Ex-SanDisk Employee Arrested in Japan, Civil Suits Filed in the Wake of Alleged Flash Memory Trade Secrets Misappropriation

Technology firms SanDisk and Toshiba recently filed trade secrets lawsuits on opposite sides of the Pacific, each alleging misappropriation by a third party stemming from the two companies’ joint venture.

SanDisk filed in California (seeking damages and injunctive relief) and Toshiba in Japan for alleged misappropriation of trade secrets from SanDisk and a SanDisk-Toshiba joint venture. In Japan, the alleged perpetrator was arrested.  Engineer Yoshitaka Sugita, his former employer, SK Hynix, and two wholly-owned North American subsidiaries stand accused of misappropriation.  SK Hynix is accused in both the California and Japan actions.

Although flash drives are often mentioned merely as one tool thieves use to abscond with trade secrets, in these lawsuits, they’re the subject matter here.  The trade secrets at the heart of these cases involve flash memory devices, process flows, and related materials.  In particular, as the world’s largest supplier of flash storage cards, SanDisk has developed its own flash memory designs and devices.  In addition, SanDisk has co-developed manufacturing processes with Toshiba, known as “process flows,” as well as specific recipes that dictate such details as what equipment to use, settings, and the duration and order of each step in the processes.  Pursuant to its agreement with Toshiba, SanDisk maintains sole ownership of its intellectual property while jointly owning the processes co-developed by the two companies.

The alleged misappropriation of these trade secrets occurred at a SanDisk-Toshiba joint venture in Yokkaichi, Japan, where the two companies consolidated their manufacturing efforts at a semiconductor fabrication plant.  In 2008, the companies entered into an agreement to develop flash memory devices and processes.

Despite having signed a non-disclosure agreement, Sugita, an engineer at the Yokkaichi plant with access to SanDisk’s and the joint venture’s trade secrets, allegedly downloaded a significant quantity of trade secrets, including semiconductor fabrication process flows, steps and recipes, circuit layouts, research and development analyses and results, optimal process tool settings, and various other design, device, process, and operational and business trade secrets.  Purportedly armed with these misappropriated trade secrets, Sugita then went to work for competitor SK Hynix.

The alleged scheme came to light in January 2014, when SanDisk learned through an informant that Sugita had provided SanDisk’s trade secrets to SK Hynix.  SanDisk’s civil suit alleges that documents captioned “SanDisk/Toshiba Confidential” were distributed among SK Hynix employees and even posted to an SK Hynix database.  As an example, SanDisk points to one such document—printed on SK Hynix paper, but still bearing the SanDisk-Toshiba caption—which compared the SanDisk-Toshiba technology with SK Hynix’s technology and listed ways in which SK Hynix would employ the misappropriated trade secrets.

To be sure, the defendants in these suits won’t soon forget what happens when you (allegedly) try to steal someone’s memory.