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The U.S. Justice Department has indicted two Chinese and Taiwanese companies for stealing intellectual property from Micron Technology.   © AP
Cover Story

US hits back at China over IP theft in chip case

Taiwanese companies pressured to choose sides in trade secrets spat

TAIPEI -- The trade war with China initiated by Donald Trump has been primarily viewed through the lens of punitive and retaliatory tariffs. But that has changed in recent weeks.

The November indictments of Chinese chipmaker Fujian Jinhua Integrated Circuit and Taiwan's United Microelectronics Corp. for stealing an estimated $8.75 billion worth of intellectual property from U.S.-based Micron Technology's Taiwan operations marked the opening of a new front in the trade war.

The Justice Department is not alone in targeting Fujian Jinhua, which has also been blacklisted from purchasing vital components from American companies by the U.S. Commerce Department.

The multipronged effort underscored the main complaint that the Trump administration has with China on trade: cyberespionage and intellectual property theft.

FBI Director Christopher Wray issued a statement in November that pulled no punches: "No country presents a broader, more severe threat to our ideas, our innovation, and our economic security than China."

The Micron/UMC case is important because it strikes at the heart of the Chinese government's efforts to steal IP and trade secrets in key industries. China has made leapfrogging U.S., South Korean, Taiwanese and Japanese semiconductor companies a national priority.

In this instance, China is alleged to have used Taiwan -- unwillingly at a sovereign level, though possibly willingly at the corporate level -- to steal technology from a U.S. semiconductor company.

The case also has implications for Taiwanese companies, who are likely to come under increasing pressure to choose either the U.S. or China. Sticking with both may no longer be an option.

"I feel most Taiwan companies will make the shift being brought about by this trade confrontation. However there will be some, such as UMC, that will seek to back China," Rupert Hammond-Chambers, president of the U.S.-Taiwan Business Council, told the Nikkei Asian Review.

"I foresee some, if not many, future cases such as this one where the U.S. legal system is used to penalize and hopefully imprison violators of trade secrets laws," Hammond-Chambers said. "They will be high profile."

Taking a tougher line

Taiwan has fairly strong trade secrets laws on its books, though enforcement has been inconsistent in recent years. Often only fines and suspended sentences are imposed. UMC itself has previously been fined a small amount for breaking a Taiwanese law regarding investing in China, with a court finding it not guilty more than a year later.

Regardless of whether UMC was guilty, the light initial punishment and inefficiency of the courts did not inspire confidence in those who were watching.

It appears that Taiwan will be under increasing U.S. pressure to pursue cases and put those found guilty in prison, Hammond-Chambers said.

The administration of Taiwanese President Tsai Ing-wen, which has been eager to stay on the Trump administration's good side in the face of growing threats and pressure from China, appears to be fully on board with cooperating with American legal authorities.

In September, Taiwanese police arrested American fugitive Cody Wilson, and Taipei swiftly deported him to the U.S., despite not having a formal extradition agreement with Washington.

In the meantime, it appears that the Trump administration will continue to target Chinese companies who attempt to steal sensitive proprietary information from American rivals.

"Taken together, these cases and many others like them paint a grim picture of a country bent on stealing its way up the ladder of economic development and doing so at American expense," former U.S. Attorney General Jeff Sessions said at a press conference announcing the indictments against Fujian Jinhua and UMC. "This behavior is illegal. It is wrong. It is a threat to our national security. And it must stop."

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