Fujian Jinhua

In the spring of 2016, an internal investigator at Micron Memory Taiwan opened a laptop that had been left in a storage room on a quiet floor of a Taichung office and started clicking through its file history. The machine had belonged to Kenny Wang, a process integration manager who had quit in late April. Between April 16 and April 23, while Wang was still on Micron’s payroll, his account had touched something close to nine hundred sensitive engineering files. He had copied design rules, process flows, and yield data onto a USB stick. He had uploaded a smaller batch to a personal Google Drive. Then his search history showed him typing phrases into a browser asking how to wipe the activity from a Windows machine. He had not done a thorough job. The investigator could read the trail line by line.

Wang’s last day at Micron had been April 26. His first day at United Microelectronics Corporation, a much older Taiwanese foundry headquartered in Hsinchu, had been April 28. By the time the laptop was examined, he had been working at UMC for several months on a project that did not officially exist on its website. The man who had hired him, Stephen Chen, had spent twenty years inside the Taiwanese DRAM industry. Chen had been chair of Micron Memory Taiwan, the wholly owned subsidiary that absorbed the old Rexchip fab when Micron bought Elpida out of bankruptcy in 2013. He had resigned from MMT in July 2015 and joined UMC as a senior vice president less than two months later. UMC had a specific reason for hiring him. In January 2016 it had signed a memorandum of understanding with a Chinese state-owned company called Fujian Jinhua Integrated Circuit Company, and in May it followed with an actual technology cooperation agreement. UMC’s job under the contract was to develop a 32-nanometer DRAM process and hand it to the Chinese partner. Chen was the project’s executive sponsor inside UMC. By February 2017, he would also be president of Jinhua.

Jinhua itself had existed for less than a year and a half. It had been incorporated in February 2016 in Jinjiang, a small industrial city in Quanzhou prefecture on Fujian’s southern coast, as a joint venture between the Fujian provincial government and central government investment vehicles, with planned capital of around 5.65 billion U.S. dollars. The location was conspicuous. Jinjiang sat directly across the strait from Taichung, the same city that hosted UMC’s process labs and the Micron subsidiary the company was about to bleed. Beijing had decided in 2014 that China would have a domestic memory industry, and the central planners had carved up the prize. NAND flash went to Yangtze Memory in Wuhan. Mobile DRAM went to ChangXin in Hefei. Server DRAM, the high-margin commodity that ran the world’s data centers and that Micron, Samsung, and SK Hynix between them owned almost completely, went to Jinhua. The promise of the UMC partnership was that the project with no real technology base of its own could borrow a Taiwanese foundry’s process expertise and reach production faster than anyone in the industry believed possible.

What the partnership actually delivered, the U.S. government would later allege, was a covert pipeline that moved Micron’s most expensive DRAM trade secrets across three jurisdictions in eighteen months. According to the indictment a federal grand jury in San Jose returned under seal on September 27, 2018, and the Justice Department unsealed on November 1, the conspiracy worked as follows. UMC, with Chen as its operational lead, recruited the senior managers and process engineers who had built MMT’s 25-nanometer DRAM line. Two of them, J.T. Ho and Kenny Wang, downloaded Micron’s confidential design rules, recipes, and yield data before they walked out the door. UMC used the stolen materials to draft its own DRAM process and filed at least five patent applications in the United States and Taiwan that the indictment said tracked Micron’s prior art. UMC trained Jinhua’s engineers on the resulting process. Jinhua paid UMC three hundred million dollars over the life of the contract and committed to buy the production-ready technology when it was done. The investigators inside Micron, who began their forensic dig after a Taiwanese newspaper report in early 2017 mentioned that UMC had been hiring liberally from MMT, traced the stolen documents through internal logs and outside data brokers. The Defend Trade Secrets Act, signed by Barack Obama in May 2016, gave Micron a federal cause of action it had not had before. Micron filed its civil suit against UMC and Jinhua in the Northern District of California on December 4, 2017, the first big test of the new statute against a state-backed Chinese defendant.

