// By Stefan Linssen

In 2005, at an Amkor chemical testing facility in Muntilupa City in the Philippines, a hired consultant was reviewing the status of an elaborate qualifications test for a new electroplating solution. The solution, known as ST380, was part of a $265 million research and development budget.

If the test went well, ST380 would be used by Amkor to fulfill a lucrative contract with Intel Corporation, one of the largest manufacturers of microchips. Unfortunately, things weren’t going well; the chemical bath containing the solution was bubbling over and experiencing unnatural voltage fluctuations. Facility employees prepared another chemical bath but ran into the same problems. It didn’t take the consultant long to figure out what was wrong; ST380 had been sabotaged.

While product tampering is highly unusual, intellectual property (IP) violations are a fairly common occurrence in the technology world. A recent report by Semiconductor Equipment and Materials International (SEMI), a trade organization for the industry, says that IP infringement in the semiconductor industry alone costs companies up to $4 billion a year. The report states that customers are one of the greatest, and most difficult, areas of concern and the Amkor event was no different. Although product sabotage raises a whole new set of issues above and beyond simple IP theft, ST380 was an electroplating solution developed by Rohm and Haas, an $8 billion dollar company that manufactures and sells various chemicals, and a supplier for Amkor.

Three years prior to the ST380 tests, Amkor was buying an electroplating solution from a company called Technic, a direct rival of Rohm and Haas. Amkor was using Technic’s electroplating solution to assemble and package microchips for Intel. However, in 2004, due to growing environmental concerns, Intel decided to stop using electroplating solutions that contained lead. For suppliers, this meant that anyone who could provide Amkor with a lead-free electroplating solution would stand to profit from the company’s contract with Intel. It just so happened that Technic’s solution, called “Technic EP,” was lead-free. Competitors quickly began formulating their own lead-free solutions in an attempt to get a piece of the pie.

To Technic’s dismay, it didn’t take long for Rohm and Haas to develop its own lead-free solution—ST380. When news of ST380 reached Technic’s vice president, Robert Schetty, he began to worry about losing his contract with Amkor to Rohm and Haas. Schetty, a science graduate of the University of Pennsylvania, and widely considered a whiz kid by his industry peers, holds several patents for various electroplating and microchip-related technologies, and was also instrumental in creating the Technic EP solution.

A series of emails between Schetty and a Philippines-based Technic salesperson detail the events preceding the Amkor sabotage. Schetty decided Rohm and Haas’ ST380 had to be stopped. He enlisted the help of the salesperson to come up with a means to destroy ST380 before it hit the market.

Rohm and Haas is a company known for aggressively defending its intellectual property. Court documents note that the company filed 174 patent applications in the United States in 2004 alone, the year that ST380 was introduced. “We have always been very, very aggressive in watching this activity, making sure that our IP is protected as can be,” said Kenneth Gedaka, the communications director for Rohm and Haas. “In fact, I can tell you that every employee from the freshest engineer right out of school who joins us right up to our chairman, annually has to abide by a very strict code of business conduct.”

This tough reputation didn’t deter Schetty or the Technic salesperson (whose identity remains anonymous to everyone aside from the U.S. attorney who prosecuted the case). In September 2004, four months before ST380 was scheduled to be tested, the salesperson sent an email to Schetty informing him that she had an “advanced plan” to ensure ST380 would never get out of the testing phase. According to the salesperson, all that was needed was an “alternative chemical to mix with ST380 to [cause it to] fail. A chemical that cannot be analyzed and traced.”

Schetty sent a response saying, “Thank you. You are doing exactly as a good sales-person should do to save this [Technic’s] account… We have no choice but to make sure the ST380 evaluation fails.”

A few weeks before the trial run of ST380, Schetty was showing increasing signs of desperation. He emailed the salesperson and informed her that he had discovered a chemical that would “kill” ST380’s performance run. He told her that 35 percent hydrogen peroxide could be combined with the ST380 to ruin the product, and requested that she acquire it. But when she was unable to find any in the Philippines, Schetty mailed her a bottle of it himself through FedEx. The salesperson then delivered the peroxide to Amkor contacts who were in on the scheme and, in turn, agreed to pour the chemical into the testing bath.

