Loss in Trade-Secrets Case Reveals Broader Problems

"U.S. officials across the political spectrum have described Chinese corporate theft as a defining threat of our times. A Justice Department loss last week underscores the challenges in addressing it.

When senior engineers and managers at the Taiwan factory of the U.S. chip maker Micron Technology left abruptly with hundreds of internal files nearly a decade ago for a rival teaming up with a Chinese government-owned company, it looked to prosecutors like an open-and-shut case of state-sponsored corporate theft.

A federal judge in San Francisco disagreed, acquitting Chinese state-owned company Fujian Jinhua Integrated Circuit last week of charges of economic espionage and conspiracy. It was a crushing defeat in a case the Justice Department had made the centerpiece of a yearslong push dating to the Trump Administration to protect domestic companies from Chinese efforts to steal American corporate secrets.

"There are limits to prosecuting cross-border trade-secrets cases involving China given it is nearly impossible to produce evidence or witnesses," said Jimmy Goodrich, a China and semiconductor expert advising the Rand Corp.

Other tools in the U.S. arsenal, such as sanctions or restricting Chinese access to U.S. technology, can impose greater costs on China, but they also come with risks of unintended consequences, including backlash for U.S. companies.

Micron's shifting posture since the Justice Department brought the case in 2018 illustrates the point. The company had urged U.S. authorities to pursue the criminal case and limit access to U.S. technology for Jinhua, and it filed its own civil lawsuit. In 2022, it lobbied for Commerce Department restrictions on exporting advanced chips to China, and the blocking of exports to another Chinese rival, Yangtze Memory Technologies, people familiar with the matter said.

But in May, Chinese officials banned major Chinese companies from buying from Micron, in what was widely viewed as a retaliatory response.

Micron had gotten about a quarter of its revenue from China, half of which risked being wiped out.

It moved to reach a confidential settlement in its six-year lawsuit against Jinhua, made a series of high-profile diplomatic visits and announced a new $600 million investment in China.

Micron Chief Executive Sanjay Mehrotra met with China's commerce minister in November and later pledged to investors a strong commitment to be a major chip supplier for smartphones in China.

Mehrotra has been asked to testify about Micron's China concerns before the House Select Committee on the Chinese Communist Party, but has been reluctant to do so, for fear of further inflaming tensions, people familiar with the matter said. Micron declined to answer questions from The Wall Street Journal.

Idaho-based Micron is the U.S.'s only company that makes a type of memory chip used to store data in everything from cellphones to laptops. The chip technology at issue in the criminal case is now generations old, but few other companies possess it.

In 2016, the Chinese government identified memory-chip technology as a national economic priority because Chinese companies hadn't yet developed their own capabilities. The provincial government in Fujian funded its own multibillion-dollar effort and made a deal with United Microelectronics Corp., a Taiwanese semiconductor company that trades on the New York Stock Exchange, to provide the research while Jinhua would make the chips.

In 2018, Micron's lawyers went to prosecutors with a laptop that had belonged to a former Micron engineer who left for UMC. The engineer appeared to have downloaded Micron trade secrets to his Google account and then searched for how to wipe data from the laptop. U.S. prosecutors ultimately charged Jinhua, UMC and three managers in the case.

In 2020, UMC pleaded guilty to trade-secrets theft, and agreed to pay a fine and cooperate in the prosecution of Jinhua, but said it never gave Jinhua information about Micron's technology. At trial, that became a problem for the Justice Department. Prosecutors didn't call any UMC engineers to testify on the nature of their collaboration with Jinhua.

Last Tuesday, U.S. District Judge Maxine Chesney acquitted Jinhua, saying the government hadn't provided sufficient evidence to convince her that the former Micron employees had acted at Jinhua's direction to commit theft.

A spokesman for the U.S. attorney's office in San Francisco declined to comment. Jinhua said it welcomed the verdict and "has always operated in accordance with the law and respected intellectual-property rights."" [1]

1. U.S. News: Loss in Trade-Secrets Case Reveals Broader Problems. Viswanatha, Aruna; Somerville, Heather.  Wall Street Journal, Eastern edition; New York, N.Y.. 04 Mar 2024: A.2.