Jinhua’s lawyers and their UMC counterparts did not wait to be sued in the United States. In January 2018, six weeks after Micron’s California filing, UMC and Jinhua filed mirror-image patent infringement suits against Micron’s Chinese subsidiaries in the Fuzhou Intermediate People’s Court, the trial court in Fujian’s provincial capital twenty miles up the coast from Jinhua’s fab. The patents asserted in Fuzhou were of recent vintage. Several had been filed by UMC after Chen joined and after the Micron engineers brought their files across. The Fuzhou court’s response was unusually brisk. On July 3, 2018, six months after the case opened, it issued a preliminary injunction barring twenty-six Micron-branded DRAM modules and SSDs from being manufactured, sold, or imported into the People’s Republic. Roughly half of Micron’s eight billion dollars in quarterly sales touched Chinese customers. Its share price dropped almost six percent when the company confirmed the injunction in a regulatory filing on July 5, although the affected products turned out to be older and lower-margin than the headlines suggested, and management later told investors the impact on the quarter would be roughly one percent of revenue. The signal mattered more than the dollars. A Chinese state company, in the home court of the Chinese state company buying its technology, had obtained an order against Micron under Chinese patent law, on patents that Micron’s lawyers believed were derivative of Micron’s own files.

For Sanjay Mehrotra, who had taken over as Micron’s chief executive in May 2017 and inherited the UMC and Jinhua headache from his predecessor, the Fuzhou injunction was not a bug in the system. It was the system. Beijing had been telegraphing for years, through the State Council’s Made in China 2025 plan and Xi Jinping’s speeches on technological self-reliance, that semiconductor self-sufficiency was a top-tier national priority. Mehrotra had spent his career building flash memory at SanDisk before Micron recruited him, and he understood the math of memory cost curves better than most chief executives in the industry. If a state-backed entrant could leapfrog three or four nodes by buying a Taiwanese foundry’s process and absorbing it into a fab that would never have to clear an internal rate-of-return hurdle, the global memory cartel would face a price collapse the moment Jinhua reached volume. Micron’s policy team in Washington had been making this argument to commerce officials for most of 2018. The timing was urgent. Jinhua’s first phase fab had been substantially equipped by mid-2018. The tool sets were largely American: deposition reactors and etchers from Applied Materials and Lam Research, metrology and inspection systems from KLA, photoresist coater-developers and the supporting software stacks. American semiconductor capital equipment, in 2018, accounted for north of forty percent of the global market by revenue. There was almost no leading-edge fab in the world, China included, that did not depend on the three Silicon Valley toolmakers for at least part of its line.

Commerce Secretary Wilbur Ross had been looking for a use case for the Bureau of Industry and Security’s bluntest instrument. The Entity List, a Clinton-era regulatory creation, allowed BIS to require that any item subject to the Export Administration Regulations be licensed before it could be shipped to a named foreign party, with a default review policy of presumption of denial. Until 2018, the list had been used mainly against military end-users, weapons proliferators, and a handful of sanctioned regimes. It had not been used as an industrial-policy weapon against an ordinary commercial company that happened to be Chinese. There was institutional skittishness at BIS about doing so. The list was supposed to be a national-security tool, not a competitive one. Ross’s general counsel and the National Security Division at the Justice Department had been working through whether Jinhua’s situation could clear the national-security threshold. Their answer, in the Federal Register notice published on October 30, was that Jinhua’s pending DRAM volume “threatens the long term economic viability of US suppliers of these essential components of US military systems.” The reasoning was unusual. It treated the supply of memory to American defense electronics as a national-security interest, and it treated commercial dilution of that supply by a state-backed competitor as a national-security threat.

The practical effect was almost surgical. Within forty-eight hours of the notice, Applied Materials, Lam Research, and KLA suspended shipments. Service engineers stopped flying in. Spare parts stopped clearing customs. Software updates and process recipes the American vendors normally pushed remotely, including the firmware that kept million-dollar tools running at spec, stopped going out. Jinhua had been planning to start ramping its 32-nanometer process in early 2019. By early November, the equipment that had not yet been delivered would not arrive, and the equipment already on the floor began to drift out of calibration. UMC, which had built the process and was supposed to keep transferring it, recognized within days that staying on the project would expose it to follow-on enforcement against its own American supply chain. On November 2, four days after the Entity List notice and one day after the Justice Department’s unsealing of the indictment, UMC announced that it was suspending its DRAM development for Jinhua and pulling its engineers off the project. Jinhua, in the form Beijing had designed it, was over.

The Justice Department’s announcement took place at Main Justice on November 1, in a press conference at which Attorney General Jeff Sessions used the Jinhua case as the launch event for what he called the China Initiative, a national-security program that would prioritize trade-secret prosecutions and economic-espionage investigations targeting the People’s Republic. China, he said, had stolen American intellectual property at industrial scale, and the United States was through tolerating it. The five named defendants, including UMC and Jinhua as corporate entities and Chen, Ho, and Wang as individuals, faced charges ranging from conspiracy to commit theft of trade secrets to economic espionage on behalf of a foreign government. The penalties on conviction, the indictment noted, would include forfeiture and damages “at least $400 million and up to $8.75 billion,” numbers drawn from Micron’s own valuation of the misappropriated process libraries. Mehrotra issued a brief written statement thanking the department and saying the indictment validated what Micron had been telling its investors and the U.S. government for more than a year. The China Initiative would, over the next three years, generate dozens of further indictments before the Biden Justice Department wound it down in 2022, after criticism that some of its later cases had reached too far into academic and ethnic-Chinese targets. The first case was Jinhua, and it was the cleanest one the program would ever bring.

