Mon, Jan 14, 2019 - Page 7 News List

US deploys new tactics in prosecution of Chinese chipmaker

US judicial officials tired of failing to serve indictments to Chinese companies have sent e-mails to the firms’ lawyers and considered them served

By Joel Rosenblatt  /  Bloomberg

Illustration: Yusha

As the administration of US President Donald Trump and China attempt to end their trade dispute, the US is pushing forward on a key front of the conflict: A criminal prosecution of alleged trade-secret theft that has helped to hobble China’s aspirations of mass producing memory chips.

State-owned Fujian Jinhua Integrated Circuit Co (福建晉華) and its Taiwan-based partner United Microelectronics Corp (UMC, 聯電) on Wednesday pleaded not guilty in San Francisco federal court.

The companies’ indictment was the first under the US Department of Justice’s “China Initiative,” announced in November to prioritize trade-theft cases and litigate them as quickly as possible.

Prosecutors are deploying novel tactics in this latest fight, adding some experimental methods to layered enforcement actions to make sure there is no mistake about the message: If China steals technology, it will not go unpunished.

“We want to use all available tools to make the consequences of this behavior economically untenable,” US Assistant Attorney General John Demers said in an interview in November after the initiative was announced.

Specifically, the department is testing a new rule that makes it easier to serve criminal indictments to foreign companies without a US presence. Previously, similar cases languished or stalled completely.

In some cases, defendants, with the help of their US-based lawyers and the Chinese government, simply feigned ignorance, acting as if the indictments did not exist. Not this time: Jinhua, through its lawyer, agreed to show up at Wednesday’s arraignment. UMC would also be there, according to its lawyer.

Prosecutors are also testing for the first time a provision of the Economic Espionage Act dating back to 1996 to bring a civil suit alleging trade-secret theft on top of the criminal indictment.

Through the civil case, the US government is aiming to block Jinhua’s exports of dynamic random access memory, or DRAM, that it says relies on technology stolen from Boise, Idaho-based Micron Technology Inc.

“One of the things about using a tool like this is, you put that tool on everybody’s radar screen,” Demers said in an interview last month. “So the next set of assistant US attorneys and FBI agents who are investigating similar conduct, they think about this.”

It is a multipronged strategy: On Oct. 30, a few days before the “China Initiative” was announced, the US Department of Commerce blocked sales of US chipmaking gear to Jinhua, grinding to a halt the company’s plans to produce semiconductors.

China, by far the largest market for DRAM, has made its production a national priority so it can end its reliance on US$200 billion of annual imports.

Both Fujian and UMC have denied the US allegations. Three Taiwanese nationals were charged alongside the companies with conspiring to steal trade secrets. They are scheduled to be arraigned next month.

Chad Kolton, an outside spokesman in the US for Jinjiang, China-based Jinhua, did not respond to a request for comment.

“UMC has accepted service of both the summons in the criminal case and the government’s civil complaint, and will appear in court to address both cases,” UMC’s lawyer Leslie Caldwell said in an e-mail.

She declined to comment further.

From the criminal case, prosecutors stand to win an order requiring Jinhua and UMC to forfeit chips and income derived from the allegedly stolen technology, as well as a ban from using Micron’s secrets for up to five years.

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