China suspected of stealing Samsung, SK patents

By Kim Yoo-chul

Chinese companies are suspected of stealing the intellectual property of Samsung Electronics and SK hynix to obtain advanced technological knowhow from them, sources familiar with the matter said Wednesday.

"Samsung Electronics and SK hynix have become the target of industrial espionage by Chinese memory chip manufacturers. In semiconductors, patents are critical to the cost structure. The companies have to protect what they have spent decades building. The result is Chinese companies are attempting to infringe on Samsung and SK patents," said an official directly involved with the issue.

He added Samsung Electronics is monitoring the ongoing legal battle between the U.S.'s Micron Technology and Taiwanese chipmaker UMC and its Chinese DRAM partner Fujian Jin Hua IC. Micron is suing the pair for copying several of its patents.

The company said the misappropriation of its trade secrets has caused and will continue to cause the company irreparable and substantial injury.

"Without intellectual property, you can't become a meaningful player. You need brand-new technology and you have to have capability for large-scale production. Also, you should be qualified for product specifications and designs and to meet demanding customer application requests. All of these can be done with intellectual property that has been built over the course of decades. Chinese companies aren't ready for this," said a Samsung engineer who asked not to be identified because he wasn't authorized to officially speak to the media. "Chinese companies are finding the development of DRAM and flash-memory manufacturing processes is more difficult to than they thought."

Samsung and SK hynix declined to comment citing the sensitivity of the issue.

It remains uncertain whether the Chinese government is behind the patent thefts. But its antitrust authorities are investigating Samsung, SK and Micron for alleged price-fixing, which the three firms deny, claiming the continued rise in memory chip prices is the result of solid market demand.

Some say the investigation could be a way of pressuring the companies to share patented technologies that would be used to boost their Chinese competitors.

While Chinese memory chip manufacturers pose no "serious threat" to the top three established players, Beijing's top priority is to build up the patent portfolios of domestic companies.

"China wants to break high barriers in the semiconductor industry to provide entry for aspiring global suppliers. Because Chinese companies are still in the early stages of developing flash memory and DRAM technologies, the key policy concern is how to help them develop intellectual property via comprehensive cross-licensing with major players," another Samsung engineer said.

China earlier said it will provide "millions of dollars" for research and development equipment and costs into advanced memory chip technologies in return for co-ownership of any resulting technologies, as well as future licensing revenues.

Beijing is pushing with plans to boost domestic production of "core materials" by 40 percent by 2020 and 70 percent by 2025. Under the "Made in China 2025" initiative, the country is spending a lot on batteries to be used in electric vehicles and semiconductors as its next growth engines, given the industries' growth potential.

Memory chips are particularly important to the 2025 initiative. Their importance will increase further with the growth of cloud computing, fifth-generation (5G) wireless technology, the internet of things (IoT), artificial intelligence, autonomous driving and even blockchain.

Analysts say industrial espionage in the chip sector is a real threat, particularly given China's huge ambition in the industry, as intellectual property theft is the easiest way to obtain advanced technology.

The advance of Chinese semiconductor companies will change the established balance of the industry, and with intellectual property theft involved, the entry time "could be" shortened significantly, according to market analysts.

Would the growing threat impact Korean chipmakers?

Moody's Investors Service, a credit ratings agency, said Samsung and SK will remain tech leaders despite China's efforts to catch up.

"China's chipmakers face significant technological, intellectual property and financial challenges that will make it difficult for them to compete with industry leaders such as Samsung Electronics and SK hynix. The Korean companies have the intellectual property that Chinese companies must develop in order to manufacture and commercialize their products. High capital spending is another barrier for Chinese companies," Gloria Tsuen, a senior analyst at Moody's, said in a note.

The analyst expects Samsung and SK will invest a combined 52 trillion won in China throughout this year. Samsung and SK's combined capital spending over the last three years there totaled about 120 trillion won.

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