Blackmail, poaching and theft: CXMT's covert campaign to obtain Samsung tech by any means necessary

“Bring me all the PRP and equipment information on Samsung Electronics that you have. If you don’t, I’ll report you to the Korean government, so think carefully.”

According to testimony from a former Samsung Electronics employee later hired by Chinese chipmaker ChangXin Memory Technologies (CXMT), these were the words of the Chinese company's former CEO, who used them to blackmail Korean engineers who joined the Hefei-based company from Samsung.

The testimony was submitted to investigators by an individual surnamed Jeon, who handled equipment investment at CXMT after working nearly three decades at Samsung Electronics, according to findings by the JoongAng Ilbo on Monday.

This is the first time the extent of CXMT’s hunt for Samsung Electronics technology — allegedly the secret sauce behind the Chinese chipmaker’s rapid growth — has been revealed through testimony to investigators, including alleged remarks by the company’s former CEO.

The 'Yellow Mountain' scheme

David Wang, then-CEO of CXMT, allegedly summoned members of the Korean team, including Jeon, between October and December 2016 to pressure them to hand over information from Samsung.

CXMT executives at the time used “Yellow Mountain,” or Huangshan, as a code name for Samsung Electronics.

“I have contacts who can check whether [the Samsung Electronics information] is real, so don’t think you can get away with lying,” Wang warned them, according to Jeon.

“I was scared and afraid at the time,” Jeon told investigators.

Jeon, who moved to CXMT after working at Samsung Electronics for 28 years, was indicted last year on charges of illegally leaking and using Samsung Electronics’ 18-nanometer dynamic random-access memory (DRAM) process technology and sentenced to seven years in prison in April. Jeon’s case is now on appeal.

The Samsung Electronics 18-nanometer process recipe plan (PRP) that Wang allegedly demanded is essentially a semiconductor manufacturing recipe containing the sequence, equipment, operating conditions, equipment manufacturers and model names for some 600 steps in the DRAM manufacturing process.

The 18-nanometer process refers to an advanced semiconductor manufacturing process with circuit line widths of just 18 nanometers, or about 0.00000071 inches. A nanometer is one-billionth of a meter.

Samsung Electronics spent 1.6 trillion won ($1.2 billion) developing the technology and became the first company to commercialize 18-nanometer DRAM chips in 2016, a feat widely regarded at the time as a breakthrough in semiconductor miniaturization.

However, the technology was allegedly leaked from Samsung Electronics in September 2016 by a former process architecture engineer at the company surnamed Park, who is currently the subject of an Interpol Red Notice. Park is accused of copying the information by hand onto 12 pages of notes.

“The fact that the CEO threatened them with legal action by saying he would ‘report them to the Korean government’ is evidence that they themselves knew what they were doing was illegal,” a prosecutor currently in office said.

Allegation points to Chinese government

Jeon’s testimony also indicates that Wang’s pressure on the Korean team came amid intense pressure from the Chinese government.

“When we were talking with the Chinese government at the time, we were told that it would not invest [in CXMT] if the company could not achieve 18 nanometers,” Jeon testified in court on Sept. 9.

When prosecutors asked whether the Chinese government had wanted this from the beginning, Jeon answered, "Yes."

"The understanding was that the investment [from the Chinese government] would only come after the 18 nanometers. I came to realize that [CXMT] had no plan to develop the technology independently from the beginning," Jeon said.

Wang’s alleged pressure came as CXMT was preparing for a meeting to seek investment from the Chinese government, according to Jeon's testimony.

The testimony aligns with CXMT’s longstanding reliance on Chinese government funding since its establishment.

CXMT was founded in 2016 with a direct investment of 14.4 billion yuan ($2.1 billion) from Hefei Industry Investment Holding, an investment entity under the Hefei municipal government.

After spending nearly a decade without turning a profit and passing through what is known as the “valley of death,” CXMT recorded its first-ever annual profit last year, posting a net profit of 7.1 billion yuan.

“Hefei continued investing in CXMT for 10 years in an effort to break the monopoly held by foreign companies,” China’s state-run Economic Daily said.

CXMT's not-so-long history of poaching

CXMT was even more aggressive in recruiting talent, according to Jeon.

“If I recommended someone by saying, ‘They currently work at Samsung Electronics and are A-grade,’ they would ask for the résumé as long as there were no real problems,” Jeon said during a trial hearing on Aug. 25. “Having just their contact information was enough.”

Some Korean employees joined CXMT under the name of a fertilizer company established by CXMT or entered Hefei after first passing through other Chinese cities.

A report by Taiwan's Research Institute for Democracy, Society, and Emerging Technology also claimed that CXMT “poached hundreds of engineers from Taiwanese memory firms with local intermediaries, posing a serious issue to the Taiwanese memory industry."

Using the recruited personnel as a springboard, CXMT quickly rose to become the world’s fourth-largest DRAM maker.

Legal experts say evidence of involvement by Chinese executives, if recognized, could strengthen Samsung’s position in future international disputes.

Chinese display maker BOE previously became embroiled in a trade-secret dispute with Samsung Display over organic light-emitting diode (OLED) technology. After the U.S. International Trade Commission (ITC) found infringement and recommended a 14-year, eight-month import ban, BOE ultimately paid around 1 trillion won in patent licensing fees, according to reports.

“Because stealing core information in advanced industries, where astronomical sums are spent on research and development, can translate directly into enormous profits, there is a global trend toward strictly protecting such technology as a matter of technology security,” said Cho Jae-bin, a former deputy chief prosecutor and attorney at Barun Law's industrial technology leakage response center.

“A guilty verdict in a domestic criminal case, in particular, constitutes a court’s formal recognition that technology was leaked, making it difficult to rebut the allegations if a complaint is filed with the ITC."

BY LEE YOUNG-KEUN, KIM SU-MIN [[email protected]]