Micron workers stole tech secrets to benefit Chinese companies, prosecutors say

Prosecutors in Taiwan say two employees of Micron Technology Inc. stole trade secrets in a conspiracy Micron says was spurred by a former senior executive to benefit an emerging competitor in mainland China.

Indictments say the employees took Micron technology to their new Taiwanese employer, which has planned to share it with the Chinese company. Micron sued both companies this week, calling the conspiracy “one of the boldest schemes of commercial espionage in recent times.”

Unchecked, such thefts could bring the Boise memory-chip maker to its knees, hurting shareholders and threatening the very survival of the Treasure Valley’s biggest for-profit employer. Micron has 6,800 workers here and 28,000 elsewhere.

It may not get that bad. But Micron said it already has been damaged.

“The misappropriation of the Micron trade secrets has caused and will continue to cause Micron irreparable and substantial injury,” said Micron’s lawsuit, filed in federal court in the Northern California District.

Prosecutors said the two employees copied trade secrets to USB drives and paper. Micron said the thefts could enable the Chinese company to begin making memory chips by leveraging the hundreds of millions of dollars Micron spent, mostly in Boise, to develop their technologies.

Micron’s suit draws on the Taiwanese criminal investigation to make a case for punishing the companies financially.

The Taiwanese company, United Microelectronics Corp., or UMC, insists it prohibits its employees from using other companies’ intellectual property. “UMC categorically denies any allegation regarding the infringement of third-party IP, and we are confident that any investigation through litigation will ultimately support our position,” said Richard Yu, head of corporate communications.

The case is one of two criminal conspiracies against Micron that Taiwanese prosecutors have alleged in the past four months. In the other, prosecutors said five ex-employees of a separate Micron subsidiary passed trade secrets to a different Chinese company — a state-controlled firm that was spurned when it tried to acquire Micron two years ago.

Micron new clean room August 2017
Most of Micron Technology Inc.’s research and development work on memory is done in Boise. This is a clean room at Micron's expanded R&D fabrication unit, or fab, that opened last summer. Kyle Green

What the employees did

Here’s what Micron and prosecutors say happened in the first case, with context from other sources:

The two employees worked at what once was Rexchip, a former joint venture by two Asian companies that fell on hard times before Micron acquired it in 2013. Now known as Micron Memory Taiwan Co., or MMT, the business makes dynamic random-access memory, or DRAM (dee-ram), Micron’s biggest-selling product.

Stephen Chen from Flickr
Stephen Chen, the former site director of Micron Memory Taiwan Co. Ltd. and former chairman of its predecessor, Rexchip, which Micron bought in 2013. Prosecutors say that after he joined United Microelectronics Corp., he recruited two Micron workers who brought stolen technology to UMC. Flickr via Business Next

Rexchip’s chairman, Stephen Chen, became site director of Micron Memory Taiwan after the takeover. He resigned in July 2015 and joined United Microelectronics two months later. UMC is a semiconductor foundry, making integrated-circuit chips under contract from chip designers.

Chen soon began to recruit engineers and managers from his former company, intending to use Micron trade secrets.

UMC in January 2016 agreed to cooperate with the Chinese company, Fujian Jinhua Integrated Circuit Co., as Fujian moved to enter the memory-making business. The agreement required UMC to provide Jinhua with DRAM process technology so Jinhua could become a leading DRAM maker.

Jinhua is not state-run but has support from the government of China’s Fujian province. The Chinese government wants to make its nascent domestic semiconductor industry big enough to supply the country’s needs. Memory represents a big part of its plan.

UMC incorporated the stolen information into technologies it has either delivered or plans to deliver to Jinhua so Jinhua can begin mass production of DRAM as early as next year in a plant now under construction.

“Defendants stand to profit handsomely from their scheme,” the lawsuit said. “UMC is prepared to make hundreds of millions of dollars for its purposed ‘development work,’ and Jinhua plans to avoid hundreds of millions of dollars in costs and the many months of R&D effort that honest competition would require.”

“Jinhua knew that UMC did not possess the technological resources to develop the promised technology by itself, and understood that the technology would be based substantially on Micron’s DRAM designs and processes,” the lawsuit said.

Attempts to obtain comment from Jinhua via email were unsuccessful.

The two ex-Micron employees are J.T. Ho, a former process-integration engineering lead; and Kenny Wang, a former process-integration and device-section manager. “Wang spent his last days at MMT in a frenzied dash to pillage as much of Micron’s confidential data as possible,” the lawsuit said.

