At the end of the Sino-US "memory chip war", Micron and Jinhua shook hands and made peace

This issue focuses on the background of the settlement of the patent war between Micron and Jinhua and Micron, as well as Micron's new challenges.

By Han Lijie, a partner at Kaiten Law Firm's Shanghai office

On December 23, 2023, a spokesperson for Micron Technology announced through an email that a global settlement has been reached to the intellectual property dispute with Fujian Jinhua Integrated Circuit Co., Ltd., and the two companies will withdraw their lawsuits worldwide and end all litigation.

Since it is a global settlement, the parties have had related litigation and disputes around the world in the past, and their main journeys include:

• 1

  In December 2017, Micron sued UMC and Fujian Jinhua in federal courts in Taiwan and California for stealing trade secrets and patent infringement.

• 2

  In January 2018, Fujian Jinhua and UMC countersued Micron for patent infringement in Chinese mainland, requesting the court to order Micron to stop manufacturing and selling related products, claiming RMB 270 million.

• 3

  In October 2018, the U.S. Department of Commerce added Fujian Jinhua to the Export Control Entity List on the grounds that it endangered U.S. national security.

• 4

  In October 2020, UMC announced that the U.S. District Court for the U.S. District of Northern California had approved a settlement agreement between UMC and the U.S. Department of Justice, UMC admitted to infringing a trade secret, agreed to pay a fine of $60 million, and the U.S. Department of Justice dropped the charges against UMC.

• 5

  In November 2021, UMC and Micron reached a global settlement, each withdrawing their lawsuits, and UMC paid Micron a confidential settlement amount.

• 6

  In March 2023, the Cyberspace Administration of China (CAC) issued an announcement to implement a cybersecurity review of Micron's products sold in China.

• 7

  In December 2023, a Micron spokesperson announced through an email that a global settlement had been reached over the intellectual property dispute with Fujian Jinhua Integrated Circuit Co., Ltd.

It should be noted that at present, only Micron unilaterally announced the reconciliation between the two parties, and Fujian Jinhua has not yet officially announced; secondly, according to Micron's caliber, the two parties have only reached a settlement, and the withdrawal of the lawsuit has not yet been implemented, and the terms of the settlement are also confidential, and it still takes process and time to eliminate the negative impact of all this.

In the following article, we will focus on several aspects, 1) the real background of the dispute between Micron and Fujian Jinhua, the follow-up process of reconciliation between the two parties, especially how to promote Fujian Jinhua to be removed from the US Department of Commerce's entity list, 2) how Micron raised the stick of intellectual property rights, what is its weakness, 3) In addition to Fujian Jinhua, who else is "full firepower" with Micron on the business battlefield.

01 The dispute between Micron and Fujian Jinhua

Fujian Jinhua and Taiwanese semiconductor company UMC have been developing DRAM storage related technologies since 2016.

In December 2017, Micron sued Fujian Jinhua and its Taiwanese partner UMC in federal court in California, accusing the two companies of stealing trade secrets for their memory chips.

The picture above shows the four patents that Micron filed an invalidation request with the China Patent Reexamination Board, which are suspected to be the focus of patent litigation between the two parties

Patent wars between multinational companies are not new, taking the U.S. market as an example, patent disputes are mainly litigated in federal courts, with California and Texas being the most numerous, mainly due to the experience of the courts and the tendency to protect rights holders. In addition, the two courts awarded higher amounts of damages.

In the United States, the jurisdiction of the court is very large, even if the parties are not in the same place, as long as there are objectively sales products and users in the area, they can also accept the case. Under normal circumstances, if the Chinese company is sued in the U.S. market, it may give up on responding, but more companies are actively responding to the lawsuit, or asserting jurisdiction, or conducting in-depth cross-examination until the judgment or settlement.

For example, on April 14, 2020, the U.S. Federal Circuit ruled that Sweden's Ericsson Communications Co., Ltd. invalidated its patent in the patent infringement case of East Texas v. China TCL Technology Group Co., Ltd., and revoked TCL's $110 million patent compensation against Ericsson.

Returning to the Micron-Jinhua lawsuit, the lawsuit initiated by Micron and related lobbying activities objectively led to Fujian Jinhua being included in the control list by the U.S. Department of Commerce, while Taiwan's UMC was able to obtain differential treatment through settlement, compensation and fines due to its long history, large number of American customers, and great influence in the industrial chain.

At the same time as the Micron-Jinhua case, ZTE and Huawei were investigated and sanctioned by the United States, so that this lawsuit has been stalemate for a long time, and the attention is far less than that of the ZTE and Huawei cases, but its complexity is even more than that, the front line is from China to the United States, as well as the sub-battlefield in Taiwan, and there is also an episode of Lianhua "staying alone" in the middle.

