United Microelectronics Corporation (NYSE: UMC; TWSE: 2303) ("UMC"), an industry-leading Taiwanese semiconductor manufacturing company, today pleaded guilty to one count of receiving and possessing a stolen trade secret, and agreed to pay a fine of $60 million USD.
UMC's plea and Plea Agreement resolve a 2018 trade secrets case brought against UMC by the U.S. Department of Justice. ("DOJ") in November 2018. As part of the Plea Agreement, DOJ agreed to dismiss the original indictment against UMC, including allegations of conspiracy to commit economic espionage and conspiracy to steal multiple trade secrets from Micron Technology, Inc. ("Micron"), patent-related allegations, and alleged damages and penalties of $400 million USD to $8.75 billion USD. The one trade secret at issue in the guilty plea and Plea Agreement related to older technology that had been in mass production worldwide for several years. DOJ also dismissed a related civil case against UMC. Aside from the fine amount, UMC has no further financial obligations to DOJ. The Plea Agreement also provides that UMC will cooperate with DOJ and will be subject to a three-year term of non-supervised probation.
UMC plays a significant role in the semiconductor supply chain worldwide and in the United States in particular, from which it derives more than a third of its revenue. UMC has long-standing business relationships, both as a supplier and a customer, with many well established and respected U.S. companies in the semiconductor industry. UMC also has recently worked with two other U.S. companies manufacturing an essential semiconductor component for ventilators being produced by those companies in response to the COVID-19 pandemic.
In May 2016, UMC finalized a Cooperation Agreement with Fujian Jinhua Integrated Circuit Co., Ltd. ("Jinhua"), a Chinese company. The Cooperation Agreement, which had been pre-approved by the Taiwan Ministry of Economic Affairs Investment Committee, called for UMC and Jinhua to jointly develop two generations of DRAM process technology (the "DRAM Project"). The DRAM technology nodes to be developed were not new, leading-edge technology; instead, they would be similar to technology that had been in mass production since at least 2012.
As part of the DRAM Project, UMC recruited engineers from various companies, including Micron Memory Taiwan, Co., Ltd. ("MMT"). UMC never requested nor expected that any former MMT employees would bring confidential or trade secret information to UMC. However, as described in the Plea Agreement, two former employees of MMT assigned to the DRAM Project, in direct violation of UMC policies and their UMC employment agreements, which formed part of the measures that UMC had in place to prevent unauthorized use of confidential information, brought with them to UMC confidential and alleged trade secret materials from former employers. Those materials included the trade secret that was the subject of the guilty plea. In August 2016, one of those employees input parameters from that trade secret into an early draft of UMC's design rules for the first-generation of the DRAM Project. These actions were both unauthorized and contrary to UMC policies.
UMC top management was not aware at the time of the above actions, or those of a third UMC employee in December 2015, a management employee who had previously worked at MMT. Upon learning about the conduct referenced above, UMC undertook significant efforts to remove any unauthorized information from the process technology that it was developing under the Cooperation Agreement. The first-generation DRAM process technology was transferred to Jinhua in September 2018. UMC values and respects the important role it plays in the semiconductor supply chain in the U.S. and worldwide and never planned to, and did not transfer Micron trade secrets or any unauthorized third-party information to Jinhua.
The allegations at issue here were also the subject of a four-month criminal trial in Taiwan, in which Micron's counsel participated extensively. After reviewing all of the evidence and testimony in that matter, the Taichung district court issued a 182-page decision in which it found that one former MMT employee divulged portions of one trade secret (the same trade secret described in the Plea Agreement) to some others at UMC. The district court fined UMC approximately $3.5M USD, but denied the prosecutor's request for $700M USD in disgorgement because it found that there was no evidence in the case showing that UMC used the trade secret or that the trade secret was provided to Jinhua. (All parties have filed appeals of the Taiwan court decision).
Under U.S. law, a company is legally responsible for the actions of its employees even where those actions violate company policy and are performed without the knowledge of top management. In pleading guilty, UMC recognizes and accepts liability for the actions of certain employees.
Stan Hung, Chairman of the Board of UMC, issued the following statement in connection with the agreement:
"As an industry-leading Taiwanese semiconductor manufacturing company with valued and significant relationships with U.S. companies in the semiconductor industry, UMC has been developing and producing semiconductor and other technologies for four decades. Several years ago, after obtaining approval from the Taiwanese government, UMC entered into a cooperation agreement to develop specific, mature DRAM manufacturing processes by employing UMC's institutional knowledge and experience, vast research and development resources."
When UMC top management learned about the conduct referenced in the Plea Agreement, UMC took steps to address the situation, including launching an internal investigation, and taking measures to ensure that the MMT information was not used or transferred outside the company.
As a result of this matter, UMC has implemented protocol to better control and monitor the security of confidential information; regularly implements compliance training on the protection of intellectual property rights; and conducts regular internal audits to ensure the full compliance of its daily operations with its policy and procedures.
UMC takes full responsibility for the actions of its employees, and we are pleased to have reached an appropriate resolution regarding this matter. We will continue to focus on delivering competitive logic and specialty technologies that meet the highest standards of excellence to companies in every major sector of the electronics industry."
UMC (NYSE: UMC, TWSE: 2303) is a leading global semiconductor foundry. The company provides high quality IC production with a focus on both logic and specialty technologies to serve every major sector of the electronics industry. UMC's comprehensive technology and manufacturing solutions include logic/RF, embedded high voltage, embedded flash, RFSOI/BCD and IATF-16949 automotive manufacturing certification for all its manufacturing facilities. UMC operates 12 fabs that are strategically located throughout Asia with a maximum capacity of more than 750,000 8-inch equivalent wafers per month. The company employs approximately 19,500 people worldwide, with offices in Taiwan, China, United States, Europe, Japan, Korea and Singapore. For more information, please visit: www.umc.com
Note from UMC Concerning Forward-Looking Statements
This press release contains forward-looking statements intended to qualify as "safe harbor" under the Private Securities Litigation Reform Act of 1995, as amended. These forwarding looking statements are based on the management's current expectations, estimates, beliefs, forecasts and projections of future events. These forward-looking statements include, without limitation, statements relating to the Plea Agreement; UMC's actions to protect intellectual property rights; the implementation and upgrade of UMC's compliance systems; and the ability to deliver excellent products to customers.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These factors include, but are not limited to, risks relating to the resolution of the criminal proceeding, the uncertainty in the outcome of the criminal proceeding and other risks as described in our SEC filings, including our Annual Report on Form 20-F and Report for Foreign Private Issuer on Form 6-K. Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, outcomes, performance, or achievements. You should not place undue reliance on these forward-looking statements. All information provided in this press release is as of today's date, unless otherwise stated, and UMC undertakes no duty to update such information, except as required under applicable law.
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