US ups the ante on Chinese industrial espionage claims

State-owned Chinese company Fujian Jinhua Integrated Circuit Company (FJICC) and Taiwan’s United Microelectronics have been formally charged with intellectual property theft, targeting a US firm.

FJICC, which is owned by the People’s Republic of China (PRC) and part of the ‘Made in China 2025’ technology development programme, has already had it US supply chain components severed after intervention from the US Department of Commerce earlier this week, though the formality of a lawsuit escalates the conflict between the US and China further. United Microelectronics has already stated it has cut ties with FJICC, seemingly in an effort to avoid similar sanction from the US.

The lawsuit takes FJICC, United Microelectronics and three individuals into the courtroom, accused of using stolen trade secrets in the production of FJICC and United Microelectronics products. According to the lawsuit, the PRC did not possess DRAM technology prior to the events described in the indictment, though it was a segment which was identified as an economic priority. The three accused individuals previously worked at a subsidiary of US firm Micron, before transferring to United Microelectronics and subsequently setting up the relationship between the company and FJICC. At this point, the trade secrets were allegedly transferred to Chinese control.

If convicted, each company faces forfeiture, though how this will be imposed we are not sure, and a maximum fine of more than $20 billion.

“I am announcing that a grand jury in San Francisco has returned a multi-defendant indictment alleging economic espionage on the part of a state-owned Chinese company, a Taiwanese company, and three Taiwan individuals for an alleged scheme to steal trade secrets from Micron, an Idaho-based semi-conductor company,” said Attorney General Jeff Sessions.

“Micron is worth an estimated $100 billion and has a 20 to 25 percent share of the dynamic random access memory industry—a technology not possessed by the Chinese until very recently.  As this and other recent cases have shown, Chinese economic espionage against the United States has been increasing—and it has been increasing rapidly.  I am here to say that enough is enough. With integrity and professionalism, the Department of Justice will aggressively prosecute such illegal activity.”

Intellectual property theft is one of the cornerstones of President Trump’s assault on China, though taking the company to court is escalating the conflict further. After allegations of corporate espionage early this week, cutting out US components from the company’s supply chain was a logical step, though the lawsuit further compounds the battle.

The ban from the Department of Commerce is similar to the economic dirty-bomb the US dropped on ZTE earlier this year, though that only lasted a couple of weeks. The consequences of that action were clear, ZTE was also sent to keep the dodo company, though there was certainly collateral damage for US firms. Acacia Communications was one company who dependence on ZTE as a customer saw share price decline by more than 30% as a result of the ZTE export ban, though whether there are firms who are similarly dependent on FJICC remains to be seen.

The lawsuit itself represents the greater conflict between the US and China, both of which has ambitions to control the 5G ecosystem and subsequently lead the technology industry of tomorrow. Intellectual property theft is rhetoric which we have consistently heard from President Trump, though should the US prove successful in this case, it would not be surprising to see more investigations. Considering the leading positions Huawei and, less so, ZTE have crafted in the telco industry, these firms might find themselves in the crosshairs before too long.

One thing is certain, this will not be the last aggressive move towards China from this administration. If anything, this is justification for every intervention made by President Trump, think back to the Executive Order blocking Broadcom’s acquisition of Qualcomm and also the dreaded tariffs, as well as validation to accelerate towards further conflict.

“No country presents a broader, more severe threat to our ideas, our innovation, and our economic security than China,” said FBI Director Christopher Wray. “The Chinese government is determined to acquire American technology, and they’re willing use a variety of means to do that – from foreign investments, corporate acquisitions, and cyber intrusions to obtaining the services of current or former company employees to get inside information.

“We are committed to continuing to work closely with our federal, state, local, and private sector partners to counter this threat from China.”

Trump set sights on spectrum strategy

US President Donald Trump has unveiled plans to create a National Spectrum Strategy to prepare the country prepare for the introduction of 5G wireless networks.

