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9th Circuit Reverses Calif. Court's Acquittal of Chinese Businessman's Export Control Violation Charge

The U.S. Court of Appeals for the 9th Circuit, in a July opinion, reversed a California district court's decision acquitting Yi-Chi Shih, an employee at China-based firm Chengdu RML, of conspiracy to violate export control laws via his export of semiconductors to China. Judges Andrew Hurwitz and Ryan Nelson said "a rational factfinder could find that the exported [monolithic microwave integrated circuits] were not exempt from the [Export Administration Regulations] as fundamental research."

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Shih and his colleagues at Chengdu in 2012 began carrying out research for Chinese state-owned China Avionics Systems, which develops military weapons. The next year, Shih tried to procure MMIC foundry services from Cree, Inc., which required Shih to submit an export compliance questionnaire. The questionnaire indicated Cree's customer was MicroEx Engineering, the frequency of the MMICs would go up to 18 GHz and the power up to 10W, and the product was not subject to export controls nor was to be shipped overseas.

Cree made the semiconductors "on wafers suited for high-powered microwave applications," then, in late 2013, shipped them to MicroEx. A few months later, Shih allegedly shipped them to China via "several intermediaries." A grand jury indicted Shih on 10 counts, including for exporting the products without first having obtained a license. The U.S. District Court for Central California acquitted the Chengdu employee on this count, resting its ruling on its construction of the term "rated for operation" in the EAR.

The district court said the term "rated for operation" requires post-manufacture, pre-export testing. While dictionaries define "rated" as meaning "designed," the use of the phrase "designed or rated" elsewhere in the EAR would be surplusage unless "rated" means something other than "designed," the district court said. The 9th Circuit said this interpretation creates a "gaping loophole in the EARs that plainly contravenes their purpose."

Sometimes a better reading of the statute requires "some redundancy," the court said. The judges ruled that if "rated for operation" requires post-manufacture, pre-export testing, someone looking to evade the export controls could just design an export-controlled item, run reliable pre-manufacture simulations, freely export them, then test only after export.

The appellate court said, as a question of evidence, the semiconductors were not exempt from the controls as fundamental research as claimed by Shih. Evidence was insufficient to let the jury find that the Cree semiconductors were "commodities" and not "publicly available technology" that resulted from fundamental research. Various witnesses said the MMICs had practical applications, and Shih's business plans suggested a specific customer would use the chips for these practical applications. The appellate court affirmed Shih's convictions on all other counts.

(U.S. v. Yi-Chi Shih, 9th Cir. # 20-50144, # 21-50175, dated 07/18/23; Judges: Andrew Hurwitz and Ryan Nelson; Attorneys: Khaldoun Shobaki for plaintiff-appellant U.S. government; James Spertus of Spertus Landes for defendant-appellee Yi-Chi Shih)