understand the absence of last weekend’s dispatch; following the event, I took an impromptu vacation in Hong Kong. Thankfully, I did not stay at a Marriott hotel. Speaking of which.

As you have no doubt heard by now, Marriott disclosed a massive data breach that exposed up to 500 million customer records. Hackers accessed information in the company’s Starwood reservation system, which affected brands such as W Hotels, St. Regis, Sheraton Hotels & Resorts, Westin Hotels & Resorts, and other properties in the Starwood portfolio, the company said. The intrusion apparently began in 2014, two years before Marriott acquired Starwood. This oversight in the M&A process calls to mind another recent, post-acquisition hacker-surprise: Yahoo, whose two mega-breaches remained undetected when the company sold to Verizon last year. Coincidentally, Marriott’s hack is the biggest suffered by a corporation, second only to those at Yahoo.

After news of the Marriott breach came out, Sen. Charles E. Schumer (D-N.Y.) called on the hotel chain to foot the bill and replace people’s passports which were potentially compromised as part of the breach. Marriott quickly promised to cover the cost for as many as 327 million people whose passport numbers may have been exposed. At a fee of $110 per passport, that would put Marriott on the hook to pay up to $36 billion—a price tag equivalent to the value of the entire company, per its market capitalization. A devastating payout.

Here’s the thing though: While seemingly noble, Marriott’s promise is a bunch of baloney. The company said it will follow through on reimbursement only in instances where it “determine[s] that fraud has taken place.” What this caveat conveniently excludes is that Marriott’s hack likely had little to do with fraud and everything to do with espionage. In other words, if you’re a victim, don’t expect remuneration.

As Reuters reported, investigators believe the perpetrators of this attack were Chinese spies. The breach used tools, tactics, and procedures that matched Beijing’s style. The intrusion is said to have begun shortly after a breach of the government’s Office of Personnel Management, which government officials have attributed to China. The Starwood database represents a massive trove of potential intelligence: information on who is staying where, when—a bonanza for building up profiles of targets and tracking people of interest.

Geng Shuang, China’s Ministry of Foreign Affairs spokesperson, issued a statement saying the country “opposes all forms of cyber attack,” per Reuters. He said the country would investigate the claims, if offered evidence. Meanwhile, Connie Kim, a Marriott spokesperson, said “we’ve got nothing to share” about the Chinese attribution claim.

The Marriott breach—which took place quietly over years, as spies prefer—does not appear to have been a cybercriminal score. The passport payment pledge is probably bunk; nevertheless, if you think you might have been affected, it won’t hurt to follow these steps to refresh your cybersecurity hygiene and better protect yourself.

Have a great weekend.

Robert Hackett

@rhhackett

[email protected]

Welcome to the Cyber Saturday edition of Data Sheet, Fortune’s daily tech newsletter. Fortune reporter Robert Hackett here. You may reach Robert Hackett via Twitter, Cryptocat, Jabber (see OTR fingerprint on my about.me), PGP encrypted email (see public key on my Keybase.io), Wickr, Signal, or however you (securely) prefer. Feedback welcome.

Marriott Says It Will Pay for Replacement Passports After Data Breach. Here’s Why That’s Likely Baloney.

As you have no doubt heard by now, Marriott disclosed a massive data breach that exposed up to 500 million customer records. Hackers accessed information in the company’s Starwood reservation system, which affected brands such as W Hotels, St. Regis, Sheraton Hotels & Resorts, Westin Hotels & Resorts, and other properties in the Starwood portfolio, the company said. The intrusion apparently began in 2014, two years before Marriott acquired Starwood. This oversight in the M&A process calls to mind another recent, post-acquisition hacker-surprise: Yahoo, whose two mega-breaches remained undetected when the company sold to Verizon last year. Coincidentally, Marriott’s hack is the biggest suffered by a corporation, second only to those at Yahoo.

After news of the Marriott breach came out, Sen. Charles E. Schumer (D-N.Y.) called on the hotel chain to foot the bill and replace people’s passports which were potentially compromised as part of the breach. Marriott quickly promised to cover the cost for as many as 327 million people whose passport numbers may have been exposed. At a fee of $110 per passport, that would put Marriott on the hook to pay up to $36 billion—a price tag equivalent to the value of the entire company, per its market capitalization. A devastating payout.

