This is the second case study in our series titled Case Studies in PRC Foreign Tech Transfers that we launched on 18 December 2020. These case studies are based on foundational research we conducted a few years ago. We invite you to follow us on Twitter and on LinkedIn to stay up to date on our latest publications.

In an example of a legal action aiming to staunch the expropriation of U.S. intellectual property and the trade secrets of a U.S. corporation by PRC state-controlled actors and their allies, a United States District Court has approved a plea agreement that will penalize a Taiwan-based defendant, and which may recruit that defendant to assist with prosecutions of the PRC defendant and individual defendants.  The original plaintiff, Micron Technologies, is an American semiconductor manufacturer based in Boise, Idaho with a vast industrial base spanning across 18 locations in Europe, Asia, and the United States, according to the company’s “about us” webpage. PRC state-owned chip maker, Tsinghua Unigroup in 2015 tried to acquire Micron for $23 billion, but the acquisition failed to survive U.S. government review for national security risks. In 2017 Micron sued several entities it accused of stealing its critical advanced chip technology, and the U.S. Department of Justice followed with a similar suit against the same entities in 2018.

On 29 October 2020, the United States District Court, Northern District of California, San Francisco Division announced that it had approved a plea agreement between U.S. Department of Justice and Taiwan-based United Microelectronics Corp. (UMC), et al., according to court documents. Under the agreement, UMC pled “ . . . guilty to criminal trade secret theft and was sentenced to pay a $60 million fine—the second largest fine ever in a criminal trade secret prosecution—and serve three years’ probation, in exchange for UMC’s agreement to cooperate with the [U.S.] government in the investigation and prosecution of its co-defendant, a PRC state-owned enterprise,” according to an October press release by the U.S. Department of Justice.

• The plea agreement “points the case towards trial” against co-defendant Fujian Jinhua in 2021 according to U.S. Attorney  David L. Anderson.
• In September of 2018, the U.S. Department of Justice had filed the lawsuit against UMC, Fujian Jinhua, and several individual personnel for theft of trade secrets via economic espionage and other violations regarding Micron’s advanced DRAM technology.
• Earlier, Micron Technologies in December 2017 filed a lawsuit against UMC, its joint venture partner, for allegedly stealing trade secrets on Micron’s Dynamic Random-Access Memory (DRAM) chip technology. Micron accused UMC of passing the trade secrets to Fujian Jinhua Integrated Circuit Company, Ltd., aka Fujian Jinhua, a PRC state-backed chip maker based in Fujian Province.

After Beijing’s earlier attempts to acquire advanced semiconductor technologies through M&A or direct investments failed—such as those by PRC-controlled investment vehicles Tsinghua Unigroup, Unisplendor, Fujian Grand Chip, and Go Scale Capital—the PRC adapted its strategy to more directly target integrated circuit human capital, in order to advance its technology acquisition objectives.

• Tsinghua Unigroup successfully recruited UMC employees, including its former CEO, beginning as early as 2015, according to a Reuters report.
• Fujian Jinhua Integrated Circuit in 2016 recruited UMC to help develop technology for the $5.7 billion factory it was building in Fujian. Taiwanese authorities claim that UMC used promises of raises and bonuses to lure engineers from Micron’s Taiwan office into stealing Micron’s intellectual property. Authorities also noted that the former Micron engineers took more than 900 files that contained key specifications and details regarding Micron’s advanced memory chips.
• Court documents from the original lawsuit state that Fujian Jinhua’s goal is to mass produce DRAM based technology allegedly provided by UMC.

Fujian Jinhua and UMC have continued developing the stolen technology. Micron claims that the transfer of this technology has and will continue to negatively affect the company’s future success as well as the strength of the global semiconductor industry.

• U.S. criminal prosecution of “Fujian Jinhua and three individual defendants will continue,” as will civil action “seeking to enjoin Fujian Jinhua from further transfer of stolen trade secrets” or other actions benefitting Fujian Jinhua that derive from the theft, according to a U.S. Department of Justice statement about the plea deal.
• As of July 2018, Fujian Jinhua’s new factory in Fujian was complete. Trial production was expected to begin during the 3rd quarter of 2018, and mass production was set to begin during the first half of 2019.
• Micron claims that the stolen trade secrets included vital insights into Micron’s technology, including their DRAM manufacturing and testing processes, test programming files and results, and failure-analysis information.

The PRC government has stressed the need to develop a world-class semiconductor industry as a key part of its “Made in China 2025” strategy. Beijing aimed to achieve a self-sufficiency rate of 40% for semiconductors by 2020 and 70% by 2025, hoping that its “government-guided investment funds” would accelerate the progress of institutionalized tactics to steal and apply foreign IPR which it euphemistically refers to as “indigenous innovation.”

• The first government-guided semiconductor investment fund—“China Integrated Circuit Industry Investment Fund” announced 14 October 2014 by the Ministry of Industry and Information technology—was US$20 billion. By 2017, it was the fourth largest such fund. A second semiconductor investment fund established in 2019 is US$29 billion.