(Bloomberg) -- A Chinese chipmaker was cleared of economic espionage and other criminal charges in a setback for a US Justice Department crackdown on intellectual property theft by China.

More than five years after the Commerce Department blacklisted Fujian Jinhua Integrated Circuit Co. as a threat to national security, US District Judge Maxine M. Chesney in San Francisco found the company not guilty following a non-jury trial. Her ruling on Tuesday may temper the Biden administration’s pursuit of aggressive prosecutions to protect American technology.

Chesney concluded that US prosecutors failed to prove that the Chinese state-sponsored company misappropriated proprietary data from Micron Technology Inc., American’s largest memory-chip maker, that allegedly passed through Taiwan’s United Microelectronics Corp. in a manufacturing deal with Fujian Jinhua. UMC assisted the Justice Department in its case against Fujian Jinhua after pleading guilty in 2020 to trade-secret theft and paying a $60 million fine.

Had the company been convicted, Fujian Jinhua could have faced a fine, as well as an order requiring it to forfeit chips and income derived from the allegedly stolen technology, according to a Justice Department statement when the case was first filed.

Micron said in a statement that it and Fujian Jinhua previously reached a settlement in which they agreed to drop all claims against each other. That includes a civil suit filed by the US company the year before the Justice Department brought criminal charges against the Chinese firm.

Representatives of Fujian Jinhua didn’t immediately respond to requests for comment, nor did the US Attorney’s office in San Francisco and the Chinese embassy in Washington.

Significant Verdict

The verdict is significant because while the US has pursued and won numerous convictions of individuals for unlawfully transferring intellectual property to China, the Justice Department has rarely prosecuted Chinese companies in US courts.

The case against Fujian Jinhua was filed in 2018 amid then-President Donald Trump’s trade war with China and touted as a marquee effort to crack down on Chinese spying at US companies and research universities. In 2022, the Justice Department under President Joe Biden ended Trump’s “China Initiative” after it came under intense criticism for fanning discrimination against Asian-Americans — even while pressing forward with the Fujian Jinhua prosecution.

While Biden and Chinese President Xi Jinping have generally sought to stabilize relations that had deteriorated over espionage concerns and other issues — including at a November face-to-face summit during an Asia-Pacific conference in San Francisco — the world’s biggest economies continue to vie for tech supremacy.

Micron, meanwhile, appears to have attempted to pacify Beijing, including promising to invest another 4.3 billion yuan in its Chinese chip-packaging plant and sending Chief Executive Officer Sanjay Mehrotra to visit China. 

The December settlement between the Idaho company and Fujian Jinhua came after the Chinese government in May barred Micron’s chips from “critical infrastructure” over cybersecurity concerns. Meanwhile, the US has worked with allies to prevent Beijing from obtaining the most advanced semiconductors and the latest chipmaking technologies. 

DRAM Chips

The chips that were at issue in the Fujian Jinhua trial are dynamic random access memory, or DRAM, not the semiconductors that held up shipments of a wide range of products including cars and smartphones during a global supply shortage.

In 2018, Fujian Jinhua’s $6 billion plant was within months of full-scale DRAM production — a critical step toward ending China’s reliance at the time on $380 billion of annual chip imports.

That’s when the Commerce Department put Fujian Jinhua on its so-called Entity List for engaging in activities contrary to US interests and filed the criminal case in San Francisco. The move by the Commerce Department blocked the company’s purchases of chipmaking gear, and stirred an exodus of American and European suppliers and engineers from Jinjiang, where Fujian Jinhua is based on the southeastern coast of China. 

Prosecutors claimed that Fujian Jinhua’s then-president orchestrated an illegal transfer of Micron’s memory design in a deal between his company and UMC. He was accused of conspiring with two other Taiwanese engineers who previously worked for Micron before moving to UMC.

While all three were charged as defendants in the case and the US issued warrants for their arrest in 2020, they never appeared for proceedings in the San Francisco court. The US doesn’t have extradition treaties with Taiwan or China. 

During the years the case was pending, Fujian Jinhua complained that the US prosecution was hobbling China’s aspirations of mass producing memory chips. The company argued its very existence was threatened by the 2018 blacklisting, blocking its ability to buy US chipmaking gear and cratering its production plans.

In August, the leading association of global chip companies warned that Huawei Technologies Co. — which landed on the Commerce Department Entity List in 2019 — was building a collection of secret semiconductor-fabrication facilities across China and said that Fujian Jinhua was part of Huawei’s network. 



(Updates with Micron comment.)

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