SAN FRANCISCO, Aug 25 (Reuters) - As the United States steps
up its campaign to block China from acquiring key technological
know-how, the winding journey of a pioneering Silicon Valley
computer chip firm is showing just how tough a task that can be.
Co-founded over 35 years ago by Stanford University
professor John Hennessy, who is currently the Chairman of
Alphabet Inc, MIPS Computer Systems Inc had developed a new
approach to chip architectures that remains in wide use.
In late 2018 and 2019, as the U.S.-China tech trade war was
in full swing, the core technology of MIPS was licensed to a
Shanghai-based firm, CIP United Co Ltd, via a complex series of
transactions involving companies in the Cayman Islands and
For a graphic on MIPS' changing ownership, click on https://tmsnrt.rs/2Ythl9G
Today, CIP controls full MIPS licensing rights for all new
and existing customers in China, Hong Kong and Macau, as well as
the ability to develop new derivative technologies based on the
MIPS architecture, according to four people with knowledge of
"A license for all of mainland China has already been sold,
lock stock and barrel," one of the people said. The deal was
worth $60 million.
The details of the MIPS licensing deal and the transactions
that preceded it - revealed in U.S. bankruptcy proceedings
involving MIPS' parent company, Wave Computing Inc, and
interviews with nearly two dozen people - offer a rare glimpse
into how foreign firms were able to gain access to one
strategically important American technology.
CIP United declined to comment about the MIPS licensing
deal. Wave, through a public relations firm, said the company
and its law firms believe its new management team is confident
the company has complied and is compliant with rules on export,
import and foreign investments regarding the MIPS licensing
A 2019 CIP investor presentation, seen by Reuters, shows how
the company was intent on using MIPS to help China catch up to
the United States in advanced semiconductor technology, which is
critical for everything from smartphones to sophisticated
The MIPS license promises to provide "core technology" that
will help China "implement the ambitious goal of Made in China
2025," the presentation stated, referring to a government
program to achieve self-sufficiency in strategic industries.
The United States has often cited the 2025 program as the
reason for national security measures aimed at stopping China
from accessing U.S. technology. A June 2018 document from the
White House Office of Trade and Manufacturing Policy, states:
"In policy documents such as Made in China 2025, China has
articulated the target list of technology sectors it seeks to
dominate. Much of recent Chinese investment behavior appears
consistent with this target list."
Increasingly mindful that it has triggered U.S. backlash,
Beijing began to downplay Made in China 2025, Reuters reported
in 2018. https://reut.rs/3grYrWF
Since Washington tightened restrictions on direct Chinese
investments into U.S. tech startups in late 2018, licensing
agreements and offshore entities have become a popular avenue
for technology transfer, according to Silicon Valley venture
capitalists, lawyers, and tech startup CEOs interviewed by
Reuters. That was also the case with MIPS.
The Committee on Foreign Investment in the United States
(CFIUS), a U.S. interagency panel led by the Treasury
Department, reviews proposed transactions to ensure they do not
harm national security. But licensing deals are not typically
subject to CFIUS review and considered legal as long as they
aren't designed to skirt regulations and comply with U.S. export
control laws, which regulate the shipment of strategically
"China is using joint ventures or licensing agreements to
transfer technology to China rather than work long-term with a
U.S. partner, and it will be important to examine those
agreements more carefully to keep company technology onshore,
said Michael Brown, a veteran tech executive who now heads an
innovation unit at the U.S. Department of Defense.
CFIUS didnt reply to request for comment on this issue, or
on any specifics related to the MIPS technology transfer.
Hennessy told Reuters he sold all his MIPS related shares by
2005 and was not aware of the details of licensing deals in
Wave filed for Chapter 11 bankruptcy protection in late
April after it was forced to return $40 million to an investor
as a funding deal related to the acquisition of MIPS went sour,
according to court documents.
The agreement with CIP in China, however, remains in place,
with numerous Chinese companies - including telecoms giant
Huawei Technologies Co Ltd licensing the MIPS
technology from CIP, according to a former CIP engineer. Huawei
has faced U.S. accusations of pilfering tech secrets and using
its own gear to help the Chinese governments spy network.
Huawei has denied these allegations. Huawei confirmed to Reuters
that it is a royalty paying customer, but declined to elaborate
MIPS has been an important foundational technology for China
as it ramped up its domestic chip efforts, according to a former
senior engineer for Huawei and two American chip consultants who
have worked closely with China. China has been striving to build
up a chip industry thats independent of the United States and
has tried in the past to use the MIPS architecture to build its
own microprocessors, the complex chips that are the brains of
most electronic devices, according to independent chip
consultant Nick Ilyadis.
The path to sending the MIPS core technology to China
started out with a maneuver to help ease U.S. concerns about
Canyon Bridge, an investment firm which Reuters has reported
was founded partly with Chinese government funds, announced in
September, 2017 that it was buying Imagination Technologies, a
UK-based graphics chip company that was then the owner of MIPS.
Acquiring MIPS would have subject the transaction to a
review by CFIUS. The deal was ultimately made contingent on
completing a reorganization to separate MIPS from the remainder
of the group, according to an Imagination press release dated
September 22, 2017 announcing the MIPS sale.
Imaginations chief executive Ray Bingham, who is also a
partner of Canyon Bridge, did not reply to requests for comment.
From the Imagination spin-off, MIPS changed hands multiple
times before ending up inside Wave Computing, a company that
counts Canyon Bridge and China's Alibaba Investments Limited as
Reuters could not determine if Alibaba or Canyon Bridge were
aware in advance of Waves plan to license the MIPS technology
to a Chinese company. Alibaba didn't reply to a request for
comment and Canyon Bridge declined to comment about the MIPS
The Alibaba and Canyon Bridge investments in Wave did not
require a CFIUS filing because their investments were passive
and below the 10% threshold that would require such a filing,
according to CFIUS experts.
Two former CFIUS members, who declined to be named, said
they would have looked into the Wave investments to determine if
the investments were in the purview of CFIUS scope. CFIUS had
already denied Canyon Bridges takeover of U.S. chip maker
Lattice Semiconductor after Reuters had reported Canyon Bridge
was backed by the Chinese government. https://reut.rs/2E6QRDZ
I wanted a harder line" for CFIUS oversight of tech
investments, said James Lewis the director of the technology
policy program at Washington-based Center for Strategic and
International Studies. He helped draft some of the language of a
2018 bill that strengthened regulation of direct foreign
investments, but did not resolve U.S. oversight of licensing
Its no surprise when you closed one avenue, said Lewis,
referring to direct investments into tech start-ups, the
Chinese looked for another.
(Additional reporting by Stephen Nellis in San Francisco, Echo
Wang and Koh Gui Qing in New York, Alexandra Alper in
Washington, and Josh Horwitz in Shanghai; Writing by Jonathan
Weber; Editing by Edward Tobin and Carmel Crimmins)