The plan worked. The salesperson emailed Schetty to let him know that the peroxide had indeed caused ST380 to fail the tests. But, that wasn’t enough for Schetty. Ever worried about the future of Technic EP and his Amkor contract, Schetty told the salesperson to dump even more hydrogen peroxide in the bath to guarantee that all successive tests would fail as well. “We don’t know if the first additive alone will make it fail all tests,” Schetty wrote. “Adding both additives is extra insurance… Please do what you can.” The next day, Schetty sent the salesperson a follow-up email stating, “Glad to hear ST380 initial makeup had problems—although I’m sure they will be back soon.” He sent her another batch of hydrogen peroxide intended to ruin the second chemical test.

When asked how often stories of industrial sabotage come about, David Ferran, managing director of the Noblemen Group, a firm that specializes in offering professional services for growth-oriented companies, had a simple answer, “almost never.” Rather, he said a much more common practice is customers handing over the trade secrets of one supplier to another in hopes of bringing down the price of the rival’s product. “With chemicals, it even goes to the extent of providing samples for a rival’s office, because you could always reverse engineer the product. A lot of reverse engineering is encouraged by customers,” said Ferran.

If Schetty’s salesperson could convince Amkor representatives to physically dump hydrogen peroxide into a rival’s product, it’s safe to assume she could convince them to send a sample of ST380 to Technic to study as well. Due to legal gray areas in the laws throughout Southeast Asia, it’s much more likely that Schetty would never have been caught had he gone through that route. So much for an Ivy League education.

Though Schetty faced a maximum 10-year prison sentence with 3 years of supervised release and a $250,000 fine, he pled guilty and on April 16, 2008, about three years after the Philippine sabotage, was fined $100,000 and sentenced to a year of home detention. Schetty also agreed to pay $15,536 to Rohm and Haas in exchange for a plea agreement with the government. What happened to the Technic salesperson remains to be seen. Because her identity is protected by the Department of Justice (DOJ), it’s likely she struck a deal to rid herself of any liability.

“The penalty could have been much more severe, but from our standpoint we’re pleased and thankful to the DOJ that they pursued this activity and that they took it seriously,” said Rohm and Haas’ Kenneth Gedaka. “I think this is at least a two-year investigation; we’re pleased that they were able to stick with it and come to a conclusion. Whether or not that’s the right settlement or not, I’ll leave it up to others to decide.”

Considering that Rohm and Haas paid about $265 million in R&D to develop its chemical products, including ST380, it’s safe to assume that most people would have wanted a lot more money. Unfortunately, that’s generally the case when it comes to IP-related lawsuits. The SEMI report notes that only 48 percent of companies that have taken legal action against IP violations are satisfied with the results. As Gedaka points out, however, “Thankfully, these things are rare. We don’t see this kind of activity often.”

Part of the cause for the unsatisfying results of IP cases could be the extreme sensitivity of supplier/customer relationships. Generally, all the chips are in the customer’s corner. If a supplier brings about a lawsuit, the business relationship will likely end between the two parties, and the supplier could lose a significant source of revenue. As SEMI’s report points out, “Since the prevailing rule in the industry is that the supplier will not take legal action against its customers, suppliers feel helpless.” And, according to David Ferran, “Lawsuits with customers basically mean you kill the business with them.. Usually that’s why nobody pursues that route. It’s just basically they say ‘ok we will lose all our sales.’ I mean, through letting it go you will lose, say, 10 percent of your sales. It’s better to lose 10 percent than 100 percent. So that’s sort of the choice that suppliers have.”

Highlighting the extreme sensitivity of supplier/customer relationships, all parties involved—including the DOJ—remain tight-lipped about the Amkor incident even though all legal issues are now resolved. So what can firms do to protect their IP secrets? The best options tend to be the most simple.

Ferran suggests that suppliers use comprehensive contracts when signing deals with customers. “At least in the initial agreements, there should be provisions to protect the IP and discourage reverse engineering of the product,” he says. “No, it doesn’t mean you’ll be fine because in places people still could ignore this, and you could not be able to fight them. But still, that is the first step.” If you do feel that a customer has engaged in a violation of your trade secrets, which will many times be unintentional, “inform the customer in a professional way and in most times they would actually respond positively.” He also suggests a rudimentary business concept for your protection: Make your product better than your rival’s.

So what happens if you decide to take the “quick” route like Robert Schetty and find a way to sabotage your rival’s product? Well, Rohm and Haas eventually won the contract with Amkor.

1. Electroplating: The process of using electricity to coat a microchip with a thin layer of metal for use in various electronic devices.