When Sinovel "allegedly" stole intellectual property (IP) from American Superconductor (AMSC -1.59%) in 2011 it set off a legal battle and controversy that lives on to this day. The fact that Sinovel agreed to pay a former employee to steal IP doesn't seem to be in doubt since the former American Superconductor employee spent a year in an Austrian jail, but what is in question is what protections U.S. companies have against IP theft in China.  

There was a small amount of clarity on that front  when China's Supreme Court rejected Sinovel's efforts to move two of four cases to arbitration. But these are two small cases: one seeking $6 million for unauthorized copying and use of AMSC's control software and another for $200,000 for copyright infringement. In other words, of the $1.2 billion in damages that AMSC is seeking this is a drop in the bucket. But it may be a big deal given the market's reaction.  

Is China respecting intellectual property these days?
It's difficult to read much into the ruling against Sinovel because it's not a final ruling, just a ruling against sending the case to arbitration. It also isn't AMSC's biggest case against Sinovel, so nearly three years later we still don't know if it will see anywhere near the $1.2 billion in damages it's seeking. But it's at least a small sign that China is taking IP enforcement more seriously than it has in the past. 

Until now, China hasn't exactly been eager to enforce intellectual property laws, especially when they help domestic growth and employment. There may be some ice breaking on that front, but investors shouldn't expect that stance to change now, even if the case is in AMSC's favor. I just wouldn't put my faith behind China's legal system.

Can AMSC survive?
Just last week, AMSC reported earnings and the financial situation is still dire. Revenue for the fiscal third quarter of 2013 was just $20.6 million and net loss was $8.4 million, or $0.14 per share. Financing is still required just to keep the company afloat and is the only reason cash increased from $32.8 million a quarter ago to $41.7 million to end calendar 2013.

Even outlook for revenues over $16 million and a loss of less than $16 million don't bode well for the company.

Buying American Superconductor's shares right now is a bet that the company will win its legal battle with Sinovel. If it does, there's huge upside considering that the company has a $132 million market cap and the suit is for $1.2 billion, but we've been waiting for a ruling for years now and value continues to evaporate. That risk is too high for me and while I hope for a comeback I'm still not willing to bet real money on one.