Leading US chip-gear maker accuses China rivals of 14 months of espionage activities

(Bloomberg) – Applied Materials Inc. is suing a Chinese-owned competitor over an alleged 14-month effort to steal some of its most valuable secrets, including allegedly orchestrated employee poaching and clandestine transfers of semiconductor equipment designs.

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The largest US supplier of chip manufacturing equipment has accused Mattson, a Fremont, Calif.-based company acquired by the Beijing-backed Beijing E-Town Dragon Semiconductor Industry Investment Center in 2016, of hiring 17 of its top engineers in just over a year.

They included a senior department head and researchers who had worked together for years and were privy to confidential information such as chip manufacturing processes and the company's technology roadmap, according to court filings from Santa Clara, Calif.-based Applied Materials. It sued Mattson in 2022, as well as the most recently departed employee, who the company said eventually presented concrete evidence of espionage.

“Many of these documents are highly sensitive, technical, and contain Applied trade secrets and know-how that would provide Mattson with years of competitive advantage in its technology development and development,” the US company said in a March 2022 filing.

Beijing E-Town Dragon Semiconductor Industry Investment Center is supported and operated by the city government.

“We are taking legal action to ensure our intellectual property rights are protected,” Applied Materials said in a statement, adding that the company “vigorously protects” its intellectual property and declined further comment due to the pending litigation.

The lawsuit, which was previously unreported, continues as concerns mount over China's readiness to meet its goal of bypassing US sanctions and acquiring the skills to build a world-class chip industry.

Mattson has denied any wrongdoing.

“The claims against Mattson are without merit and will be decided in our favor,” a company spokesman said in a statement to Bloomberg News. “The complaint in this case was filed 16 months ago and contained no evidence to support the allegations against Mattson. Since then, despite vigorous legal proceedings, no evidence has emerged and no evidence will emerge in the future because the allegations are false.”

In a statement to the court, the most recent defector, Canfeng “Ken” Lai, admitted he had sent documents from his Applied email address to a personal account, but only to keep “mementos” of his accomplishments.

“I had no intention of using or disclosing any confidential Applied information in my new role at Mattson,” he said. “I have never used or disclosed Applied confidential information (whether or not reflected in the documents I sent myself) outside of Applied.”

Lai declined further comment. E-Town did not respond to a request for comment.

In 2023, ASML Holding NV accused a former China-based employee of helping steal confidential technology information – the second such allegation related to the Asian country in a year. This week, South Korean prosecutors accused a former Samsung Electronics Co. executive of attempting to set up an entire semiconductor plant in China based on stolen blueprints and designs.

In its complaint, Applied Materials set out in unusually detailed allegations of suspiciously similar circumstances surrounding the departure of key employees. It said most of the departing employees deleted their company-issued phones and refused to disclose their new employer, or in some cases lied. One temporarily updated their LinkedIn profile with incorrect new employment information.

In the case of Lai, Applied Materials described how, a day after accepting Mattson's job offer in February 2022, he first unsuccessfully tried to download information onto a USB drive and then emailed himself a slew of information.

The information shared allegedly included 3D rendering, detailed dimensions and material compositions for a new type of chamber or reactor used in deposition, an essential step repeated several times in the chip manufacturing process that deposits thin films of chemicals onto a wafer , to create layers of insulating and conductive materials.

Applied Materials, a leader in deposition, said the new chamber is the first of its kind and will enable the production of advanced, high-performance chips. Lai has also been accused of adopting the company's roadmap for its group of dielectric deposition products for 2022 and beyond.

In his statement, Lai said his responsibilities at Mattson were unrelated to this technology.

According to his LinkedIn profile, Lai, who holds a PhD and master's degree in electrical engineering from US colleges, was most recently with the company at Applied Materials for more than three years. He previously worked for Applied between 1997 and 2012 and was at its US counterpart Lam Research Corp. on two separate occasions. occupied.

Lai “tried to hide his actions by using innocuous email subject titles like ‘tax,' ‘comment,' ‘length,' and ‘heating,'” and then “he lied three times during wrap-up calls,” Applied Materials claimed.

At the same time, Applied was suing a group of unknown individuals or companies that had assisted Mattson in “embezzling” his trade secrets. The company said in the complaint that its investigations were ongoing and the full extent of the wrongdoing by the accused and possibly others was still unknown.

Why China is Focusing US Congress on Computer Chips: QuickTake

Applied Materials and ASML make some of the world's most advanced equipment for manufacturing chips, a critical component for industries ranging from defense to electric vehicles and computers. China, which imports more semiconductors than oil annually, is trying to break away from its dependency on the US amid rising tensions. For its part, Washington has enlisted allies from Japan to the Netherlands to stem China's efforts on this front.

US officials have long accused China of engaging in economic espionage to steal trade secrets from Western technology companies. Beijing has repeatedly denied these allegations, calling them defamation of legitimate scientific achievements.

Chinese spy wanted GE's secrets, but US got China's instead

Chinese firms have historically relied on foreign acquisitions to acquire technical expertise, although this maneuver has become increasingly difficult as governments around the world have tightened scrutiny over such deals in recent years.

But in 2015 and 2016, when few were paying much attention to overseas acquisitions of Chinese firms, E-Town announced and completed the purchase of Mattson. Following an ownership reorganization, Mattson is now a wholly owned subsidiary of E-Town's eponymous subsidiary, Beijing E-Town Semiconductor Technology Co.

Mattson's parent company filed for an IPO for China's Nasdaq-like STAR board in 2021. In its prospectus, the Chinese chipmaker said it supplies devices to world-leading customers including Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co. and China's own Semiconductor Manufacturing International Corp.

E-Town also said it was trying to move beyond its existing businesses into filing claims, a move Applied also highlighted in its complaint. Other competitors in this field include Lai's former employer Lam and Tokyo Electron Ltd.

How China intends to counter US “containment” efforts: QuickTake

In 2018, under the Trump administration, the Justice Department launched what it called the “China Initiative” to investigate crimes related to China, with a particular focus on corporate espionage. However, the program was shut down after it was accused of inciting discrimination, and several lawsuits against academics failed in court or were dropped.

– With support from Gao Yuan, Ian King and Peter Blumberg.

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