In November 2021, UMC and Micron reached a global settlement, each withdrew the lawsuit, and UMC paid Micron a confidential settlement money, so Micron concentrated its firepower on Jinhua, Fujian.

Micron's lawsuit with Jinhua and UMC, in addition to civil patent infringement, also involves the issue of infringement of trade secrets, so the U.S. Department of Justice also joined the investigation, and the U.S. Attorney's Office for the Northern District of California also criminally prosecuted Fujian Jinhua for stealing trade secrets. On the issue of trade secrets, UMC, as a party, reached a settlement with the U.S. Department of Justice in 2020 with a fine of $60 million.

The case involves civil and criminal issues, multi-party participation and cross-regional, plus the new crown epidemic for three years, the case is unresolved, which will have a negative impact on Micron and Fujian Jinhua.

The first is Fujian Jinhua, which was forced to leave the market due to the forced departure of its important technology partner UMC, and was included in the entity list without forming production capacity, and could not purchase US-related equipment;

What's more, the war is unresolved here, and there is a lot of gunsmoke - Changxin Storage and Yangtze River Storage, which were established at the same time, are developing smoothly, although there are differences in technical routes, but they have gradually grown into Micron's competitors, plus Samsung and Hynix, if there is an accident in the Chinese market, it is Micron's unbearable pain.

With Micron taking the lead in announcing the news of the upcoming settlement, the dispute will come to an end.

Based on the previous reconciliation between Micron and UMC, the opportunity for the two sides to create business cooperation is also speculated, and the outside world is also speculating whether it is possible for Micron and Fujian Jinhua to carry out commercial cooperation?

In terms of the positioning of the storage manufacturers of the two parties, the space for cooperation is very low, and it is more likely that intellectual property rights will be reached in the future, especially patent and technology licensing agreements to cover the disputed intellectual property rights, so that there is no basis for technical infringement disputes.

At present, Fujian Jinhua is also in the Entity List of the U.S. Department of Commerce, if there is no infringement dispute, it also has the possibility of removal from the Entity List, and can independently apply to the U.S. Department of Commerce, and after removal, it can normally import U.S. equipment to resume production.

02 The butcher's knife and weakness of the giant

As a semiconductor company that has been standing for decades, Micron's business experience comes from the semiconductor war between the United States and Japan in the last century, and it has been tried and tested.

In the 80s of the last century, memory chips were the core of the chip war between the United States and Japan, and Japanese companies originally occupied half of the market, but the U.S. government and enterprises joined forces to force Japan to take the initiative to restrict the export of memory chips, and imposed high tariffs on Japanese products, and Japanese companies finally ceded market share. According to the data, in 1985, Micron successively complained to the U.S. Department of Commerce about the dumping of DRAM products by Fujitsu, Hitachi, NEC, Oki, Toshiba and Panasonic.

At that time, Intel withdrew from the memory chip market, and Micron became the only giant of memory chips in the United States.

After the war between the United States, Japan and South Korea, memory chips entered the era of equal division between the United States and South Korea, and Micron, Samsung, and SK hynix stood on three legs, and this pattern continued for 20 years.

Since 2016, new challengers China's Yangtze River Storage, Changxin Storage, and Fujian Jinhua have been established, and Micron predicted the crisis and began to reuse the methods of the chip war between the United States and Japan, and took the lead in Fujian Jinhua in 2017.

According to the data required by the U.S. House of Representatives and federal regulations, Micron has long lobbied U.S. government departments to blame China for competition and intellectual property problems against the United States, and it has been effective.

According to the collation of Jiwei.com, since 2018, Micron Technology has increased its lobbying efforts year by year, spending 9.54 million US dollars in related expenses in five years, with the crackdown on China's storage industry as one of its core purposes, with more than 170 lobbying contents, covering technology, trade, taxation, manufacturing, immigration and many other aspects.

Micron's investment in lobbying over the years

Against this backdrop, the U.S. Department of Commerce's October 2022 rule stipulates that U.S. suppliers should obtain a license to export equipment to companies that produce DRAM chips of 18nm or less and NAND flash memory chips of 128 layers or more to China, which directly affects the normal operation of Chinese memory chip manufacturers, while overseas manufacturers such as Micron directly benefit.

China is a huge market for US semiconductor companies, and Intel, Nvidia, etc. make a lot of money in the Chinese market, and the vast majority of them are not easily enemies of Chinese companies. By contrast, Micron's aggressive targeting of Chinese companies is well known in the industry, even though China is its second-largest market, with sales revenue of more than $3 billion, accounting for about 10% of its total revenue.

Since China did not issue a similar "Entity List" in the early days, Micron was not reciprocal for a long time, until China's Ministry of Commerce launched the "Unreliable Entity List", and the situation began to turn around.

According to public information, in 2020, the Ministry of Commerce officially released the Unreliable Entity List system, which will include foreign enterprise organizations or individuals that do not comply with market rules, deviate from the spirit of the contract, block or cut off supply to Chinese enterprises for non-commercial purposes, and seriously damage the legitimate rights and interests of Chinese enterprises.