The presidential memorandum, which was signed last week, directs the Secretary of Commerce to work with agencies and policy makers on all levels to develop a National Spectrum Strategy. As part of the strategy, the Secretary of the department will report annually to the President on efforts to repurpose spectrum, while a Spectrum Strategy Task Force will also be created which, including representatives from the Office of Management and Budget, the Office of Science and Technology Policy (OSTP), the National Security Council, the National Space Council, and the Council of Economic Advisers.

“American companies and institutions rely heavily on high-speed wireless connections, with increasing demands on both speed and capacity,” the memorandum states. “Wireless technologies are helping to bring broadband to rural, unserved, and underserved parts of America. Spectrum-dependent systems also are indispensable to the performance of many important United States Government missions. And as a Nation, our dependence on these airwaves is likely to continue to grow.”

Within 180 days, executive departments and agencies are required to report to the Secretary of Commerce on their anticipated future spectrum requirements, while the OSTP shall submit a report to the President on emerging technologies and the expected impact on spectrum demand. Once these reports have been submitted and assessed, the Secretary of Commerce will have to brief the White House on the status of existing efforts and planned near- to mid-term spectrum repurposing initiatives, as well as a long-term National Spectrum Strategy that includes legislative, regulatory, or other policy recommendations to rework the approach to spectrum management.

While work on spectrum has been underway for some time, this intervention from the White House demonstrates the importance of 5G to the US economy, and perhaps its long-standing battle with the Chinese to maintain control of the global economy.  Although Silicon Valley still maintains the leadership position on the worldwide technology and telecommunications industry, this grip is not quite as ironclad as it was in previous years. With digital taking over in the cockpit as the driver for almost every ‘developed’ economy around the world, a flexible, future-proofed spectrum policy is critical.

“We commend the administration for recognizing the importance of establishing a national spectrum strategy,” said CTIA President Meredith Baker. “With the right approach based on licensed wireless spectrum, America’s wireless carriers will invest hundreds of billions of dollars and create millions of jobs to deploy next-generation networks and win the global 5G race.”

“Spectrum has become one of the most critical inputs for the communications and information technologies that are driving America’s economic growth,” a statement from the NCTA reads. “The services that rely on unlicensed spectrum alone generated more than $525 billion in value for the U.S. economy in 2017. We look forward to engaging in constructive dialogue with the White House, NTIA, and the FCC on the development of a balanced national spectrum policy that will meet the growing need for both licensed and unlicensed spectrum to support next-generation wireless technologies.”

The attention from the White House will certainly be welcomed by the industry, though some have questioned why it has taken so long. With the Trump administration focusing on other areas, in particular looking outwards, some critics have questioned why it has taken so long for the White House to take a firm position in the 5G world. Democrat FCC Commissioner Jessica Rosenworcel is one who has questioned the sluggish nature of the administration, particularly focused on reports and action, suggesting it has allowed other countries such as China and Korea to steal valuable yards in the 5G race.

While specifics are relatively thin for the moment, the spectrum strategy might go some way to settle bickering in the industry. A good example is the battle between the autonomous vehicles camp, which is currently guarding largely unused spectrum reserved to allow vehicles to communicate, and telcos who want the assets opened up for wifi. This is only one example, but without a comprehensive, forward-looking, strategy in place, these arguments will not be settled.

Such a policy will provide much needed clarity in the industry, though six months is a long-time to wait with the 5G world fast approaching.

Trump takes next step in Chinese trade war

The United States Trade Representative will place a second round of tariffs on roughly $200 billion of imports from China, effective September 24, though it looks like Apple is passing through unscathed for the moment.

The 10% tariffs will be introduced on September 24, rising to 25% on January 1. Should China take retaliatory action, President Trump has promised to move onto phase three of the strategy, placing tariffs on an additional $267 billion of imports. While these tariffs are thought to spread to consumer goods, it seems some tech companies will escape any financial burdens, at least for the moment.

“After a thorough study, the USTR concluded that China is engaged in numerous unfair policies and practices relating to United States technology and intellectual property – such as forcing United States companies to transfer technology to Chinese counterparts,” said Trump. “These practices plainly constitute a grave threat to the long-term health and prosperity of the United States economy.”