Here’s the thing though: While seemingly noble, Marriott’s promise is a bunch of baloney. The company said it will follow through on reimbursement only in instances where it “determine[s] that fraud has taken place.” What this caveat conveniently excludes is that Marriott’s hack likely had little to do with fraud and everything to do with espionage. In other words, if you’re a victim, don’t expect remuneration.

As Reuters reported, investigators believe the perpetrators of this attack were Chinese spies. The breach used tools, tactics, and procedures that matched Beijing’s style. The intrusion is said to have begun shortly after a breach of the government’s Office of Personnel Management, which government officials have attributed to China. The Starwood database represents a massive trove of potential intelligence: information on who is staying where, when—a bonanza for building up profiles of targets and tracking people of interest.

Geng Shuang, China’s Ministry of Foreign Affairs spokesperson, issued a statement saying the country “opposes all forms of cyber attack,” per Reuters. He said the country would investigate the claims, if offered evidence. Meanwhile, Connie Kim, a Marriott spokesperson, said “we’ve got nothing to share” about the Chinese attribution claim.

The Marriott breach—which took place quietly over years, as spies prefer—does not appear to have been a cybercriminal score. That’s why the passport payment pledge is probably bunk; nevertheless, if you think you might have been affected, it won’t hurt to follow these steps to refresh your cybersecurity hygiene and better protect yourself.

A version of this article first appeared in Cyber Saturday, the weekend edition of Fortune’s tech newsletter Data Sheet. Sign up here.

U.S. accuses Huawei CFO of Iran sanctions cover-up

VANCOUVER/LONDON (Reuters) – Huawei Technologies Co Ltd’s chief financial officer faces U.S. accusations that she covered up her company’s links to a firm that tried to sell equipment to Iran despite sanctions, a Canadian prosecutor said on Friday, arguing against giving her bail while she awaits extradition.

The case against Meng Wanzhou, who is also the daughter of the founder of Huawei, stems from a 2013 Reuters report here about the company’s close ties to Hong Kong-based Skycom Tech Co Ltd, which attempted to sell U.S. equipment to Iran despite U.S. and European Union bans, the prosecutor told a Vancouver court.

U.S. prosecutors argue that Meng was not truthful to banks who asked her about links between the two firms, the court heard on Friday. If extradited to the United States, Meng would face charges of conspiracy to defraud multiple financial institutions, the court heard, with a maximum sentence of 30 years for each charge.

Meng, 46, was arrested in Canada on Dec. 1 at the request of the United States. The arrest was on the same day that U.S. President Donald Trump met in Argentina with China’s Xi Jinping to look for ways to resolve an escalating trade war between the world’s two largest economies.

The news of her arrest has roiled stock markets and drawn condemnation from Chinese authorities, although Trump and his top economic advisers have downplayed its importance to trade talks after the two leaders agreed to a truce.

A spokesman for Huawei had no immediate comment on the case against Meng on Friday. The company has said it complies with all applicable export control and sanctions laws and other regulations.

Friday’s court hearing is intended to decide on whether Meng can post bail or if she is a flight risk and should be kept in detention.

The prosecutor opposed bail, arguing that Meng was a high flight risk with few ties to Vancouver and that her family’s wealth would mean than even a multi-million-dollar surety would not weigh heavily should she breach conditions.

Meng’s lawyer, David Martin, said her prominence made it unlikely she would breach any court orders.

“You can trust her,” he said. Fleeing “would humiliate and embarrass her father, whom she loves,” he argued.

Huawei CFO Meng Wanzhou, who was arrested on an extradition warrant, appears at her B.C. Supreme Court bail hearing in a drawing in Vancouver, British Columbia, Canada December 7, 2018. REUTERS/Jane Wolsak

The United States has 60 days to make a formal extradition request, which a Canadian judge will weigh to determine whether the case against Meng is strong enough. Then it is up to Canada’s justice minister to decide whether to extradite her.

Chinese Foreign ministry spokesman Geng Shuang said on Friday that neither Canada nor the United States had provided China any evidence that Meng had broken any law in those two countries, and reiterated Beijing’s demand that she be released.

Chinese state media accused the United States of trying to “stifle” Huawei and curb its global expansion.

IRAN BUSINESS

The U.S. case against Meng involves Skycom, which had an office in Tehran and which Huawei has described as one of its “major local partners” in Iran.

In January 2013, Reuters reported that Skycom, which tried to sell embargoed Hewlett-Packard computer equipment to Iran’s largest mobile-phone operator, had much closer ties to Huawei and Meng than previously known.

