US Chip Firm Misrepresented Export Control Status of Goods, Canadian Manufacturer Says

A U.S. semiconductor company and a Canadian electronics component manufacturer are locked in a legal battle that could have implications for the export compliance responsibilities of sellers and buyers, particularly within the chip industry.

Apex Micro Manufacturing and its Canadian owners said Oregon-based Lattice Semiconductor misrepresented the export control status of its products when it sold semiconductors to Apex, leading the company to believe the products didn’t require an export license when Apex sold them overseas, including in Hong Kong. The shipments were seized by the Canada Border Services Agency before Apex was investigated by both the Canadian and the American governments, the company told a federal court, causing its customers to cancel contracts with the company and tarnishing its reputation.

In a motion for partial summary judgment filed earlier this year, Lattice argued that Apex failed to prove a “special relationship” existed between the two parties, which was required for Apex to successfully accuse Lattice of negligence that resulted in "economic injuries." The U.S. District Court for the District of Oregon denied Lattice's motion in a decision this month, adding that Apex’s suit legitimately questions whether Lattice had a “special responsibility to act on Apex's behalf in providing accurate information regarding the characteristics of the disputed” semiconductors.

This was because the court said Lattice and Apex had a buyer-seller relationship in which Lattice regularly provided export control information to Apex. This information was based on the “temperature rating” of the items -- which can determine their Export Control Classification Number under the Export Administration Regulations -- and the court said that information was known only by Lattice.

“Lattice and Apex's relationship is not so simple as a party buying plants from a nursery,” the court said. “Given the unilateral control Lattice had over this specific type of information, the Court finds that there is at least an issue of fact whether Lattice had a special responsibility” to give Apex accurate information on the export license requirements for the circuits and whether Apex “had a right to rely on Lattice's representations.”

The case stems from a complaint filed by Apex in 2019, in which company founder Steven de Jaray, his daughter Perienne de Jaray and their friend and Canadian investment adviser Darrell Oswald asked Lattice to pay more than $138 million in damages due to its failure to give adequate “warnings” that the chips it sold to Apex were subject to export license requirements. After Apex allegedly illegally exported the items, Steven de Jaray said Canada in 2010 publicized criminal charges against him and his company, which essentially “branded the de Jarays to be the equivalent of terrorists.”

Even though the charges were later dropped, the de Jarays said they have been refused residency in several places, including Oregon and British Columbia, and have been ostracized by their Canadian community. Steven de Jaray said seven armed CBSA officers, three West Vancouver police officers and police dogs searched his home for more than four hours in “full view of the Eagle Harbour Yacht Club, of which Mr. de Jaray was a longstanding member.”

This led to “community fears and rumors,” which “humiliated and profoundly embarrassed and affected Mr. de Jaray in all of his relationships, both personal and professional,” the suit said.

Steven de Jaray “is now a man without country,” it added. “He was left with no choice but to give up his lawful North American residency due to the events that form the basis of this lawsuit. He now lives on a boat, travelling from port to port, never staying anywhere too long."

In its November decision to deny Lattice’s partial summary judgment, the court said Lattice argued that it “never undertook to make Apex's export decisions nor did Apex ask Lattice to do so.” The U.S. chip company said the two companies’ relationship “was simply that Lattice sold Apex goods.”

But Apex described their relationship differently, saying they had a “longstanding” business partnership that included Lattice selling it more than 300,000 semiconductors worth over $7.5 million. Apex also argued that Lattice knew Apex was a manufacturer that incorporated the semiconductors in devices that would be shipped to third parties. It also said Lattice “knew the importance” of chip companies and customers “staying in compliance with export control laws.”

Apex also pointed to testimony by Lattice’s export control expert, who said at a deposition that datasheets provided by Lattice would "definitely be one piece of information that you would want to look at in order to help identify” how “the item might be classified” under export control laws. The Canadian company said it received “representations” from Lattice, including those datasheets, that said the circuits “were case temperature rated,” which led Apex to determine they “were not export controlled.”

The company also argued that because there was no way for it to know by looking at the circuits whether they were “ambient or case temperature rated,” Apex “had to rely” on Lattice. This “type of relationship between manufacturers and buyers is contemplated in the United States' Export Administration Regulations and the Commerce Control List,” Apex said, according to the court.

Lattice argued that issuing datasheets doesn’t “make every semiconductor manufacturer responsible for tort liability to their customers.” But the court said the two companies’ purchase orders and invoices “show not only a buyer-seller relationship but also a regulated industry that required the manufacturer to supply important information relating to export control status.” The export control status for some parts is based on temperature rating, which is “outside the knowledge or control of the purchaser,” the court said.

“This is information known only by the manufacturer, and the manufacturer must provide information regarding the characteristics of the semiconductor so that the buyer can make a determination about the export control status of the product the buyer is purchasing,” it said. “Making an incorrect determination about export control status can have devastating consequences.”