A federal judge in the Northern District of California ruled that Chinese state-owned Fujian Jinhua Integrated Circuit Co. and their Taiwanese partners United Microelectronics Corp. were legally entitled to review trade secret information they allegedly misappropriated from Idaho-based Micron Technology Inc. U.S. v. United Microelectronics Corp., No. 18-CR-465 (N.D. Cal.).  The ruling came as part of a DOJ criminal prosecution of Fujian and UMC alleging that the companies stole the technology they have been using to manufacture dynamic random access memory chips from Micron.

Prosecutors and Micron stringently objected that review of the information in Hong Kong, even by Fujian and UMC’s attorneys, would lead to a significant risk of the technology falling directly into the hands of the Chinese government. Despite these concerns, Judge Maxine Chesney ruled on Wednesday that reviewing the information they are accused of stealing is essential to the companies’ legal defense. She also noted that security concerns from reviewing the information in Hong Kong do not match those from reviewing the information on the Chinese mainland.

Against the backdrop of an ongoing trade war between the United States and China, the Department of Justice announced its “China Initiative” in late 2018. A main goal of the initiative is to “[i]dentify priority trade secret theft cases, ensure that investigations are adequately resourced; and work to bring them to fruition in a timely manner and according to the facts and applicable law[.]” The program has been presented by the DOJ as a crucial part of President Trump’s national security plan as it relates to China and, in particular, Chinese theft of American information.

The ongoing case against Fujian and UMC is the first criminal prosecution under the China Initiative  and could be a benchmark for the continuing success of the DOJ’s attempt to rein in Chinese intellectual property theft. In announcing the Initiative, then-Attorney General Jeff Sessions stated, “Chinese economic espionage against the United States has been increasing—and it has been increasing rapidly…. This Initiative will identify priority Chinese trade theft cases, ensure that we have enough resources dedicated to them, and make sure that we bring them to an appropriate conclusion quickly and effectively.” FBI Director Christopher Wray went on to contextualize the effects of China’s actions on American businesses: “If China acquires an American company’s most important technology – the very technology that makes it the leader in a field – that company will suffer severe loses, and our national security could even be impacted.”

It remains to see what effect, if any, the District Court’s ruling this week will have on Chinese government access to American companies’ trade secrets. If though, as Micron worried, their trade secrets fall into the hands to the Chinese government during this court-ordered inspection, it could spell disaster for future criminal prosecutions under the China Initiative. Assuming future judges faced with this question agree that defendants have a legal right to review this evidence against them, these prosecutions may ultimately backfire.