Insight: Indictment details plan to steal Samsung secrets for Foxconn China project
27/06/2023 12:54
(Updates to make clear Samsung contractors were not accused of
wrongdoing in paragraph 18; clarifies Choi’s former employer in
paragraph 24)
By Ju-min Park and Heekyong Yang
SEOUL, June 27 (Reuters) - When former Samsung executive
Choi Jinseog won a contract with Taiwan's Foxconn in 2018, he
tapped his former employer's supplier network to steal secrets
to help his new client set up a chip factory in China, an
indictment by South Korean prosecutors alleges.
Prosecutors announced the indictment on June 12, saying the
theft caused more than $200 million in damages to Samsung
Electronics 005930.KS , based on the estimated costs Samsung
spent to develop the stolen data. The announcement did not name
Choi and gave only limited details, although some media
subsequently identified Choi and his links with Foxconn.
The unreleased 18-page indictment, reviewed by Reuters,
provides details in the case against Choi, including how he is
alleged to have stolen Samsung's trade secrets and details about
the planned Foxconn plant.
Choi, who has been detained in jail since late May, denied
all the charges through his lawyer, Kim Pilsung.
Choi's Singapore-based consultancy Jin Semiconductor won the
contract with Foxconn around August 2018, according to the
indictment.
Within months, Choi had poached "a large number" of
employees from Samsung and its affiliates and illegally obtained
secret information related to building a chip factory from two
contractors, prosecutors allege.
Jin Semiconductor illegally used confidential information
involving semiconductor cleanroom management obtained from Cho
Young-sik who worked at one of the contractors, Samoo Architects
& Engineers, the indictment alleges.
Clean rooms are manufacturing facilities where the enclosed
environment is engineered to remove dust and other particles
that can damage highly sensitive chips. Samoo had participated
in the 2012 construction of Samsung's chip plant in Xian, China.
Prosecutors allege Choi's company also illegally obtained
blueprints of Samsung's China plant from Chung Chan-yup, an
employee at HanmiGlobal, which supervised its construction and
floor layouts of wastewater treatment and other subsidiary
facilities involving the chip manufacturing process. They have
yet to establish how the information on floor layout was
obtained, according to the indictment.
Choi's lawyer strenuously rejected the claims presented in
the indictment.
"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.
The plant was never built after Foxconn pulled out,
according to Choi’s lawyer and a person with direct knowledge of
the case.
Samsung Electronics, the world's biggest memory chipmaker,
declined to comment on the matter, citing the ongoing
investigations.
In a statement, Foxconn 2317.TW said that while it was
"aware of speculation around the legal case in South Korea", the
company doesn't comment on ongoing investigations.
"We abide by laws and regulations governing jurisdictions we
operate in," Foxconn said.
The indictment does not accuse Foxconn of wrongdoing.
Samoo and HanmiGlobal were not accused of any wrongdoing
in the indictment either.
Samoo told Reuters it was not involved in any alleged
activities laid out by prosecutors. Its former employee Cho was
not charged, and could not immediately be reached for comment.
HanmiGlobal also said the allegation was linked to an
individual and the firm had no involvement. Its employee Chung
has been charged by South Korean prosecutors with leaking
business secrets. A lawyer for Chung did not immediately respond
to requests for comment.
TRADE SECRETS
Samsung treats the types of materials Choi obtained as
"strictly confidential" and safeguards them through multiple
layers of protections, allowing access only to those who have
authorisation within the firm and at its third-party partners,
the indictment says.
The 65-year-old Choi was once seen as a star in South
Korea's chip industry. He worked at Samsung for 17 years, where
he developed DRAM memory chips and worked on wafer processing
technology, winning internal awards for advancing the company’s
DRAM technology, before leaving in 2001.
He subsequently worked at rival Hynix Semiconductor, now
known as SK Hynix 000660.KS , for more than eight years,
serving as chief technology officer of its manufacturing and
research divisions and helping turn around the loss making
chipmaker.
According to the indictment, the new Foxconn plant had
planned capacity of 100,000 wafers per month using 20-nanometre
DRAM memory chip technology. While years behind Samsung's latest
12- and 14-nanometre technology, 20-nanometre DRAM is still
considered a "national core technology" by South Korea.
The South Korean government prohibits such technologies from
being transferred overseas unless through legally approved
licensing or partnership.
Lee Jong-hwan, a chip engineering professor at Sangmyung
University, said information to make optimal conditions for
cleanrooms and factory layout was critical to achieving high
yield rates for chips, which would have helped China's domestic
chipmaking capabilities.
Lee noted that some data obtained by Choi might turn out not
to be sensitive, "But now that China is keen to catch up with
South Korean companies... any data related to 10-nanometre,
20-nanometre technology would have been helpful."
CHINA LINK
Choi signed a preliminary consulting contract in around 2018
with Foxconn to build the chip factory potentially in Xian, his
lawyer said.
However, Foxconn ended the contract just a year later and
only paid salaries related to the project, the lawyer said. He
declined to comment on why Foxconn ended the contract or to
provide further details, citing the sensitivity of the matter.
The person with direct knowledge of the case said
prosecutors found Foxconn had agreed to provide 8 trillion won
($6 billion) to build the factory, and Foxconn also paid several
million dollars to Choi's company every month until it pulled
out of the contract for reasons the indictment did not disclose.
Jin Semiconductor's financial statement in 2018 said it
entered into an arrangement with "a major customer" for the
provision of qualified manpower in the next five years. The
customer paid an advance of $17,994,217 to the company,
according to the statement.
Foxconn, formally called Hon Hai Precision Industry Co Ltd,
did not answer questions put to it by Reuters on any payments to
or agreements with Jin Semiconductor or Choi.
Choi's lawyer said his client may be a scapegoat in a
campaign by the South Korean government, caught in a rivalry
between China and the United States, seeking seek to slow
China's progress in chip manufacturing.
South Korean President Yoon Suk Yeol this month declared
chip industry competition an "all-out war".
"This might be setting an example for the current
administration's agenda, such as technology leaks to China,"
Pilsung, Choi's lawyer said.
A prosecution official declined to comment on the suggestion
Choi was a scapegoat.
Choi is charged along with five other former and current Jin
Semiconductor employees and a Samsung contractor employee. Trial
is set to begin on July 12, court records show.
($1 = 1,294.4600 won)
(Reporting by Ju-min Park and Heekyong Yang; Additional
reporting by Ben Blanchard in Taipei, Chen Lin in Singapore and
Josh Ye in Hong Kong; Editing by Miyoung Kim and Lincoln Feast.)
((ju-min.park@thomsonreuters.com; Reuters Messaging:
ju-min.park.thomsonreuters.com@reuters.net))