Hope springs eternal: Tsinghua Unigroup really, really, really wants to buy Micron.
THE Trump administration is broadening its China trade battle beyond tariffs with a plan to use export controls, indictments and other tools to counter the theft of intellectual property, according to people familiar with the matter.
The opening move in the new strategy came in the form of a recent crackdown by the Commerce and Justice Departments on a Chinese state-owned chip maker, which the U.S. administration accused of stealing trade secrets from Idaho-based Micron Technology Inc., the people said.
U.S. officials are looking at additional cases where they could use a similar combination of tools to fight Chinese IP theft, the people added. The officials hope that the unprecedented actions taken to defend Micron—the largest American memory-chip maker—will encourage more U.S. companies to work with the government to counter intellectual property theft.
The initiative opens a new front in Washington’s commercial standoff with Beijing, after the world’s two largest economies engaged in a tit-for-tat exchange of tariffs on each others’ imports over U.S. accusations of unfair Chinese trading practices.
The new approach could help the Trump administration win friends in the business community, which has criticized the president’s tariff policy as broad and ineffective when it comes to protecting trade secrets, whose theft costs the country hundreds of billions of dollars a year, according to some U.S. government estimates.
The new blueprint will only work in certain cases and requires extensive resources and interagency coordination to address the thefts on a case-by-case basis. For example, in the Micron case, some officials had advocated for the Treasury Department to step in instead, according to people familiar with the matter.
The Commerce Department announced on Oct. 29 that it would effectively bar exports and transfers of U.S.-origin technology to Fujian Jinhua Integrated Circuit Co. The startup, backed by $5.7 billion in state funding, is one of China’s best hopes to build a world-class semiconductor industry. Because Jinhua depends on U.S. technology to produce its own chips, the restrictions could kill its business.
The announcement was unique in the way that it defined Jinhua as a national-security threat: U.S. officials said the Chinese company’s alleged theft of Micron’s IP could threaten the U.S. military supplier’s ability to stay in business.
The Commerce Department has broad authority to restrict U.S. exports to entities it believes could undermine national security. But it has typically defined such threats more narrowly, such as supporting terrorism, sending items to countries like Iran or North Korea, or violating export-control rules, said Kevin Wolf, an Akin Gump partner who was a top Commerce Department official during the Obama administration.
On Nov. 1, the Justice Department unsealed charges against Jinhua and its business partner, Taiwan chip maker United Microelectronics Corp. , for economic espionage, providing evidence for the Commerce Department’s IP theft allegations. The Justice Department also filed a new civil action, which it called unprecedented, to prevent UMC and Jinhua from exporting the allegedly stolen technology to the U.S. to compete with American chip firms.
The Trump administration is especially likely to use the new IP defense blueprint in cases where U.S. companies have technology that Chinese firms can’t get elsewhere. Micron, along with Samsung Electronics Co. and SK Hynix Inc. of South Korea, which also views memory chip technology as a national-security priority, are the dominant global producers of dynamic random-access memory chips, known as DRAM. China wants Jinhua to become its own homegrown producer of DRAM, but the nascent firm still relies on tools from U.S. suppliers to make its chips.
U.S. officials would also need the cooperation of the business sector to take on additional cases of Chinese IP theft. Micron provided such cooperation, but many American firms might balk for fear of losing potential market access in China. Companies also say they have avoided involving U.S. officials with their China-related IP problems because they didn’t think they would provide much help.
Some U.S. officials and lawmakers are also eager to enlist a 2015 executive order in the IP fight that authorizes the Treasury Department to sanction entities engaged in cyber-enabled corporate espionage. They suggested using the 2015 order against Jinhua even though the alleged theft didn’t have a large cyber component, but Secretary Steven Mnuchin refused, according to people familiar with the matter.
A bipartisan group of senators led by Mike Crapo (R., Idaho) and Tim Kaine (D., Va.) recently wrote to Mr. Mnuchin to urge him to use the order, citing the U.S. Trade Representative’s recent findings on rampant, state-sponsored Chinese IP theft.
In a statement, a Treasury spokesman said: “Treasury has sanctioned more cyber related targets in this administration than any prior administration. We work closely with our partners across the government to coordinate sanctions actions and will not hesitate to leverage our authorities where appropriate.”
One risk to the new blueprint is President Trump himself, who, at the behest of his Chinese counterpart Xi Jinping, earlier this year ordered the Commerce Department to reverse a ban on American companies from selling components to ZTE Corp. Officials had sought to punish the Chinese telecom giant for allegedly violating the terms of an earlier deal to settle allegations that it engaged in sanctions-busting sales to Iran and North Korea.
A White House spokesman didn’t provide comment.
Micron’s troubles began in 2015, when a former employee left for UMC, according to the Justice Department indictment. He began recruiting additional Micron employees to join him, bringing the U.S. firm’s trade secrets with them, the indictment says. The alleged ringleader then arranged for UMC to partner with Jinhua, where he then went to work to develop the same technology, it says. Jinhua has denied the allegations, and a lawyer for UMC declined to comment.
Micron tried to resolve the problem on its own. In December, it sued Jinhua and UMC in a federal court in California, alleging they stole its talent and trade secrets. Jinhua then sued Micron in January in a court in China’s Fujian province—whose government partly controls Jinhua—and won a temporary order blocking some Micron units from selling products in China on which each company claims patents. Micron has said Jinhua’s suit was a bogus retaliation measure and has criticized Beijing over its treatment.
Without U.S. government intervention, Micron was left with few options for stopping Jinhua from using its allegedly stolen technology. The company appealed to a range of U.S. officials and lawmakers, according to people familiar with the talks. Ultimately, U.S. officials settled on the combined response from the Justice and Commerce Departments. - WSJ
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