Byline: Sherri Buri McDonald The Register-Guard

CORRECTION (ran 10/17/2006): The name of Pat Egan, Gov. Ted Kulongoski's chief of staff, was incorrectly spelled in a story about Hynix on Friday.

In late August, Hynix announced it was embarking on the biggest upgrade of its Eugene

Crediting his June trade mission to South Korea for helping to deliver that investment, Gov. Ted Kulongoski said in prepared remarks: "We're working hard to create an economy that is strong, competitive and fair, and we're fortunate to have Hynix as a long-term partner."

But some question just how good a partner Hynix is in that effort, in light of recent admissions of price fixing by Hynix officials in Korea and California.

Just a month before Hynix's August announcement, Oregon's attorney general filed a lawsuit against seven computer memory manufacturers, including Hynix's parent companies in California and South Korea, seeking relief for Oregon consumers who paid more than they should have for their computers. Hynix and three other computer memory producers have pleaded guilty to criminal price fixing for dynamic random access memory, or DRAM, from 1998 to 2002.

Oregon is one of 34 states that filed the antitrust complaint in July in U.S. District Court for the northern district of California.

The states' lawsuit stems from a 2002 criminal investigation by the U.S. Department of Justice, which unearthed what justice officials have called "one of the largest cartels ever discovered."

As a result of the investigation, Hynix, Samsung, Infineon and Elpida and twelve individuals were charged with, and pleaded guilty to, criminal price fixing and paid fines of more than $730 million. Hynix paid $185 million in fines, and several Hynix executives will be serving jail time.

For its part, Hynix Semiconductor Manufacturing America (HSMA) Inc. - the Eugene production plant - says that it isn't implicated in any legal disputes against its parent companies.

HSMA "is a legally separate entity" from its parent companies in California or Korea, so the Eugene plant "is immune to all issues related to price fixing," said Eugene spokesman Bobby Lee.

That doesn't square with Bern Johnson, director of a Eugene-based environmental law group and a longtime critic of the more than $50 million in property tax breaks Hynix has received over the years by locating its factory in Eugene's enterprise zone.

"The Eugene operation is a wholly owned subsidiary," Johnson said. "It is part of a corporation that apparently has committed illegal acts."

"The bottom line is corporate structure shouldn't be used to avoid accountability," he said.

Johnson said he was glad to hear the state is trying to recover money for Oregonians who were harmed by price fixing. But he questions whether Hynix should still be getting tax breaks, including those for the latest upgrade, if corporate officials have broken the law.

"It would be too bad if with one hand the state is giving this company tax breaks, and with the other hand, the state has to be suing the company to recover on behalf of consumers who were harmed by illegal activity," he said.

"It seems that if a company is doing illegal activity that is harming people in Oregon, the state of Oregon shouldn't be giving that company tax breaks."

But that's not how the state enterprise zone rules are written.

Back in 1999, a California jury verdict awarding $14.2 million to a recruiter who filed a discrimination-related lawsuit against Hynix - then called Hyundai - spurred an investigation by the Lane County assessor into whether Hyundai should be disqualified from tax breaks. The probe was put on hold while the state Legislature adopted new enterprise zone rules, which ultimately cleared Hyundai.

The rules previously required companies receiving tax breaks to comply with "all local, state and federal laws applicable to the firm's business."

The updated rules require tax break recipients to comply with laws of the U.S. Congress, the Oregon Legislature and the city and/or county that sponsored the zone. The complicated new administrative rules also lay out what types of illegal acts could disqualify a company.

Deputy Attorney General Pete Shepherd declined to speculate on whether the rules would apply to Hynix.

"Whether a given form of misconduct would disqualify a company from enterprise zone benefits depends on many different factors under the rules," such as the type of conduct and how the company responded to the conduct, Shepherd said.

"Given all those different elements, it would be foolhardy for somebody in the Attorney General's office to purport to apply them to Hynix or any other company," he said.

County assessor Jim Gangle said no one has asked him to investigate whether the price fixing would disqualify the company from tax breaks.

"If someone wrote a letter and said, `You need to take a look at this,' I probably would take a look at it," said Gangle, who remains in his position until Jan. 2.

Eugene city councilor David Kelly said he thinks the council will want to know whether the price fixing offenses affect Hynix's tax waiver, and if Hynix in Eugene was strongly connected with the price fixing.

"The amount of tax that Eugene is forgoing is significant," Kelly said, "so I think the council would have an interest in getting answers to these questions."

That said, he added that "after a rough start-up (Hynix has) been a very good corporate citizen. So I'm not thinking of Hynix in Eugene as a bad guy in any way."

Pat Eagan, the governor's chief of staff, said that the underlying criminal behavior - the price fixing - didn't happen anywhere near Oregon.

Hynix officials "have agreed that behavior that was criminal and fit the definition of antitrust occurred," Eagan said. "They've gotten rid of those individuals, and our understanding is there's not more of that behavior going on."

The governor's June trade mission to South Korea had a duty to meet with Hynix officials in Seoul because Hynix is a large regional employer in Oregon and the company had been hinting at expansion, Eagan said. Hynix employs 1,150 workers in Eugene.

"If we had shunned them for something they had already agreed had happened and was four years old, I'm not sure that that would be wise behavior on our part, and I'm not sure that anyone would argue that that's what we ought to do," Eagan said.

Hynix pleaded guilty in May 2005 to a charge that it participated in a conspiracy to suppress and eliminate competition by fixing DRAM prices from April 1999, to June 2002, according to the multistate lawsuit. That action violated the federal Sherman Anti-Trust Act. The conspiracy unlawfully fixed the prices that Dell, HP, Compaq, IBM, Apple and Gateway paid for DRAM, the lawsuit said.

The multi-state case filed this year has not yet been scheduled for trial, and it could take years to be resolved, said Jan Margosian, spokeswoman for the Oregon Attorney General's office.

It's unclear what the outcome of the case might be. Sometimes in large antitrust cases, consumers receive cash back, or coupons. Sometimes the loss per person is so small, Margosian said, that it makes more sense for the company to make a large cash payment to an organization, such as an educational institution.

"I don't think people realize when it comes to antitrust cases, if (the manufacturers) get together and fix prices, then consumers end up paying more for the product," Margosian said.

"I think they're the perfect cases for government because most of the time, there's no way for the average consumer to know they were victims," she said.