A chip crisis caused by an "insider"

A chip crisis caused by an "insider"

Chips are the cornerstone of a nation's strength, the key to a company's success, the foundation of a good life for the people, and the pillar of a country's power.

Chips are the core of the information industry. Whether it's the smartphones and computers we use daily, or the cutting-edge technologies like artificial intelligence and autonomous driving that are leading the future development of industries, chips are indispensable. Issues such as "chip shortage" and "lack of chips" are critical "choke point" problems that need to be addressed urgently, and independent research and development is the only way out of the predicament. Corporate independent research and development heavily relies on talent; however, even highly paid technical personnel may sometimes go astray. Let's turn the clock back to 2017 and uncover a chip crisis triggered by an "inside job."

Starting from March 2017, Zhou, an employee at a certain electronic technology manufacturing company, violated the labor contract and confidentiality agreement he had signed with the company. He downloaded IP data packages containing the company's trade secrets onto his work computer and then transferred the data to his personal computer through multiple hard drive disassemblies, achieving a "great cosmic shift."

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Upon receiving the case leads, the Third Branch of the Shanghai Procuratorate (hereinafter referred to as "the Third Branch") immediately formed a specialized case handling team to intervene in the case and guide the public security organs in their investigation and evidence collection.

Determining the composition of trade secrets is the first step in prosecuting the crime of infringing upon trade secrets. What are the functions and application modes of the technical secrets involved in the case? Can they be easily known by peers in the industry through reverse engineering of the chips?

We proactively contacted and visited the rights holder company and learned that the IP data packages transferred by Zhou were the designs of mature circuit modules with independent functions in the chips. They help to simplify chip design and shorten the chip manufacturing cycle. However, to obtain this design through reverse engineering, it is necessary to de-layer the chips, which requires a huge cost, and even after de-layering, one can only obtain the layout of each layer, not the key secret information.

We further guided the investigative authorities to collect and strengthen evidence, verifying this statement—that the technical information involved in the case constitutes a trade secret.As the investigation progressed, we found that although Mr. Zhou had not yet used or disclosed the trade secrets he had obtained when he was apprehended, evidence such as chat records showed that he had repeatedly attempted to trade the IP data packets of his company.

However, how should the amount of the crime be determined when Mr. Zhou only possessed the trade secrets? This is a challenge that the Shanghai procuratorate has never faced before.

According to the judicial interpretation, the amount of loss caused by the crime can be determined based on the reasonable license fee for the trade secret. However, there is no unified standard for how to calculate this fee. After verification with the rights-holding company and appraisal institutions, we ultimately determined the loss amount for this case to be more than 1.28 million yuan, based on the billing basis for similar types of technical information from the company.

In September 2022, the Third Branch filed a public prosecution against Mr. Zhou for the crime of infringing on trade secrets. A month later, the first-instance court accepted the prosecution's opinion and sentenced Mr. Zhou according to the law.

A judgment has settled the case, but this is not the end of the case handling. I clearly remember that during the interrogation, Mr. Zhou mentioned that the company's confidentiality measures were virtually non-existent to him. Therefore, we opened the case file again and reviewed each link where the rights-holding company had taken confidentiality measures during Mr. Zhou's commission of the crime.

Such important IP data packets were downloaded, hard drives were disassembled and taken away from the company by Mr. Zhou multiple times, and the company was completely unaware. In response, we believe that the company has issues such as insufficiently strict management of confidential sites and equipment, and inadequate supervision of employees' use of confidential information. Subsequently, we promptly issued prosecutorial suggestions to the company, proposing targeted improvement plans. A month later, the company replied with feedback on the rectification and implementation, and strengthened the protection network for trade secrets in all aspects.

Chips are the backbone of a nation, relied upon by enterprises for success, by the public for a good life, and by the country for strength. As intellectual property prosecutors, we must not only punish crimes but also pay attention to the governance of the sources of litigation, deepen the comprehensive protection of intellectual property rights, and serve the construction of Chinese-style modernization with high-quality prosecutorial performance.

 

Chip infringement, 14 people arrested

At the end of last year, according to the Shanghai Public Security Bureau, with the strong cooperation of the Jiangsu police, the Shanghai police successfully cracked a case of infringing on chip technology trade secrets, arresting 14 criminal suspects and seizing 7 servers storing infringing chip technology.Upon investigation, it was found that in February 2021, former senior executives of the rights company, Mr. Zhang and Mr. Liu, among others, established a technology company after leaving their positions to seek illegal profits. They lured several former R&D personnel from the rights company to join their company by offering high salaries and equity incentives. They also instructed these individuals to illegally obtain the company's chip technology information through copying and screenshotting before their departure, and then plagiarized and applied this information to the design of similar chips in Mr. Zhang's company, with the intention of illegally profiting from it.

Upon appraisal, it was determined that the infringing chip technology shared over 90% similarity with 40 technical points of the rights company's trade secrets, constituting substantial identity. The group led by Mr. Zhang's theft of secrets resulted in the loss of the rights company's trade secrets, and the losses to the rights company should be determined based on the commercial value of the research and development costs of the trade secret and the profits from implementing the trade secret.

On April 19th of this year, the Shanghai police successfully arrested 14 core members of the company involved, including Mr. Zhang and Mr. Liu, and timely dealt with the case before the infringing chips were mass-produced. Currently, Mr. Zhang, Mr. Liu, and three other main suspects have been legally arrested by the police on suspicion of the crime of infringing on trade secrets, while the remaining ten suspects have been legally released on bail pending trial.

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