United Microelectronics Corp. has announced that it has reached a deal to settle a legal case filed against it by the U.S. Department of Justice two years ago. UMC will pay millions of dollars for providing a DRAM process technology to Fujian Jinhua Integrated Circuit Company (aka Fujian or JHICC) after illegally obtaining crucial IP from Micron Technology (via TSE MOPS / TrendForce).
Under the terms of the settlement between UMC and the U.S. Justice Department, the contract maker of semiconductors will pay approximately $60 million for dismissing the lawsuit. The resolution — which is still to be approved by the court — solves a major problem for UMC which could have destroyed it. This does not mean that everything is all over for UMC as there is still an ongoing lawsuit filed against the company and its partner JHICC by Micron in the U.S. District Court for the Northern District of California.
In a bid to support 'Made in China 2025' program, local authorities in Fujian, China, established JHICC, a local maker of DRAM, in early 2016. The new company had to hire engineers and develop a fabrication process to make competitive memory, but while there are a lot of semiconductor engineers in China, development of a manufacturing technology takes a long time. To that end, JHICC inked a deal with UMC to design a DRAM production process in May 2016, months before it started to construct its $5.65-billion 300-mm fab in July 2016.
UMC is known primarily for its logic fabrication processes. Micron claims that instead of designing a DRAM technology, it poached engineers from Micron’s subsidiaries in Taiwan and requested them to obtain specifications and various peculiarities of Micron's manufacturing processes. The U.S. authorities say that under the terms of the deal between JHICC and UMC, JHICC would provide $300 million for procuring necessary equipment for DRAM development and would pay $400 million to UMC based on the progress of DRAM development.
Eventually, Micron sued both JHICC and UMC for patent infringement, the U.S. Department of Commerce banned JHICC from selling its products in the USA and added it to the Entity List (which means it cannot get U.S.-made equipment, parts, materials, technologies etc), whereas the U.S. Department of Justice filed an indictment against JHICC, UMC, and several engineers charging them with a conspiracy to commit economic espionage and steal IP from Micron.
Micron’s complaint seeks damages, restitution, disgorgement of profits, injunctive relief, and other applicable relief. Since JHICC is not a big DRAM maker and not a significant rival to Micron, even if found guilty by the court, its payments to the U.S. company will not be too high for a government-backed company. But if the court has sided with the U.S. DoJ's allegations and found JHICC and UMC guilty of things like corporate espionage and IP theft, each company would have faced forfeiture and a maximum fine of more than $20 billion. Such sums would have inevitably destroyed both JHICC and UMC.
By settling with the U.S. DoJ, UMC naturally avoided a massive fine. It will still have to settle with Micron. What remains to be seen is how much it will have to pay to the U.S. DoJ and Micron in total and whether after these payments it will still benefit from its contract with JHICC that provided it with $300 million-worth of equipment and $400 million for the process technology. It will also be interesting to see what is going to happen to JHICC.
The statement by UMC reads as follows:
"As previously disclosed, United Microelectronics Corp. has been responding to charges brought by the U.S. Department of Justice based on, among other things, an allegation of conspiracy to engage in theft of trade secrets of Micron Technology by the Company, Fujian Jinhua Integrated Circuit Co., and certain individuals.
The Company has been negotiating and discussing potential resolution of these charges with DOJ, and the Company anticipates reaching a resolution with DOJ in the foreseeable future. It is anticipated that a court hearing will occur in the near future to address the anticipated resolution of these charges.
In connection with this anticipated hearing, UMC and DOJ have each submitted a sentencing memorandum to the court regarding the terms of the proposed resolution, which would include a proposed plea to a lesser charge and a proposed $60 million fine.
As such, the Company can now reasonably estimate a probable loss and has recorded an aggregate accrual of $60 million with respect to these matters. As the discussions are continuing and any final resolution will require court approval, there can be no assurance that the Company's efforts to reach a final resolution will be successful, including as to the amount of a fine, or the timing and terms of such a resolution."