Slideshow (9 Images)

In 2007, a management company controlled by Huawei’s parent company held all of Skycom’s shares. At the time, Meng served as the management firm’s company secretary. Meng also served on Skycom’s board between February 2008 and April 2009, according to Skycom records filed with Hong Kong’s Companies Registry.

Huawei used Skycom’s Tehran office to provide mobile network equipment to several major telecommunications companies in Iran, people familiar with the company’s operations have said. Two of the sources said that technically Skycom was controlled by Iranians to comply with local law but that it effectively was run by Huawei.

Huawei and Skycom were “the same,” a former Huawei employee who worked in Iran said on Friday.

A Huawei spokesman told Reuters in 2013: “Huawei has established a trade compliance system which is in line with industry best practices and our business in Iran is in full compliance with all applicable laws and regulations including those of the U.N. We also require our partners, such as Skycom, to make the same commitments.”

U.S. CASE

The United States has been looking since at least 2016 into whether Huawei violated U.S. sanctions against Iran, Reuters reported in April.

The case against Meng revolves around her response to banks, who asked her about Huawei’s links to Skycom in the wake of the 2013 Reuters report. U.S. prosecutors argue that Meng fraudulently said there was no link, the court heard on Friday.

U.S. investigators believe the misrepresentations induced the banks to provide services to Huawei despite the fact they were operating in sanctioned countries, Canadian court documents released on Friday showed.

The hearing did not name any banks, but sources told Reuters this week that the probe centered on whether Huawei had used HSBC Holdings (HSBA.L) to conduct illegal transactions. HSBC is not under investigation.

U.S. intelligence agencies have also alleged that Huawei is linked to China’s government and its equipment could contain “backdoors” for use by government spies. No evidence has been produced publicly and the firm has repeatedly denied the claims.

The probe of Huawei is similar to one that threatened the survival of China’s ZTE Corp (0763.HK) (000063.SZ), which pleaded guilty in 2017 to violating U.S. laws that restrict the sale of American-made technology to Iran. ZTE paid a $892 million penalty.

Reporting by Julie Gordon in Vancouver and Steve Stecklow in London; Additional reporting by Anna Mehler Paperny in Toronto, David Ljunggren in Ottawa, Karen Freifeld in New York, Ben Blanchard and Yilei Sun in Beijing, and Sijia Jiang in Hong Kong; Writing by Denny Thomas and Rosalba O’Brien; Editing by Muralikumar Anantharaman, Susan Thomas and Sonya Hepinstall

U.S. accuses Huawei CFO of Iran sanctions cover-up; hearing adjourned to Monday

VANCOUVER/LONDON (Reuters) – Huawei Technologies Co Ltd’s chief financial officer faces U.S. accusations that she covered up her company’s links to a firm that tried to sell equipment to Iran despite sanctions, a Canadian prosecutor said on Friday, arguing against giving her bail while she awaits extradition.

After nearly six hours of arguments and counter-arguments, no decision was reached and the hearing was adjourned until Monday 10:00 a.m. Pacific Time (1800 GMT).

The case against Meng Wanzhou, who is also the daughter of the founder of Huawei [HWT.UL], stems from a 2013 Reuters report here about the company’s close ties to Hong Kong-based Skycom Tech Co Ltd, which attempted to sell U.S. equipment to Iran despite U.S. and European Union bans, the prosecutor told a Vancouver court.

U.S. prosecutors argue that Meng was not truthful to banks who asked her about links between the two firms, the court heard on Friday. If extradited to the United States, Meng would face charges of conspiracy to defraud multiple financial institutions, the court heard, with a maximum sentence of 30 years for each charge.

Meng, 46, was arrested in Canada on Dec. 1 at the request of the United States. The arrest was on the same day that U.S. President Donald Trump met in Argentina with China’s Xi Jinping to look for ways to resolve an escalating trade war between the world’s two largest economies.

The news of her arrest has roiled stock markets and drawn condemnation from Chinese authorities, although Trump and his top economic advisers have downplayed its importance to trade talks after the two leaders agreed to a truce.

A spokesman for Huawei had no immediate comment on the case against Meng on Friday. The company has said it complies with all applicable export control and sanctions laws and other regulations.

Friday’s court hearing is intended to decide on whether Meng can post bail or if she is a flight risk and should be kept in detention.

The prosecutor opposed bail, arguing that Meng was a high flight risk with few ties to Vancouver and that her family’s wealth would mean than even a multi-million-dollar surety would not weigh heavily should she breach conditions.

