Toshiba sues South Korean rival SK Hynix over corporate espionage

March 14, 2014


Toshiba Corp. has filed a lawsuit against South Korean rival SK Hynix Inc. for compensatory damages, citing the theft of its technological secrets.

The suit was filed with the Tokyo District Court on March 13, the same day that Tokyo police arrested Yoshitaka Sugita, 52, a former engineer with a corporate partner of Toshiba, on suspicion of illegally passing on highly confidential research data to the South Korean company. Both SK Hynix and Sugita are named as defendants in the lawsuit.

The research data was related to NAND flash memory. Sugita allegedly copied the data between 2007 and 2008 when he worked for SanDisk Corp., a U.S. chipmaker that had a working partnership with Toshiba. Sugita left SanDisk in 2008 and immediately began working for SK Hynix where he shared the research information.

While Toshiba did not reveal the exact amount of compensation it was seeking, one official said the damage from the stolen data came to at least 100 billion yen ($975 million).

According to sources close to the investigation, Sugita worked for U.S. and South Korean semiconductor companies after graduating from college. He later worked at SanDisk where he had access to Toshiba research data on NAND flash memory that is used in smartphones and other electrical equipment.

While the public and private sectors have worked together in order to prevent the leaking of advanced technological information, the efforts have so far fallen short.

The law covering the passing on of corporate secrets was revised in 2009 to lower the requirements whereby arrests can be made. While Sugita allegedly stole the Toshiba research data before that legal revision, sources said the arrest was made because police officials were confident that the sharing of the research data with SK Hynix was sufficiently egregious to allow for the application of the law before it was revised.

Although Toshiba issued a statement March 13 where it said it would implement stronger measures to prevent the illegal outflow of technology, an official with the Ministry of Economy, Trade and Industry said, "The environment now is more conducive to the leaking of information overseas."

A major reason is that globalization has led many companies to move even core manufacturing technological know-how to overseas plants. That means their technological secrets are now more easily accessible to foreign companies.

The emergence of South Korean and Chinese companies as strong rivals to Japanese manufacturers after 2000 has only exacerbated the proliferation of illegal transfers of Japanese technology. That is because the workforce reductions carried out by Japanese companies trying to compete, and the resulting moves by newly unemployed Japanese engineers to Asian companies offering higher salaries, have only accelerated the pace that advanced technology has spread to foreign firms.

In one such case, Japanese steel giant Nippon Steel & Sumitomo Metal Corp. filed a civil suit against its South Korean rival POSCO. Nippon Steel & Sumitomo Metal claimed its corporate secrets were passed on to POSCO by former employees of the Japanese company. The steelmaker's technological information was further spread by a former POSCO worker to a major Chinese company.

Such leaking of trade secrets is not uncommon.

In a 2012 survey by the industry ministry, of the 3,000 or so companies polled, 13.5 percent said there had been either a leak or suspected leak of their corporate secrets over the past five years. Half of the cases involved former employees passing on the information after they left the company.

Some of the cases involved employees handing over information for money, as well as former executives passing on the information.

However, few companies use the judicial system to seek redress because the speed at which technology advances means it can quickly become obsolete during the course of court proceedings.

For those reasons, Japanese companies have taken their own in-house steps to prevent the leaking of confidential information.

At Panasonic Corp., employees are not allowed to bring in their computers or memory devices into rooms where confidential information is accessible. Computers in those rooms are also programmed to not allow the storage of data and the use of computers is stringently recorded.

In Toshiba's case, an employee of a partner company had access to confidential research data.

An executive with a major electrical equipment company said, "It is impossible to prevent all leaking. If an employee changes jobs, there is no way to take back the know-how and information in that individual's brain."

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NAND flash memory used in smartphones (Provided by Toshiba Corp.)

NAND flash memory used in smartphones (Provided by Toshiba Corp.)

  • NAND flash memory used in smartphones (Provided by Toshiba Corp.)

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