They were indicted in August along with Leh-Tian Rong, a UMC assistant vice president; and UMC itself. Chen, the senior executive, was not indicted, but Micron said he is a co-conspirator.

Jinjiang City, Fujian Province, home of Jinhua copy
Jinjiang City in China’s Fujian Province, the home of Fujian Jinhua Integrated Circuit Co. Ltd., which is building a plant to build dynamic random-access memory. Provided by Fujian Jinhua

A second set of thefts, a second Chinese company

A month later, the English-language Taipei Times reported that five ex-employees of another chipmaker Micron bought, Inotera Memories, were charged with passing trade secrets to a different Chinese company.

Prosecutors did not name the company, but the Times said the Chinese-language United Evening News identified it as the government-backed Tsinghua Unigroup Ltd. Tsinghua sought to buy Micron in 2015 but backed off amid U.S. government concerns about national security.

Micron has not sued in that case, at least not yet. The company is walking a fine line: It continues to beef up operations in Taiwan — it is transferring a few hundred Boise jobs there — and it has customers and a plant in mainland China. It wants to keep working with the Chinese government without sharing its key technologies.

How Micron — and Idaho — could be hurt

The nonprofit Commission on the Theft of American Intellectual Property estimates that stolen trade secrets, counterfeit goods and pirated software cost the U.S. economy between $225 billion and $600 billion per year. “The theft of IP remains a grave threat to the United States,” it said in a February report.

UMC Quality Assurance2 vertical copy
A United Microelectronics Corp. worker performs a quality-assurance check on a 12-inch wafer in one of the company's Taiwanese fabs. Provided by UMC

Right now, Micron is enjoying record revenues and high profits, thanks to the consolidation of the worldwide memory industry. There are just three major makers of DRAM: Korea conglomerates Samsung and SK Hynix, and Micron, a stand-alone company and the smallest of the three.

The consolidation — which Micron fostered by buying troubled chipmakers like Rexchip, Inotera and Japan’s Elpida Memory on the cheap — has largely ended the wild swings in DRAM prices of years past. Manufacturers used to keep churning out DRAM even when demand fell because it cost so much to curb production, but the result was surplus supplies and financial losses. As an oligopoly, the three DRAM makers today are keeping production in check — and raking in money.

Adding Chinese factories to the mix could throw the market back into gyrations. The Korean conglomerates could sustain extended losses thanks to their other businesses, and the Chinese firms could too with government money, but Micron could return to the days of the Great Recession, when it turned off lights in Boise, stopped picking up trash and stopped supplying tissues to workers. Micron could shrink, shedding jobs.

“It could get ugly for Micron and Boise,” said Mike Howard, a memory-industry analyst in Boise for IHS Markit who formerly worked for Micron.

“If Micron doesn’t plug these leaks soon, a flood of cheap Chinese memory chips could eventually sink its entire ship,” technology writer Leo Sun wrote in The Motley Fool.

As Micron runs out of money, it could be sold to another domestic semiconductor company such as Intel, Howard said.

Micron Brian Shirley with wafer
Brian Shirley, senior vice president of DRAM and emerging memory engineering, talks in 2015 about Micron's partnership with Intel to develop vertically stacked layers of chips, which Micron calls 3D XPoint. One key to Micron’s survival of intellectual-property thefts may be its continued advances in technologies. Katherine Jones

What to do? Keep competing

But Micron has tools to fend off such a fate. The theft of intellectual property cannot be reversed, but it can be punished — through criminal prosecutions like the ones in Taiwan, lawsuits like the one Micron filed Tuesday that demands punishing compensation, and prohibitions in international law on exports derived from theft.

Micron’s lawsuit “is consistent with Micron’s determination to aggressively protect its intellectual property worldwide,” spokesman Marc Musgrove said. “Micron will take all appropriate legal and other steps to protect what it has spent decades building.”

The lawsuit seeks damages to be specified later.

The technology the Taiwan workers are accused of stealing is a couple of years behind Micron’s latest DRAM technology, Howard said. DRAM technology evolves rapidly. And the Chinese startups are finding the development of DRAM and flash-memory manufacturing plants is harder than they thought.

Under its new CEO, Sanjay Mehrotra, Micron will likely endure by keeping focused on R&D and staying ahead of China technologically, Howard said.

“The dark scenarios are not the most likely,” he said. “The most likely is that China gets into DRAM, takes longer than it hoped, settles for a smaller piece of the pie — and Micron stays ahead and remains competitive. If we can avoid a China onslaught in the next two years, it’s highly likely Micron will survive.”

David Staats: 208-377-6417, @DavidStaats