Meng’s lawyer, David Martin, said her prominence made it unlikely she would breach any court orders.

“You can trust her,” he said. Fleeing “would humiliate and embarrass her father, whom she loves,” he argued.

The United States has 60 days to make a formal extradition request, which a Canadian judge will weigh to determine whether the case against Meng is strong enough. Then it is up to Canada’s justice minister to decide whether to extradite her.

Huawei CFO Meng Wanzhou, who was arrested on an extradition warrant, appears at her B.C. Supreme Court bail hearing in a drawing in Vancouver, British Columbia, Canada December 7, 2018. REUTERS/Jane Wolsak

Chinese Foreign ministry spokesman Geng Shuang said on Friday that neither Canada nor the United States had provided China any evidence that Meng had broken any law in those two countries, and reiterated Beijing’s demand that she be released.

Chinese state media accused the United States of trying to “stifle” Huawei and curb its global expansion.

IRAN BUSINESS

The U.S. case against Meng involves Skycom, which had an office in Tehran and which Huawei has described as one of its “major local partners” in Iran.

In January 2013, Reuters reported that Skycom, which tried to sell embargoed Hewlett-Packard computer equipment to Iran’s largest mobile-phone operator, had much closer ties to Huawei and Meng than previously known.

In 2007, a management company controlled by Huawei’s parent company held all of Skycom’s shares. At the time, Meng served as the management firm’s company secretary. Meng also served on Skycom’s board between February 2008 and April 2009, according to Skycom records filed with Hong Kong’s Companies Registry.

Huawei used Skycom’s Tehran office to provide mobile network equipment to several major telecommunications companies in Iran, people familiar with the company’s operations have said. Two of the sources said that technically Skycom was controlled by Iranians to comply with local law but that it effectively was run by Huawei.

Slideshow (9 Images)

Huawei and Skycom were “the same,” a former Huawei employee who worked in Iran said on Friday.

A Huawei spokesman told Reuters in 2013: “Huawei has established a trade compliance system which is in line with industry best practices and our business in Iran is in full compliance with all applicable laws and regulations including those of the U.N. We also require our partners, such as Skycom, to make the same commitments.”

U.S. CASE

The United States has been looking since at least 2016 into whether Huawei violated U.S. sanctions against Iran, Reuters reported in April.

The case against Meng revolves around her response to banks, who asked her about Huawei’s links to Skycom in the wake of the 2013 Reuters report. U.S. prosecutors argue that Meng fraudulently said there was no link, the court heard on Friday.

U.S. investigators believe the misrepresentations induced the banks to provide services to Huawei despite the fact they were operating in sanctioned countries, Canadian court documents released on Friday showed.

The hearing did not name any banks, but sources told Reuters this week that the probe centered on whether Huawei had used HSBC Holdings (HSBA.L) to conduct illegal transactions. HSBC is not under investigation.

U.S. intelligence agencies have also alleged that Huawei is linked to China’s government and its equipment could contain “backdoors” for use by government spies. No evidence has been produced publicly and the firm has repeatedly denied the claims.

The probe of Huawei is similar to one that threatened the survival of China’s ZTE Corp (0763.HK) (000063.SZ), which pleaded guilty in 2017 to violating U.S. laws that restrict the sale of American-made technology to Iran. ZTE paid a $892 million penalty.

Reporting by Julie Gordon in Vancouver and Steve Stecklow in London; Additional reporting by Anna Mehler Paperny in Toronto, David Ljunggren in Ottawa, Karen Freifeld in New York, Ben Blanchard and Yilei Sun in Beijing, and Sijia Jiang in Hong Kong; Writing by Denny Thomas and Rosalba O’Brien; Editing by Muralikumar Anantharaman, Susan Thomas and Sonya Hepinstall

'Our airplanes are safe,' Boeing says as officials push training

JAKARTA/SEATTLE (Reuters) – Aviation authorities in Indonesia and India on Thursday pushed for more simulator training for Boeing Co 737 MAX pilots following the deadly Lion Air crash, while the world’s largest planemaker reiterated that its top-selling jetliner was safe.

FILE PHOTO: Dennis Muilenburg, CEO, Boeing speaks during a roundtable discussion on defense issues with U.S. President Donald Trump at Luke Air Force Base, Arizona, U.S., October 19, 2018. REUTERS/Jonathan Ernst

Boeing Chief Executive Officer Dennis Muilenburg told a CNBC interviewer on Thursday he was “very confident” in the safety of the 737 MAX, the newest version of a jet that has been a fixture of passenger travel for decades.

