Few companies are better positioned to benefit from the crippling shortage of computer chips than ASML Holding NV, a Dutch manufacturer whose equipment plays an integral role in making the world’s most advanced semiconductors.
But four lines tucked halfway into an otherwise upbeat, 281-page annual report from February hinted at a potentially incendiary problem. ASML accused a Beijing-based firm, regarded by Chinese officials as one of the country’s most promising tech ventures, of potentially stealing its trade secrets. Behind the brief disclosure is an extraordinary multiyear tale of intellectual property theft and a broader threat facing the $556 billion semiconductor industry.
In the report, ASML said the Chinese company, Dongfang Jingyuan Electron Ltd., is related to a defunct Silicon Valley firm, Xtal Inc., which ASML sued for intellectual property theft.
A 2018 trial in California, which received scant attention at the time, provided more detail. Dongfang and Xtal were essentially the same, created a month apart in 2014 by a former ASML engineer named Zongchang Yu, ASML’s attorney told the court. The two companies worked in tandem toward the same goal: obtaining ASML’s technology and transferring it to China, which is seeking to foster its own semiconductor industry, often at the expense of Western companies, the attorney argued.
That technology was secured in 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.
“It’s not an accident. It’s not anything else,” Patrick Ryan, ASML’s lead attorney, told the court. “But it is a plot to get technology for the Chinese government.”
Xtal lost and filed for bankruptcy protection. It was ordered to pay $845 million, which ASML deemed “uncollectable.”
ASML declined to comment for this story. A Dongfang representative declined to comment. Yu, 60, who has an outstanding arrest warrant in California on allegations of stealing trade secrets from ASML, couldn’t be reached for comment. He now runs Dongfang in Beijing with ample support from the Chinese government, according to company statements and other Chinese documents.
The allegations the company made in court and in its annual report reflect the delicate position ASML finds itself in, trying to grow its business in China while pursuing claims of IP theft against a Chinese company.
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.
For now, China lags in semiconductor manufacturing, leaving its most important industries dependent on technology dominated by foreign companies. Making its own advanced chips is a priority that’s complicated by US sanctions that limit access to the latest equipment. Beijing has taken unprecedented steps to clear such hurdles, including launching a $150 billion semiconductor initiative in 2014 to turbocharge domestic production.
China has also encouraged people to steal technology that advances Beijing’s interests, according to the FBI. “China recognizes it needs to make leaps in cutting-edge technologies,” FBI Director Christopher Wray said. “Instead of engaging in the hard slog of innovation, China often steals American intellectual property and then uses it to compete against the very American companies it victimized.”
ASML’s allegations offer a detailed example of what national security authorities describe as China’s playbook to acquire advanced technology. It’s a set of strategies, they say, that depends on inducements from Beijing, theft by well-placed workers, and in at least some cases, a reluctance to complain by corporate victims seeking to preserve or enhance access to the Chinese market.
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