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Semiconductor Firm Again Alleges IP Theft

by Chris Brook on Thursday February 17, 2022

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The company has defended its confidential and proprietary information and trade secrets in the past.

One of the world's leading manufacturers of lithography machines, integral to the production of semiconductor chips, sounds like it’s ready to defend its trade secrets once again.

The multi-billion-dollar Dutch company, ASML Holding NV, warned its customers in its annual earnings report last week that a Chinese firm - one that's affiliated with a company that previously took its data - is marketing products in China that appear to infringe on its intellectual property.

ASML, which claims its considering pursuing legal action, said in the report that it became aware of the actions last year.

"Early in 2021, we became aware of reports that a company associated with XTAL Inc, against which ASML had obtained a damage award for trade secret misappropriation in 2019 in the USA, was actively marketing products in China that could potentially infringe on ASML’s IP rights."

The company, DongFang Jingyuan Electron, which makes semiconductor equipment and software, took offense to the claim last week and seemingly fired back at ASML in a post to one of its social media accounts.

“We have noted the recent emergence of a large number of internet reports related to our company, which are inconsistent with the facts, and we reserve the right to take any other legal actions against the relevant false informations," the company alleged in the post.

Since 2019, the United States has blocked export of the chip manufacturing technology, essential to making chips out of silicon wafers, to China, something that’s largely slowed companies there from making advanced chips of their own. That's translated to booming business for ASML.

ASML is no stranger to trade secret theft litigation. In a victory for the company, a jury in a California court awarded ASML $223 million in 2018 after it found, XTAL misappropriated its trade secrets.

In that case, XTAL, which made electrical design automation for semiconductor systems – since bankrupt, convinced ASML employees to come and work for XTAL. On their way out the door, XTAL pressured them to copy ASML's trade secret data onto hard drives. The employees did just that, copying data including source code, programming language scripts and business information, from their work machines to external storage devices.

Het Financieele Dagblad, a Dutch paper, made waves in 2019 after it published a story that classified the altercation as Chinese espionage. While some of the employees who stole data were Chinese nationals, ASML went on record following publication of the story to downplay concerns it was "Chinese espionage."

Still, ASML emerged victorious. After XTAL was forced to surrender its computers, source code, and other devices for inspection, it was found the company had misappropriated ASML's trade secrets and even stolen one of its customers.

What makes last week's news interesting is that XTAL has connections to DongFang Jingyuan Electron. In that Financieele Dagblad story, the paper reported that at the time, XTAL’s parent company was Dongfang Jingyuan and that it had ties to the Chinese Ministry of Science and Technology.

While it's unclear whether that's still the case – XTAL appears to be defunct and LinkedIn lists China Oriental Group as Dongfang Jingyuan’s parent company -  ASML made clear in its annual report that it’s aware that XTAL and DFJY are associated with each other in some fashion, something that's clearly a concern for the company.

It makes sense that ASML would want to vigorously defend its trade secrets, especially if it claims they’re being used by a company connected to one that’s misappropriated their confidential and proprietary information and trade secrets in the past.

ASML possesses a massive role in the global tech supply chain. Its technology is heavily relied on for printing transistors onto chips and depended on by giants like Intel, Samsung, Taiwan Semiconductor Manufacturing Company, and Apple; so much to the point that many have argued the company has a monopoly on the business.

ASML didn't make it clear in its earnings report whether it has any proof how DFJY is infringing on its IP but given the value of its secrets and the weight on its shoulders, it’s not exactly a surprise that it wants to put pressure on the company.

It's the second story involving alleged China-based trade secret theft to pop up in the last week. Last Monday, Motorola alleged that Hytera Communications Corp. – a two-way radio manufacturing company based in Shenzen - got its employees to steal information while still employed there  from 2007 to 2020.

Tags:  IP theft

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