Why this Idaho chipmaker is suddenly at the center of the US-China trade war

(CNN) — Micron, a company in Boise that makes memory chips, has been locked in bitter trade secrets dispute with a state-backed Chinese rival called Fujian Jinhua. Now it has the US government in its corner.

Last week, the Trump administration targeted Fujian Jinhua in a major escalation of its push against alleged economic espionage. On Thursday, the Justice Department charged Fujian Jinhua, along with a Taiwanese company and three Taiwanese individuals, with conspiracy to steal trade secrets from Micron. The charges move the government’s attack on Chinese intellectual property theft beyond tariffs and tough talk.

The charges, along with a ban on American companies from doing business with Fujian Jinhua, gives Micron the “upper hand” in its tangle with the Chinese company, said Mehdi Hosseini, a semiconductor analyst at Susquehanna International Group. “They now have more ammunition to make sure the memory industry in China is marginalized,” he said.

Micron’s allegations

Micron (MU), which was founded in 1978, is the largest memory chip maker in the United States and directly competes with the biggest players in the global market, according to Hosseini.

In recent years, the company has had to contend with a growing threat from China, which has made building successful homegrown semiconductor companies a pillar of its plans to become a global tech powerhouse. Fujian Jinhua has been building a $5.7 billion plant in southeastern China to get in the game, and it’s far from the only player.

Micron sued Fujian Jinhua and Taiwanese semiconductor company UMC in California federal court in December 2017. Micron claimed that as early as 2015, UMC and Jinhua devised a plan to get former employees of Micron’s Taiwanese affiliate to steal Micron’s trade secrets and deliver them to UMC, which would then pass them to Jinhua.

According to Micron’s complaint, UMC would get $700 million in research and development equipment and fees in return, as well as co-ownership in the resulting technology.

Former employees of the Micron affiliate in 2015 and 2016 successfully pilfered tech secrets from the company by uploading confidential data to their laptops, removable drives and Google drives before they left the firm, Micron said.

The case is still working its way through the court system. And Micron has since had to battle a countersuit in Chinese court from Jinhua and UMC, which filed a patent infringement suit against Micron in January. The court in July temporarily barred Micron from selling 26 products in the country including memory chips, memory sticks and hard drives.

Micron said it only learned about the Trump administration’s export ban after it was announced on Tuesday. “Micron strongly supports global fair trade and the protection of intellectual property,” a spokesperson said in a statement.

On Thursday, after the Justice Department announced the charges against Fujian Jinhua and UMC, Micron’s general counsel commended the agency’s decision to “prosecute the criminal theft of our intellectual property.”

UMC said in a statement Friday that it “takes seriously any allegation that it may have violated any laws,” and “fully intends to respond to [the Justice Department] allegations accordingly.”

It’s no surprise that Micron said it appreciated the government’s legal action.

“This lawsuit corners new entrants out of China,” Hosseini said. As China pumps billions into technology such as semiconductors, it’s a vital edge.

Trade war impact

Micron’s claims of economic espionage are given heft by the US government’s lawsuit. But filing charges against the Chinese firm also serves a political purpose for the Trump administration.

Negotiations with Beijing could be back on after President Donald Trump and Chinese President Xi Jinping spoke on the phone Thursday and said they were willing to meet at the upcoming G20 summit in Argentina. A Bloomberg report early Friday said that Trump has asked officials to draft a trade deal with China ahead of the meeting.

The buzz could be a ploy to boost markets ahead of next week’s midterm elections, according to Michael Every, head of Asia financial markets research at investment bank Rabobank. But should talks resume, the United States could find itself in a stronger position.

Fujian Jinhua probably can’t operate without access to US software and technology, according to analysts.

“These actions are meant both to increase leverage in the current negotiations and as a deterrent to others,” said Scott Kennedy, an expert on the Chinese economy at the Center for Strategic and International Studies. “The US isn’t going follow the standard playbook any longer because it has only emboldened China.”

When the United States went after Chinese phone and telecom equipment company ZTE earlier in the year, it said it was the result of specific, sanctions-related violations. Implementing export controls with a sweeping national security rationale is different, according to Dan Wang, technology analyst at Gavekal Research.

“Unlike the ban on ZTE, the US action against Fujian Jinhua is no one-off penalty for a specific infringement, but part of a much broader policy drive,” he said in a note this week, citing the US government’s language.

The Commerce Department said Fujian Jinhua threatened the supply chain for essential military components.

The-CNN-Wire
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