Trade Secret Theft is a Serious Crime


In this article, we briefly examine trade secret law violations through United States v. United Microelectronics Corporations, et al. to highlight legal areas for companies so they can minimize legal risks.

On October 29, 2020, Department of Justice (DOJ) announced that United Microelectronics Corporation (UMC) pleaded guilty to theft in violation of federal trade secret laws against Micron Technology Inc. UMC has agreed to pay a US$60 million fine – to settle this criminal case with the DOJ. Furthermore, they will now cooperate with the DOJ in pursuing its case against Fujian Jinhua, a Chinese state-own chip maker that allegedly had obtained DRAM memory technologies from UMC that were stolen from Micron Technology, Inc., through 3 former employees of Micron Taiwan subsidiary later hired by UMC.

UMC is a semiconductor foundry listed on the Taiwan Stock Exchange (TSE) with its American Deposit Receipts (ADR) publicly traded on the US market – hence it is subject to both Taiwan and US jurisdictions for this matter.

Due to their settlement, the DOJ may call UMC to testify against Fujian Jinhua, a long-term collaboration partner, whom UMC agreed to help increase DRAM production. Needless to say, such actions seriously damage one’s business prospects.

UMC’s legal concerns do not end here because they may face additional state (as opposed to federal) and individual civil actions. States asserting jurisdiction over UMC may file their cases pursuant to their respective state laws – meaning that the company may soon be busy settling these cases all over the United States, which may cost millions of settlement and attorneys’ fees.

UMC most likely will not contest these state claims because without these settlements they will have to face unsympathetic state juries at trials. Another reason worth noting is that a state jury may award treble damages as penalty in the case of bad faith or malicious intent, which the company may find difficult avoiding after pleading guilty at the federal court.

Fujian Jinhua and the three UMC hired individuals are now the DOJ’s main target. If found guilty, there will potentially be both criminal fines and jail sentences - not to mention subsequent state actions which may soon befall UMC.

Lesson learned for foreign companies:

  1. Even if you reside outside of the US jurisdiction, you may be held accountable if you have a US branch or are actively involved in business in the United States. Do not underestimate legal accountability associated with the US.
  2. Having the top legal advisors from the start is more critical than seeking legal advice when problems arise. Finding top law firms at the last moment may have limited upside. Once found guilty, you will be open to a series of legal liabilities that will be much harder to defend.
  3. Federal and state prosecution in the United States are handled separately. The jurisdiction in which you reside will also influence the laws and penalties that are outlined. Your legal team in your home country should be aware of relevant US laws and practice if you engage in business in the US. Similarly, this applies to other foreign countries as well.
  4. Most importantly, preventative measures should be implemented from the start. The benefits of legal compliance significantly outweigh the legal liabilities you face in the future. At a high level, we recommend the following:
  5. (i) Establish and enforce an information security system that is constantly updated with operating procedures and audit processes – without it, a company’s security risks are high, which could in turn significantly damage a company’s business reputation and profitability.

    A company must also be serious about the enforcement of such processes and procedures. It needs to show the world (and the court if on trial) that it has enforced its information security standards to the extent possible.

    (ii) Reexamine and verify business arrangements with partner companies that are on any foreign government’s watchlist, as they will be closely examined by the government. The UMC case shows that the DOJ is closely examining US technologies/equipment shipped to sanctioned destinations including those transferred from foreign countries. Therefore, you should fully understand your business arrangements with partners and all their potential legal repercussions.

    The DOJ’s accusations have centered on UMC’s effort to increase Fujian Jinhua’s DRAM production using stolen chip design technologies - something that the United States does not tolerate and has been further exacerbated by current trade disputes between US and China.

    Therefore, the closer the business arrangements with China, the more likely the DOJ will find them worth examining, which may create significant legal and business hurdles for these companies.

    (iii) Set up the highest compliance requirements for both incoming and outgoing executive members – because they usually have access to the company’s most sophisticated and sensitive trade secrets, which may hurt the company’s interest even more upon security violation or if found guilty for trade secret theft.

    Among the three former employees charged, Mr. Chen, the former President at Micron Taiwan, who was hired as a Senior Vice President by UMC, approved the use of offline laptop computer by his team working on DRAM projects with Fujian Jinhua. This reveals loopholes in UMC’s information security system when it comes to high-ranking officers, given that proprietary information or trade secrets had been snuck through from Micron.

    New employer’s should always warn all new recruits against bringing any confidential information from their former employers. Regardless of how information is stored or transferred, your information system should be able to fend off anything that looks suspicious. Having a legal team who has a deeper understanding of security can help you mitigate these risks better than traditional legal teams.

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