Federal government gets involved in ongoing Micron-China case

Sharon Fisher//November 2, 2018

Federal government gets involved in ongoing Micron-China case

Sharon Fisher//November 2, 2018

photo of micron worker
A worker at Micron. File photo.

A recent federal indictment against three employees of two Chinese companies, alleging that they stole intellectual property from Boise chip manufacturer Micron, is another in a series of ongoing espionage claims and counterclaims between the two countries.

“It’s not too big a surprise,” said Jim Handy, general director of Objective Analysis, in Los Gatos, California, attributing it to the political climate in Washington, D.C., toward China.

Similar actions were taken against Japanese companies in the 1980s, and Korean companies in the 1990s and 2000s, he said. “It’s something that happens when developing nations get into high-tech products developed by patents.”

photo of rick ritter
Rick Ritter

“I can’t believe how long it took the administration to actually do something about the industrial espionage,” said Rick Ritter, lab director for Meridian incubator New Ventures Lab and former president and CEO of Idaho TechConnect, who speculated that the timing might be related to the ongoing trade dispute between the U.S. and China. “They have levied fines against them (China and others) from time to time for these kinds of activities, but to my knowledge, this is the first court proceeding involving individuals.”

On Nov. 1, U.S. Attorney General Jeff Sessions unsealed an indictment, filed on Sept. 27, alleging that United Microelectronics Corporation (UMC), a Taiwan semiconductor foundry; Fujian Jinhua Integrated Circuit, Co., Ltd. (Jinhua), a state-owned enterprise of the People’s Republic of China; and three Taiwan nationals had conspired to steal, convey and possess stolen Micron trade secrets for the benefit of a company controlled by the PRC government. The U.S. also filed a civil lawsuit on Nov. 1 to enjoin further transfer of the stolen trade secrets or to export to the U.S. any products manufactured by UMC or Jinhua created using the trade secrets at issue.

If convicted, the individual defendants face a maximum sentence of 15 years imprisonment and a $5 million fine for economic espionage charges, and 10 years imprisonment for theft of trade secrets charges, the Department of Justice said. If convicted, each company faces forfeiture and a maximum fine of more than $20 billion.

The biggest blow – and one that could affect U.S. consumers as well – is the injunction, Handy said.

“If the government really clamps down, none of those systems would be allowed into the U.S.,” he said. “That could be tough on a lot of people.”

Micron, based in Boise, is a global microchip and nanotechnology research and manufacturing company with about 30,000 employees on several continents. It’s one of just three major companies in the world that make the dynamic random access memory (DRAM) chips in dispute. DRAM chips are typically used in computers, rather than the more commodity-based market for memory chips. The other two companies are Samsung and SK Hynix, both in South Korea.

photo of joel poppen
Joel Poppen

“We appreciate the U.S. Department of Justice’s decision to prosecute the criminal theft of our intellectual property,” said Joel Poppen, senior vice president, legal affairs, general counsel and corporate secretary at Micron Technology, in a statement. “Micron has invested billions of dollars over decades to develop its intellectual property.”

The actions reinforce that criminal misappropriation will be appropriately addressed, he said.

Such charges have been going back and forth between the two countries for more than a year. In August 2017, Micron filed charges in Taiwan, and a civil lawsuit in December 2017 in the U.S. District Court for the Northern District of California, against UMC and Jinhua for the misappropriation of Micron trade secrets.

This summer, a preliminary injunction against two of Micron’s Chinese subsidiaries was granted by the Fuzhou Intermediate People’s Court, Fujian Province, China, related to patent infringement cases filed in turn by UMC and Jinhua. The patent infringement claims had been filed against Micron in retaliation for the 2017 indictments and lawsuits, Micron said in a July statement.

The issue arose because Chinese assembly houses, which currently buy most of the semiconductors they use from companies overseas, would like to use a domestically produced DRAM product instead, Handy said. So the Chinese government, flush with more than $1 trillion in foreign exchange reserve cash, has been funding the development of such an industry. But because China has weak intellectual property laws, it has been trying to do that using Micron technology rather than licensing it from one of the three companies, he said.

The upshot is likely to be that, eventually, the Chinese DRAM manufacturers will license the technology, whether that ends up being from Micron, Hynix, Samsung or all three, Handy said.

“In the end, they’re all going to be licensed, but it won’t happen until these things get squared away first,” he said.