Chinese hustle: chip technology theft reveals a threat to Western industry

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Dutch company ASML accuses a Beijing-based firm of stealing its research secrets

ASML has pressed IP theft allegations against two firms created by a “flagbearer” for China’s semiconductor industry. Picture: BLOOMBERG

That technology was secured in a sometimes audacious fashion: one engineer was accused of stealing all 2-million lines of source code for critical ASML software and then sharing part of it with Xtal and Dongfang employees in the US and China, according to transcripts of the proceedings. China is the world’s largest market for semiconductors. Its electronics factories and growing middle class are vital consumers of chips. Semiconductor companies have struggled for years to balance access to China against concerns the country is seeking to pilfer their intellectual property and overtake them.

China’s ministry of foreign affairs called the allegations “malicious hype”. “Anti-China politicians in the US have been using ‘IP theft’ topics to tarnish China,” the ministry said in a statement. “China didn’t make its technology achievements by stealing or robbing from others.” “If you didn’t do any OPC, then the pattern on the chip is totally scummed,” testified Yu Cao, an ASML executive who was GM of the division that develops the software. “This would be a chip that doesn’t work.”

It is also when Yu started his two companies. Educated in China, he had worked mostly in Japan and the US, including at ASML, which he left in 2012, according to court documents. In January 2014, he incorporated Xtal, based in an office park near San Jose International Airport. A month later, he founded Dongfang, in a government-funded industrial enclave in Beijing.

But after Song Lan, director of engineering, resigned in August 2015, ASML examined his computer. Investigators found he was working for both companies at the same time and had downloaded ASML files to a hard drive that he took to his new employer, according to a filing by the Dutch company in Xtal’s bankruptcy proceedings. The company said it found similar violations involving others who left for Xtal. After Xtal began marketing OPC software, ASML sued.

There’s no sugarcoating with what Wanyu Li did. You can’t do it. It was wrong. It was illegal. Off the charts.The judge informed the jury that Li admitted to destroying evidence, breaking the hard drive’s circuit board into pieces before turning it over to Xtal’s attorneys on the eve of trial, according to trial transcripts.

Both men, through their attorneys, declined to comment. When authorities went to arrest the three men in May 2019, Yu had left for China, West said. In January 2016, Xtal won a $27m contract with South Korea’s Samsung Electronics, a longtime ASML customer, to supply OPC software, according to trial testimony. In two years, Yu’s company had replicated a technology that ASML said it had spent $100m and 10 years developing.

CEO Peter Wennink reiterated that position. “The suggestion that we were somehow victim of a national conspiracy is wrong. The facts of the matter are that we were robbed by a handful of our own employees based in Silicon Valley who had broken the law to enrich themselves,” he said.

 

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