The indicted individuals were already out of American reach. Chen was in mainland China running Jinhua. Ho and Wang were in Taiwan. None of them was extraditable, and none appeared in a San Francisco courtroom. The Taiwanese authorities, however, had been quietly running a parallel investigation, prompted partly by Micron’s complaints to the Taichung prosecutors and partly by the political embarrassment of having one of Taiwan’s flagship foundries stand accused of laundering an American company’s trade secrets to the mainland. On June 12, 2020, the Taichung District Court convicted UMC’s Taiwan entity and three engineers, including Ho and Wang, of trade-secret theft under Taiwan’s domestic statute. The court fined UMC NT$100 million, around three and a half million dollars, and sentenced the engineers to prison terms ranging from four and a half to six and a half years. Chen was charged but had remained on the mainland and was tried in absentia; he never served a Taiwanese prison day. The verdict gave the U.S. Justice Department, on the eve of plea negotiations with UMC, the factual finding it needed to leverage a settlement.

UMC’s settlement came on October 28, 2020, in San Francisco. The company agreed to plead guilty to a single count of receiving and possessing a stolen trade secret, pay a sixty million dollar fine, and cooperate fully with the continuing prosecution of Jinhua. The Justice Department dismissed the broader economic-espionage and conspiracy counts against UMC and abandoned the larger civil damages model. The plea was an unambiguous concession in legal terms and a comparatively small bill in commercial terms. UMC’s quarterly revenue at the time exceeded a billion and a half dollars, and the firm continued to be a profitable global foundry. Three weeks earlier, Bloomberg had reported that the Justice Department had originally floated a fine in the neighborhood of twenty billion dollars; the final figure was three orders of magnitude lower. Micron and Jinhua eventually reached their own civil global settlement and dismissed the cross-litigation in late 2023, by which time both companies had moved on to other concerns and Micron had its own Chinese cybersecurity ban to manage.

The criminal case against Jinhua took the longest to resolve and ended in the most awkward place. The state-owned defendant, with no extradition exposure and no operating presence in the United States, eventually retained American counsel and litigated the indictment to a bench trial before Judge Maxine Chesney of the Northern District of California. On February 27, 2024, after a closed proceeding in which prosecutors carried the burden of proving that Jinhua had knowingly conspired with the Taiwanese defendants to commit economic espionage, Chesney issued an oral acquittal. The government had proven UMC’s misconduct, she concluded, but had not produced enough evidence connecting Jinhua’s corporate decision-makers to the underlying theft to satisfy the criminal standard. The acquittal made very little practical difference. Jinhua had been off American supply for nearly six years by then. Its original DRAM ambitions had collapsed. Its remaining operations had reorganized around domestic and non-American equipment, and the firm had begun reporting modest 19-nanometer DRAM yields against a target market mostly inside China.

The lasting consequence of the Jinhua case was not that it sent anyone to prison. Almost no one went to prison who had not already been Taiwanese. The lasting consequence was the discovery, by both sides, of what the Entity List could do when it was used as an industrial-strategic instrument rather than a counter-proliferation one. The American export-control machinery, which had spent the previous twenty-five years policing centrifuges and missile components, had a tool that could put a billion-dollar fab into a coma in seventy-two hours. It worked because almost every fab in the world depended on a small set of American tool vendors and on the American-designed software that ran them, and because BIS could reach those vendors with a single Federal Register notice. Inside the State Council’s Leading Group on Integrated Circuit Industry Development in Beijing, the takeaway was the inverse and the more lasting. Dependence on American tools was the strategic vulnerability. Closing it would require a domestic equipment industry that did not yet exist, and a tolerance for absorbing setbacks that the Jinhua project had not been built to withstand. The next round of state-led DRAM and NAND projects, in Wuhan and Hefei, would proceed on the assumption that the Americans had the same enforcement option ready and the political will to use it. The doctrine that one Federal Register notice could replace a tariff war and a trade case combined was established. Other Chinese chip companies, larger and more central to Beijing’s plans than a small DRAM startup in Quanzhou, would learn what that meant in their turn.