While the White House has attempted to shield the consumer from the negative impacts of the tariff strategy, it was only going to be a matter of time. Not only would the domino effect of the initial tariffs eventually spread through various ecosystems, the US only imports so much from China. Two rounds of tariffs worth $250 billion was bound to hit the consumer pocket before too long. That said, certain products feature on the 300-list of exempt products.

You can see the full list of products on the tariff list here. It is of course incredibly wide ranging, it’s 192 pages long, though the consumer’s back pocket will almost certainly be hit. Seafood features heavily to start, and fans of frogs legs will also suffer. Vegetables are there, as is vinegar. Suitcases, golf bags, baseball mitts, bible paper, carpets, hats and car seats will also be included.

Looking at the technology industry, smart watches, wireless headphones and smart speakers are believed to be on an exempt list, though this is only from the US side. US heavyweights such as Apple might be largely free of collateral damage for the moment, though China will hit back before too long.

Trump might be looking to protect industries and consumers which will largely be in his support camp, though this is not to say Beijing won’t look to inflict damage here. In response to the tariffs imposed in June, China hit back against the farmers, and while iLifers might have been protected thus far it would certainly be a big scalp to claim. Considering the reliance Apple has on China, this would certainly be an effective move.

So far the consumer may not be that concerned about the escalating trade war, as the short-term benefits are a PR win for Trump. Presidential speeches can focus on driving more jobs back onto US shores and the bank accounts are bulging thanks to the tariffs. But this round of tariffs will certainly make life more expensive day to day.

In excluding certain products from tariffs, the Trump administration has simply pointed towards products which it believes could cause political damage. With such an open goal, we imagine the Chinese government will take an incredibly long run up at the consumer technology industry. Look out Apple, Beijing might be eying you up.

Trump sets Bezos in his sights

Amazon is the latest company to get President Trump’s own brand of condemnation as the Commander-in-Chief takes to Twitter to rant and rave.

The attention from the oval office has seemingly gotten a few people a little bit uncomfortable as share price has dipped by about 2% during overnight trading, as it seems Trump is targeting the interesting tax set up at the internet giants offices. There have been rumours Trump has been stalking CEO Jeff Bezos to figure out how he can claw back some tax dollars.

White House spokesperson Sarah Sanders commented that there “aren’t any specific policies on the table at this time,” but Trump was “looking to create a level playing field for all businesses”.

The issue here is down to physical presence. Legal precedent has been set in the US stating that the individual states cannot claim sales tax where the company does not have a physical presence. Certain states now argue that the world has changed since the original ruling in the early 90s, and therefore the rules should change also.

This is not the first time the President has targeted Amazon however. Last August, Trump criticized the company for causing great damage to smaller retailers causing a 1.2% drop in share price. Amazon may be causing damage to some businesses, but it (as well as other eCommerce sites) are enhancing prospects for those who are digital orientated. The number of potential customers go through the roof and some of the most notable overheads disappear.

The issue here is that Trump wants to protect those who have been making money in the more traditional manner. The real estate gurus who build shopping malls or high streets around the country; these are the people who are becoming increasingly vulnerable in the connected economy. One aspect of the rant which we can’t get our head around is the comment about destroying the US postal system.

Items purchased through Amazon are mostly sent through the public postal system, and while we imagine Amazon would have negotiated favourable rates, the sheer volume would surely kick economy of scale into action. Considering few people send letters anymore, we wonder what the condition of the postal service would be without it being propped up by the eCommerce giant. Last year, revenue from package deliveries increased $2.1 billion (12% year-on-year) which is seemingly the only area of the postal service which is successful. The basic concept of the postal service is in crisis, but Amazon (and other eCommerce deliveries) seem to be the only thing propping up the successful part!

Interestingly enough, Facebook has not received any criticism from the President, so you have to wonder whether there is another reason for the dislike of Amazon. Both companies should tick the box for Trump when it comes to abusing the American people, but only one of the owners owns a major news publication which doesn’t bend to the will of the erratic President.

The next couple of months might be a pretty uncomfortable period for Amazon and Jeff Bezos. Trump might be respected by all as an incredibly intelligent, compassionate or logical individual, but when he makes a promise he almost always follows through with it.