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Indictment Reveals Strategy For Stealing Samsung Secrets For Foxconn Project In China

Indictment Reveals Strategy For Stealing Samsung Secrets For Foxconn Project In China
According to a sealed indictment by South Korean authorities, when former Samsung executive Choi Jinseog won a contract with Taiwan's Foxconn in 2018, he used his former employer's supplier network to steal trade secrets to aid his new client in establishing a chip factory in China.
According to the estimated expenditures Samsung Electronics (005930.KS) incurred to develop the stolen data, the theft cost Samsung Electronics (005930.KS) more than $200 million in damages, according to prosecutors who announced the indictment on June 12. Although some media later identified Choi and his connections to Foxconn, the announcement did not name him and provided little specifics.
According to the unpublished 18-page indictment, which Reuters examined, Choi is accused of stealing trade secrets from Samsung as well as information on the proposed Foxconn plant.
Through his attorney Kim Pilsung, Choi, who has been held in custody since late May, denied all of the accusations.
According to the indictment, Foxconn awarded the contract to Choi's Singapore-based consulting firm Jin Semiconductor sometime in August 2018.
Prosecutors claim that within months, Choi had illegally gained "a large number" of employees from Samsung and its affiliates as well as sensitive knowledge about the development of a chip facility from two contractors.
The indictment claims that Cho Young-sik, who worked for one of the contractors, Samoo Architects & Engineers, provided Jin Semiconductor with secret information about semiconductor cleanroom management.
Clean rooms are enclosed production spaces designed to keep out dust and other contaminants that could harm extremely sensitive chips. Samoo has helped build the semiconductor factory for Samsung in Xian, China, in 2012.
According to the prosecution, Choi's business also allegedly received Samsung's China factory blueprints illegally from Chung Chan-yup, a worker at HanmiGlobal, which oversaw the facility's construction and floor plans concerning the chip manufacturing process. The indictment states that they have yet to demonstrate how the knowledge of the floor plan was acquired.
The allegations made in the indictment were vehemently denied by Choi's attorney.
"What prosecutors allege was stolen has nothing to do with how to design or make chips. For instance, there are public international engineering standards to make cleanrooms and that's not something only Samsung has," said Kim.
"A factory layout? You can take a snapshot from Google Maps and experts would know what is inside which building," Kim said, showing a satellite snapshot of Samsung's plant in Xian, China.
After Foxconn left, the factory was never completed, according to Choi's attorney and a person with firsthand knowledge of the dispute.
While acknowledging "speculation around the legal case in South Korea," Foxconn stated in a statement that the business doesn't comment on ongoing investigations.
"We abide by laws and regulations governing jurisdictions we operate in," Foxconn said.
Foxconn is not accused of any misconduct in the indictment.
The largest manufacturer of memory chips in the world, Samsung Electronics, refuses to comment on the situation, citing the ongoing investigations.
Samoo informed Reuters that it was not associated with any of the alleged acts listed by the prosecution. Cho was not charged and was unavailable for comment at the time of writing.
HanmiGlobal added that the claim was connected to a specific person and that the business was not involved. Prosecutors in South Korea have accused its employee Chung of disclosing trade secrets. Requests for comment from Chung's attorney did not immediately elicit a response.
According to the indictment, Samsung classifies the kinds of information Choi obtained as "strictly confidential" and protects it with many levels of security, limiting access only to those who are authorised within the company and at its third-party partners.
The semiconductor business in South Korea formerly regarded the 65-year-old Choi as a star. Before departing Samsung in 2001, he spent 17 years there developing DRAM memory chips and working on wafer processing technology. During this time, he also won internal honours for improving the company's DRAM technology.
After that, he spent more than eight years working for rival SK Hynix, where he served as chief technology officer for the company's production and research divisions and helped turn around the chipmaker's declining business.
The new Foxconn plant was expected to have a monthly capacity of 100,000 wafers using 20-nanometer DRAM memory chip technology, according to the indictment. 20-nanometer DRAM is still regarded by South Korea as a "national core technology" despite being years behind Samsung's most recent 12- and 14-nanometer technologies.
Such technology cannot be exported outside of South Korea unless they are subject to legal licencing or collaboration agreements.
Achieving high yield rates for chips, which would have aided China's domestic chipmaking capabilities, required knowledge to create the best cleanroom and factory layouts, according to Lee Jong-hwan, a professor of chip engineering at Sangmyung University.
Although Lee acknowledged that some of the information Choi obtained might not be very sensitive, she added that any information pertaining to 10- and 20-nanometer technology would be useful now that China is eager to overtake South Korean firms.
According to his attorney, Choi and Foxconn agreed to a preliminary consulting agreement sometime in 2018 to establish the possible chip facility in Xian.
But the lawyer claimed that barely a year later, Foxconn terminated the agreement and only paid project-related salaries. He cited the sensitivity of the situation in declining to comment on the reason Foxconn terminated the contract or to provide more information.
According to the individual with direct knowledge of the matter, prosecutors discovered Foxconn had agreed to contribute 8 trillion won ($6 billion) towards the construction of the factory, and Foxconn also paid Choi's company several million dollars each month until it backed out of the deal for reasons that were not specified in the indictment.
According to Jin Semiconductor's financial report for 2018, it entered into an agreement with "a major customer" for the supply of competent personnel over the course of the following five years. The corporation received a $17,994,217 advance from the client, the document claims.
Foxconn, formerly known as Hon Hai Precision Industry Co Ltd, declined to comment when Reuters asked it about any transactions with Jin Semiconductor or Choi.
Choi's attorney claimed that his client could be used as a scapegoat in a South Korean government push to halt China's advancement in the chip manufacturing industry because it is trapped in a conflict between China and the US.
Yoon Suk Yeol, the president of South Korea, described the competition in the chip business as a "all-out war" this month.
"This might be setting an example for the current administration's agenda, such as technology leaks to China," Pilsung, Choi's lawyer said.
An employee of the prosecution declined to respond to the assertion that Choi was used as a scapegoat.
Along with Choi, six other former and present Jin Semiconductor employees, as well as a Samsung contractor employee, are indicted. According to court documents, the trial is scheduled to start on July 12.

Christopher J. Mitchell

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