Alleged theft of chip designs shows dark side of tech race

A chip factory with some 100,000 square feet of office space in a region formerly known for manufacturing shoes, being built by Fujian Jinhua, a new semiconductor maker, in Jinjiang, Fujian Province, China, in June, 2018.
A chip factory with some 100,000 square feet of office space in a region formerly known for manufacturing shoes, being built by Fujian Jinhua, a new semiconductor maker, in Jinjiang, Fujian Province, China, in June, 2018. PHOTO: NYTIMES

JINJIANG (China) • With a dragnet closing in, engineers at a Taiwanese chipmaker holding United States secrets did their best to conceal a daring case of corporate espionage.

As police raided their offices, engineers handed USB drives, laptops and documents to a lower-level employee, who hid them in her locker. Then she walked out of the front door with one engineer's phone.

What those devices contained were designs from US company Micron Technology for microchips that have helped power the global digital revolution.

According to the Taiwanese authorities, the designs were bound for China, where they would help a new US$5.7 billion (S$7.8 billion) microchip factory rumble into production.

China has ambitious plans to overhaul its economy and compete head to head with the US and other nations in the technology of tomorrow. The theft of the designs two years ago and the raids last year, which were described by Micron in court filings and police in Taiwan, represent the dark side of that effort - and explain in part why the US is starting a trade war with China.

Three years ago, Micron spurned a US$23 billion takeover offer from a state-controlled Chinese company. Today, it faces a lawsuit and an investigation in China, which accounts for about half its US$20 billion in annual sales.

Then, Micron was the target of the theft in Taiwan, according to officials there and a lawsuit the company has brought against the Taiwanese company that employed the engineers, UMC, and the Chinese company it says wanted access to the technology, Fujian Jinhua Integrated Circuit.

In 2015, representatives from Tsinghua Unigroup, a Chinese chipmaker with major state backing, approached Micron with an acquisition offer, which the company rejected. It later also turned down several partnership offers from Chinese companies, said a source who asked not to be identified.

That was when one Chinese company resorted to theft, Micron said in documents filed last December in the US.

Micron's accusations focus on efforts by Fujian Jinhua Integrated Circuit, a state-backed chipmaker, to build a factory in China's Fujian province. Two years ago, Jinhua tapped UMC to help it develop technology for the factory. Instead of going through the lengthy steps required to design the technology, Micron said in its suit, UMC and Jinhua decided to steal it.

A UMC spokesman denied the allegations and declined to comment further. Jinhua did not respond to requests for comment.

First, UMC lured away engineers from Micron's Taiwan operations, according to Taiwanese authorities. Then, it asked them to take some of Micron's secrets with them, according to Micron's court filings. The engineers illegally took with them more than 900 files that contained key details about Micron's advanced memory chips, the authorities said.

Alerted by Micron, Taiwanese police tapped the phone of a Micron engineer, Kenny Wang. According to an indictment in Taiwan against Wang and others, UMC reached out to Wang in early 2016 while he was still working for Micron. Wang grabbed information on memory chip technology from Micron's servers and later used it to help UMC's design. Police said Wang received a promotion at UMC.

When investigators showed up at UMC's offices early last year, police said, Wang and another former Micron employee gave laptops, USB flash drives and documents to an assistant engineer, who locked them in her personal locker. She then left the office with Wang's phone, which was quickly tracked down. Wang and other engineers who were charged said they had taken the trade secrets for personal research.

In January, Micron was hit with a patent infringement suit by Jinhua and UMC. The case is being heard by a court in Fujian province. The Fujian provincial government is an investor in Jinhua.

NYTIMES

A version of this article appeared in the print edition of The Sunday Times on June 24, 2018, with the headline 'Alleged theft of chip designs shows dark side of tech race'. Print Edition | Subscribe