Memory rivals brace for legal battle after alleged trade secrets theft

The Toshiba-SanDisk joint venture has filed lawsuits against SK Hynix for misappropriating trade secrets

A former SK Hynix employee is at the center of a brewing legal battle between top flash memory rivals after allegedly stealing trade secrets.

Toshiba and NAND flash joint-venture partner SanDisk on Thursday filed lawsuits against competitor SK Hynix and its subsidiaries, alleging theft and misuse of confidential trade secrets.

The lawsuits, filed in Japan and the U.S., came after Tokyo's Metropolitan Police Department on Thursday arrested former SK Hynix employee Yoshitaka Sugita on charges of stealing trade secrets. The trade secrets were allegedly stolen by Sugita when he was employed by the SanDisk-Toshiba joint venture, and the information was passed to SK Hynix, his next employer. The lawsuits allege misuse of proprietary information by SK Hynix to gain competitive advantage.

Toshiba and SanDisk, which jointly manufacture NAND flash at a fabrication plan in Yokkaichi, Japan, provided information on the alleged trade secrets theft that led to Sugita's arrest on or around Thursday by the police in Tokyo. Sugita is cooperating with the authorities, SanDisk said.

Toshiba filed a lawsuit against SK Hynix in the Tokyo District Court under Japan's Unfair Competition Prevention Act, according to a statement. Toshiba is seeking damages for the "wrongful acquisition and use of Toshiba's proprietary technical information related to NAND flash memory," according to a statement.

A separate lawsuit filed by SanDisk in the Santa Clara Superior Court in California on Thursday against SK Hynix and its U.S. subsidiary alleges that the defendants cashed in on the stolen trade secrets. SanDisk is seeking damages, and remedies for trade secret misappropriation under California's Uniform Trade Secret Act.

SanDisk in its civil suit also alleged that SK Hynix "solicited" Sugita to steal the trade secrets from SanDisk-Toshiba. The confidential information was later used by SK Hynix for technical and operational purposes, including to lay out its future NAND flash roadmap, according to the complaint filed with the court.

A spokesman for SK Hynix in South Korea said the company is still in the process of verifying the lawsuits and has no immediate comment.

Sugita worked at SanDisk-Toshiba from February 2003 and resigned in June 2008, where he analyzed defective products and had access to trade secrets related to NAND flash memory designs, devices and manufacturing processes, according to the document. Sugita allegedly stole trade secrets in May 2008, including "SanDisk's most sensitive and valuable flash memory trade secrets." The 10GB of sensitive information that was downloaded is said to have included data on research and development, design and circuit layouts, process technology, tools, testing, device and business information.

After leaving SanDisk-Toshiba, Sugita commenced work for SK Hynix in July 2008 and was employed there until June 2011. But it was only in January 2014 that SanDisk-Toshiba learned about the trade secret misappropriation through an informant aware of Sugita and SK Hynix's activities. Despite signing a non-disclosure agreement after leaving SanDisk-Toshiba, Sugita allegedly delivered "substantial technical, operational and business trade secret information" which SK Hynix used despite "knowing that it was acquired by improper means," according to court documents.

Toshiba said SK Hynix is a partner, but had to file a lawsuit as a means of redressal. The company said it would will establish "a more robust system for protecting its intellectual property and preventing its loss."

Research firm IC Insights placed SK Hynix as the fifth largest vendor of semiconductors, estimating US$13 billion in sales for 2013. Toshiba was in sixth spot with projected sales of $12.2 billion. In NAND flash, Toshiba ranked second in sales during the fourth quarter of 2013 with sales of $1.5 billion, while SK Hynix was in fourth place with sales of $730.5 million.

Agam Shah covers PCs, tablets, servers, chips and semiconductors for IDG News Service. Follow Agam on Twitter at @agamsh. Agam's e-mail address is agam_shah@idg.com

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