“We know our airplanes are safe,” Muilenburg said. “We have not changed our design philosophy.”

Muilenburg’s comments came the same day that India’s aviation regulator said 737 MAX pilots should be trained on a simulator that replicates the suspected scenario that led to the crash, while Indonesia’s Transport Ministry said it would immediately impose new requirements for simulator training.

Also on Thursday, Lion Air confirmed an earlier Reuters report that it was considering cancelling 737 MAX orders after the jetliner plunged into the Java Sea on Oct. 29, killing all 189 people onboard.

Lion Air, a privately owned budget airline, has 190 Boeing jets worth $22 billion at list prices waiting to be delivered, on top of 197 already taken, making it one of the largest U.S. export customers. Other MAX customers, including large U.S. carriers, have reiterated they are confident in the plane.

Crash investigators are focusing on the possibility that a new anti-stall system that repeatedly pushed the Lion Air jetliner’s nose down was being fed by erroneous data from a faulty sensor left in place after a previous hazardous flight.

Boeing has said cockpit procedures that were applied on the previous flight are already in place to tackle such a problem. But U.S. regulators have said Boeing was also examining a possible software fix, after coming under fire for not outlining recent changes to the automated system in the manual for the 737 MAX.

SIMULATOR TRAINING

Extra training has also become a key focus after the crash.

Lion Air expects to have its own 737 MAX simulator next year, Managing Director Daniel Putut said last week.

A simulator can cost between $6 million and $15 million depending how it is customized and take about a year to be delivered, aviation training firm CAE said.

CAE has sold about 30 737 MAX simulators to airlines around the world – four of which were in service so far, the company said.

Southwest Airlines Co said it had one MAX simulator on order before the Lion Air crash, while American Airlines said it was working with pilots on training.

Separately, American Airlines has added to its mandatory pilot training materials discussion of the scenario faced by the Lion Air pilots and differences between the MAX and its predecessor, the 737NG, said Dennis Tajer, a spokesman for the Allied Pilots Association (APA), which represents American Airlines pilots.

Boeing’s shares closed down about 3 percent at $331.90 amid broader concerns of U.S-China tensions over trade.

Reporting by Cindy Silviana in Jakarta and Eric M. Johnson in Seattle; Additional reporting by Tracy Rucinski in Chicago, Sonam Rai in Bengaluru, Aditi Shah in New Delhi and Allison Lampert in Montreal; Writing by Eric M. Johnson; Editing by Peter Cooney

SoftBank's Vision Fund to hire China team, set up mainland office: sources

HONG KONG (Reuters) – The SoftBank-led Vision Fund is hiring an investment team to be based in China as the $100 billion investment giant expands in one of the world’s most vibrant tech markets, two people with direct knowledge of the move told Reuters.

FILE PHOTO: The logo of SoftBank Group Corp is displayed at SoftBank World 2017 conference in Tokyo, Japan, July 20, 2017. REUTERS/Issei Kato/File Photo

The Vision Fund plans to open its first China office in Shanghai next year, followed by Beijing and Hong Kong. Altogether it hopes to hire about 20 people, said the people, who declined to be named as the information was confidential.

The Vision Fund raised more than $93 billion at its first close last May with investors including the sovereign wealth funds of Saudi Arabia and Abu Dhabi, Apple Inc and Hon Hai Precision Industry Co Ltd (Foxconn).

In a statement at the time, SoftBank said the fund was targeting a total of $100 billion within six months.

Earlier this year, the fund hired Eric Chen, who last worked as a Hong Kong-based managing director at private equity firm Silver Lake before setting up his own venture, to head its upcoming China team, the people added.

Chen joined SoftBank Investment Advisers, which oversees Vision Fund, as a partner in March and is based in San Francisco, according to his LinkedIn profile and confirmation from the people. He could not be reached for comment.

A SoftBank spokesman declined to comment.

Already this year the Vision Fund has moved to open offices in India, where it has spent $5 billion betting on the future of technology, and Saudi Arabia, home to its biggest backer – sovereign wealth fund PIF.

The openings come as the fund must manage its sprawling web of portfolio companies covering everything from shared working space to insurance and healthcare.

SoftBank is no stranger in China. Founder Masayoshi Son was an early backer of e-commerce giant Alibaba Group in 2000. Since 2013, SoftBank has invested over $13 billion in Chinese companies such as ride-hailing champion Didi Chuxing. The Vision Fund has made five investments in China, according to Refinitiv data.