In February 2023, China's Ministry of Commerce announced that it would include Lockheed Martin and Raytheon Missiles and Defense in arms sales to Taiwan on the list of unreliable entities, and take measures including prohibiting China-related import and export activities, prohibiting new investment in China, prohibiting the entry of senior managers of the above-mentioned enterprises, not approving and canceling the work permits, stay and residence qualifications of the senior managers of the above-mentioned enterprises in China, and imposing fines on the above-mentioned enterprises in the amount of twice the amount of the arms sales contract to Taiwan.

Although Micron is hostile to Chinese semiconductor companies, its behavior is mainly for commercial purposes, its products are civilian rather than military, and the "unreliable entity list" is beyond the scope of commercial competition, so it is not directly included, but "cybersecurity review" has become a key means to deal with companies like Micron as an alternative.

At the end of March, the Cyberspace Administration of China's Cyberspace Administration of China issued an announcement to implement a cybersecurity review of Micron's products sold in China, laying the groundwork for the reconciliation of this "chip war", which can also be understood as "defeating magic with magic".

As soon as the announcement came out, Micron's sales in China took a hit. In June, Micron released its financial report for the third quarter of fiscal year 2023, with total revenue of $3.752 billion in the quarter, down 56.6% year-on-year.

Also in June, Micron announced that in the next few years, it plans to invest 4.3 billion yuan in Micron's chip packaging and testing plant in Xi'an, China, which can be understood as a show of goodwill after the security review and performance pressure. In November, China's Minister of Commerce Wang Wentao met with Micron's President and CEO Jay Sanjay. More than a month later, Micron and Fujian Jinhua reached a settlement before Christmas.

03 Another Chinese company took the initiative

Micron failed to "knock down" Fujian Jinhua as it wished, but instead had a new business rival - Yangtze River Storage.

In November 2023, YMTC, a mainland NAND memory manufacturer, filed a patent infringement lawsuit in a U.S. court, accusing Micron of infringing a number of the company's 3D NAND technology patents, claiming that these infringements have been used in its SSD products, including 3D NAND products with 96-layer, 128-layer, 176-layer and 232-layer.

YMTC has a very high dependence on imported equipment, most of which are imported equipment, and its 128-layer and 232-layer 3D NAND is produced on the basis of equipment in the United States, Japan, the Netherlands and other countries.

First, Micron was under cybersecurity scrutiny in China, and in May, the news was that it failed the scrutiny and sales plummeted. Second, Micron's management has just visited China and promised to increase investment to show goodwill, and if YMTC intends to snatch Micron's lost Chinese market, it is more appropriate to sue in China based on the evidence of Micron's infringement.

From a business point of view, the key to YMTC's litigation in US courts is the overseas market – although it is included in the Entity List, the US Department of Commerce basically does not restrict US companies from purchasing YMTC's self-produced products in China, so there is every opportunity and reason to counterattack the US market.

According to public information, YMTC's memory is at the leading level in China, and in 2022, it was reported that YMTC's 128-layer NAND Flash memory chip has passed Apple's verification and will become the Flash supplier of iPhone, and related products have also been supplied to domestic mobile phone brands.

Industry insiders estimate that although there is a generation gap between YMTC products and South Korean and American companies in technology nodes, the cost is about 20% lower than that of Micron and Samsung.

On the other hand, the direct competition between YMTC and international giants will also limit the ability of international giants to control prices, which is exactly what terminal companies like Apple are happy to see.

In the memory market, the industry generally believes that the cyclical nature of the industry determines that companies hover at the two extremes of windfall profits and losses, and American and South Korean companies have been accused of manipulating prices when prices rise, and the price increase of related memory products will directly affect the price of consumer electronics such as mobile phones and computers, so it has been concerned by regulators in China, the United States, Europe and other countries.

As early as 2002, in the DRAM antitrust investigation case of the U.S. Department of Justice, Samsung, Hynix and Infineon were fined a total of $645 million for Micron's manipulation of DRAM prices between 1998 and 2002.

To sum up, YMTC relies on its long-term patent layout and is mainly anti-customer, and filing a lawsuit in the United States can be understood as an offensive substitution for defense, preventing Micron from taking the lead in filing a lawsuit in the United States or applying for an injunction on the grounds of intellectual property rights to affect its sales of products in the United States, resulting in a surprise response. At the same time, we use technology to persuade customers, use litigation to convey the signal of our own excellent technology, dispel customer concerns, and dig deep into American customers. In addition, through the evidence and intelligence collected in the US litigation, in preparation for another patent lawsuit in Chinese mainland at any time, the use of home combat has more advantages to compete for the domestic market.

* The views expressed in this article are those of the author and do not necessarily reflect those of the institution.