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King Semi Settles Chinese Criminal Trade Secret Case for 60 Million RMB

On October 27, 2022, Shenyang Xinyuan Microelectronics (doing business as King Semi) announced in a securities filing that it had settled a trade secret case with an unnamed company for 60 million RMB (over $8 million USD) and received 40 million RMB of the settlement. King Semi is a spinout from the Shenyang Institute of Automation, Chinese Academy of Sciences and specializes in semiconductor fabrication equipment founded in 2002. The company that misappropriated the trade secrets was founded by former employees of King Semi.

King Semi and the unnamed company are both semiconductor-specific equipment companies. The latter was established in 2016 and was formed by the company’s former employees.

During the regular interaction with customers, King Semi found that some of the machines sold by the unnamed company were suspected of infringing on the company’s trade secrets. King Semi filed a criminal complaint with the Shenyang Public Security Bureau (PSB) in October 2020, which was accepted in December of that year. After the investigation was completed by the PSB, it was handed over to the procuratorate for review and prosecution.

In August 2022, the first-instance court of Shenyang High-tech Industrial Development Zone heard the case but did not made a first-instance judgement yet.

The unnamed company approached King Semi for a settlement. After negotiation, the two parties reached a Criminal Reconciliation Agreement. The settlement agreement stipulated that unnamed company voluntarily pays a total of 60 million RMB in cash compensation for its violation of King Semi’s company’s trade secrets, which will be paid in four installments and each installment is subject to fulfillment conditions.

Up to now, the unnamed company has paid to King Semi a total of 40 million RMB in infringement compensation for the first two phases, accounting for 51.71% of the company’s 2021 audited net profit of 77.3495 million RMB. The remaining two phases of compensation totaling 20 million RMB will be paid only after certain conditions are met, which are not guaranteed.

The text of the filing is available here: 688037_20221027_1_sn9jTSdT (Chinese only).

Principal, and Director of the China Intellectual Property Practice

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