SAN FRANCISCO — The U.S. government unsealed a criminal indictment against Taiwanese foundry UMC and Chinese DRAM maker Fujian Jinhua Integrated Circuit Co., charging them with conspiracy to steal intellectual property from Micron Technology.

The move signals the opening of a significant new front in the ongoing battle between the U.S. and China over trade and China’s industrial practices, particularly in regard to the semiconductor industry.

The U.S. Justice Dept. announced on Thursday that a federal grand jury in San Francisco indicted state-owned Fujian Jinhua as well as UMC and three Taiwanese nationals, charging them with conspiracy to steal DRAM technology from Micron. The indictment was filed on Sept. 27 and unsealed on Thursday.

“As this and other recent cases have shown, Chinese economic espionage against the United States has been increasing — and it has been increasing rapidly,” said U.S. Attorney General Jeff Sessions in a statement. “I am here to say that enough is enough.”

“This indictment by the U.S. government shows it is fully committed to this trade war against China,” said Bill McClean, president of IC Insights, in an email exchange with EE Times.

U.S. chip companies have for years accused China of poor intellectual property protection and outright theft. The U.S. government cited China’s industrial practices — including lax IP protection and forced technology transfers — as one reason for initiating tariffs on Chinese imports, which ignited an escalating trade war between the world’s two largest economies.

The Justice Dept. said that it also filed a civil lawsuit on Thursday seeking to enjoin the further transfer of the stolen trade secrets and to enjoin UMC and Fujian from exporting to the United States any products created using the technology.

Earlier this week, the U.S. Commerce Dept. issued an order banning U.S. companies from supplying Fujian Jinhua, citing national security and suspicion that Fujian’s DRAM technology likely originated at Micron. UMC later said it that had shelved an R&D project with Fujian as a result of the ban.

The case traces its roots back to last year, when Micron filed a civil suit against UMC and Fujian Jinhua alleging theft of its trade secrets and other misconduct after Taiwan authorities filed criminal indictments against UMC and three of its employees. UMC later filed a patent infringement suit against Micron in China, which resulted in a preliminary injunction barring Micron from selling some DRAM and NAND chips as well as solid-state drives (SSDs) in China.

The indictment alleges that the defendants engaged in a conspiracy to steal DRAM technology from Micron and use it as foundational technology for Fujian to begin manufacturing DRAM at its $5.7 billion fab in Fujian Province’s Jinjiang City.

“It is hard to imagine Fujian being able to produce DRAMs without U.S.-made equipment and materials,” said McClean. “This ruling has the potential to put Fujian out of business before it even got started.”

Global DRAM vendor market share (Source: International Business Strategies)
Global DRAM vendor market share (Source: International Business Strategies)

In a statement, UMC said that the allegations in the indictment are virtually the same allegations made in the civil complaint brought by Micron against UMC last year. The company said that it regrets that the U.S. Attorney’s office brought the charges without first notifying UMC and giving it an opportunity to discuss the matter.

“UMC takes seriously any allegation that it may have violated any laws and fully intends to respond to these allegations accordingly,” said UMC in a statement.

“Micron has invested billions of dollars over decades to develop its intellectual property,” said Joel Poppen, Micron’s general counsel and corporate secretary, in a separate statement. “The actions announced today reinforce that criminal misappropriation will be appropriately addressed.”

The Chinese government has made the development of a domestic semiconductor industry to supply its massive internal market a national priority and a key part of its “Made in China 2025” campaign. China’s central government has signaled its intention to pump more than $161 billion into semiconductors over 10 years and has bankrolled a number of chip firms, including Fujian Jinhua.

While the government-supplied funding has primed the pump for the development of China’s internal chip industry, serious questions remain about the ability of Chinese firms to develop the technology needed to compete in DRAM, flash memory, and the manufacture of other chips.

“Money is available in China to build DRAM wafer capacity and high wafer volumes, but unless the technology is competitive, financial success will be low,” said Handel Jones, CEO of International Business Strategies, in an email exchange with EE Times. “It is, however, critical to ensure that the IP is clean and that there is also manufacturing expertise.”

McClean said that the indictment against Fujian Jinhua could also give pause to non-Chinese buyers of memory chips from Chinese DRAM hopefuls, such as Yangtze Memory Technologies Co. (YMTC) and Innotron Memory, about whether they will be able to count on these companies for consistent supply.

“Is a U.S. government ruling about to come down on YMTC and Innotron and cause supply issues? Maybe,” said McClean. “Overall, the current environment is likely to cause a tremendous amount of uncertainty when dealing with these companies in the future.”

Micron and all U.S. technology companies currently have a very sympathetic U.S. government on their side, especially in any issues dealing with Chinese companies, he added.

The indictment names three former UMC employees: Stephen Chen — who previously served as president of Micron Memory Taiwan (MMT) and later became president of Fujian Jinhua — as well J.T. Ho and Kenny Wang, both of whom also worked at MMT. The indictment alleges that Chen recruited Ho and Wang to UMC and that each stole Micron technology and brought it with them to UMC.

While at UMC, Chen arranged a cooperation agreement between UMC and Fujian Jinhua whereby, with funding from Fujian Jinhua, UMC would transfer DRAM technology to Fujian Jinhua and the technology would be shared by UMC and Fujian Jinhua, according to the indictment.

If convicted, the individual defendants could face up to 15 years in prison and a $5 million fine for economic espionage and up to 10 years in prison for theft of trade secrets. Each company faces forfeiture and a maximum fine of more than $20 billion if convicted, said the Justice Dept.

Separately, Sessions also announced a new Justice Dept. initiative to prosecute Chinese trade theft cases. The China Initiative will be led by Assistant Attorney General John Demers and include several U.S. Attorneys, a senior FBI executive, and Assistant Attorney General Brian Benczkowski, among others, said Sessions.