Since its first close on May 17 last year, the Vision Fund has invested in truck-hailing company Man Bang Group, Ping An Healthcare and Technology Co, a one-stop healthcare platform backed by Ping An Insurance Group, and most recently Beijing Bytedance Technology Co, China’s largest media start-up managing news aggregator Toutiao and online short-video streaming app TikTok, the data showed.

Bytedance is valued at $75 billion in its latest fundraising, Reuters has reported.

The fund has also invested $500 million in the Chinese unit of U.S.-based shared working space provider WeWork Cos in July, as part of its support for WeWork’s global push.

Reporting by Kane Wu in Hong Kong, adiditonal reporting by Sam Nussey in Tokyo; Editing by Jennifer Hughes and Stephen Coates

A Sleeping Tesla Driver Highlights Autopilot's Biggest Flaw

As technology advances, so must policing. Last week, when a couple of California Highway Patrol officers spotted a man apparently sleeping in the driver’s seat of a Tesla Model S going 70 mph down Highway 101 in Palo Alto around 3:30 am, they moved behind the car and turned on their siren and lights. When the driver didn’t respond, the cops went beyond their standard playbook. Figuring the Tesla might be using Autopilot, they called for backup to slow traffic behind them, then pulled in front of the car and gradually started braking. And so the Tesla slowed down, too, until it was stopped in its lane.

“Our officers’ quick thinking got the vehicle to stop,” says CHP public information officer Art Montiel. The officers arrested the driver, identified in a police report as 45-year-old Alexander Joseph Samek of Los Altos, for driving under the influence of alcohol.

Neither the cops nor Tesla has confirmed whether the Model S had Autopilot engaged at the time. It seems likely it was, though, since the vehicle was staying in its lane and responding to vehicles around it, even though its driver didn’t wake up until the cops knocked on his window.

Tesla clearly tells its customers who pay the extra $5,000 for Autopilot that they are always responsible for the car’s driving, and that they must remain vigilant at all times. Driving drunk is illegal. And the vehicle’s sorta-self-driving tech may have prevented a crash. But if Autopilot did allow a slumbering and allegedly drunk driver to speed down the highway, it brings up another question: Is Elon Musk’s car company doing enough to prevent human abuse of its technology?

It’s long-standing but still-relevant criticism. Last year, a National Transportation Safety Board investigation into the 2016 death of an Ohio man whose Tesla hit a semi-truck while Autopilot was engaged concluded that Tesla bore some of the blame. When the oncoming truck turned across the path of the Tesla, the sedan didn’t slow down until impact. “The combined effects of human error and the lack of sufficient system controls resulted in a fatal collision that should not have happened,” NTSB Chairman Robert Sumwalt said at the time.

Since then, Tesla has restricted how long a driver can go without touching the steering wheel before the receiving a warning beep. If they don’t respond, the system will eventually direct the car to stop and hit its hazard lights. That makes this incident a bit confusing, as Musk noted in a tweet:

The sensors in the steering wheel that register the human touch, though, are easy to cheat, as YouTube videos demonstrate. A well-wedged orange or water bottle can do the trick. Posters in online forums say they have strapped weights onto their wheels and experimented with Ziplock bags and “mini weights.” For a while, drivers even could buy an Autopilot Buddy “nag reduction device,” until the feds sent the company a cease-and-desist letter this summer.

All of which makes the design of similar systems offered by Cadillac and Audi look rather better suited to the task of keeping human eyes on the road, even as the car works the steering wheel, throttle, and brakes. Cadillac’s Super Cruise includes a gumdrop-sized infrared camera on the steering column that monitors the driver’s head position: Look away or down for too long, and the system issues a sharp beep. Audi’s Traffic Jam Pilot does the same with an interior gaze-monitoring camera.

Humans being human, they will presumably find ways to cheat those systems (perhaps borrowing inspiration from Homer Simpson) but it’s clear a system that monitors where a driver is looking is more robust for this purpose than one that can be fooled by citrus.

It’s possible Tesla will give it a shot. The Model 3 comes with an interior camera mounted near the rearview mirror, and though the automaker hasn’t confirmed what it’s for, don’t be surprised if an over-the-air software update suddenly gives those cars the ability to creep on their human overlords.

And if that doesn’t work, well, there’s always the Ludovico Treatment. Or a car that does all the driving, no human needed.


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