A former executive at Samsung Electronics has been apprehended and charged in South Korea for purportedly pilfering the tech giant’s proprietary technology with the intention of constructing a replica chip manufacturing facility in China.
The indictment of the 65-year-old Korean citizen, who previously held a vice president position at SK Hynix, a rival Korean chipmaker, coincides with South Korea’s efforts to strengthen its safeguards against a coordinated Chinese endeavor to obtain advanced Korean technologies.
In a statement issued by Korean prosecutors on Monday, it was revealed that the former vice president of Samsung, who remains unidentified, was arrested for illegally obtaining crucial information required for constructing advanced chip manufacturing facilities.
According to prosecutors, his intention was to replicate a semiconductor factory located just 1.5 km away from Samsung’s memory chip plant in Xi’an, western China.
The Suwon District Prosecutors’ Office emphasized that this case went beyond a mere semiconductor technology leak, as it involved an elaborate scheme to duplicate an entire chip plant. They stated, “The scale of the crime and the potential damage are unprecedented compared to previous individual technology leak cases. If the domestic plant were copied and mass-produced with similar product quality in China, it would result in irreparable losses for the Korean semiconductor industry.”
Technological Superiority of Samsung Electronics and SK Hynix in the Memory Chip Industry
The former executive established a company in Chengdu, in China’s Sichuan province, and reportedly recruited around 200 employees from Samsung and SK Hynix. Allegedly, their primary task was to obtain trade secrets from their former employers, resulting in an estimated $230 million loss for Samsung, as stated in the indictment.
Lee Dong-hwan, a former state investigator who is now working as a patent attorney at WeFocus, a Seoul- based law firm, said, “Samsung strictly forbids outsiders from entering its chip plants because the factory design and its equipment layout are closely related to productivity and product quality.” Further, he added, “But there is no way for the company, despite its strong security systems, to prevent tech leaks if a senior executive with good access to broad and high-quality information intentionally gives it out to Chinese competitors.”
Samsung Electronics and SK Hynix, two prominent memory chip manufacturers worldwide, have established their presence in China with technologically advanced plants. These Korean companies are considered to be ahead of their Chinese counterparts in terms of technological prowess.
Last year, the US government granted a one-year exemption from export controls to these Korean firms. The export controls were designed to limit China’s ability to develop high-end chips. It was reported by the FT last month that Washington intends to extend the permission for them to export US chipmaking tools to China for at least another year.
Escalating Tech Competition and Chinese Acquisition of Korean Expertise
The former executive is accused of stealing trade secrets, including valuable information on maintaining purity in advanced chip plants, as well as floor plans and dimensions crucial for various processes in advanced chipmaking technologies.
However, the executive’s plan crumbled when he failed to secure a promised $6.2 billion investment from an unnamed Taiwanese company for his Singapore-based venture. Instead, he managed to raise just over $350 million from Chinese investors to initiate trial production in a Chengdu-based plant. According to prosecutors, the construction of the Chengdu plant was also based on stolen technology from Samsung.
As part of the same case, six additional individuals were indicted on Monday, including an employee of a Samsung subcontractor and five employees from the executive’s Chinese chipmaking company.
In the midst of escalating tech competition between the US and China, Chinese companies have intensified their efforts to acquire Korean expertise in critical technologies, spanning semiconductors, electric car batteries, displays, and shipbuilding.
In February, seven people, including former employees of Semes, a Samsung Electronics subsidiary specializing in wafer cleaning equipment production, were handed prison sentences for transferring stolen technologies to a Chinese company.
To combat such leaks, the South Korean government has established new investigative bodies, passed legislation to strengthen punishments, and simplified the process of reporting suspected violations.
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