(Bloomberg) — Applied Materials Inc. is suing a Chinese-owned rival over what it says was a 14-month effort to steal some of its most valuable secrets, allegedly including an orchestrated employee-poaching spree and surreptitious transfers of semiconductor equipment designs.
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The biggest US supplier of chipmaking equipment accused Mattson, a Fremont, California-based company acquired by Beijing-backed Beijing E-Town Dragon Semiconductor Industry Investment Center in 2016, of hiring away 17 of its most senior engineers over just more than a year.
They included a senior department manager and researchers who collaborated for years and were privy to sensitive information such as chipmaking processes and the company’s technology roadmap, Santa Clara, California-based Applied Materials said in the court filings. It sued Mattson in 2022 as well as the latest employee to depart, whom the company said finally provided concrete evidence of espionage.
“Many of these documents are highly sensitive, technical, and contain Applied’s trade secrets and know-how which would give Mattson years of competitive advantage in its technology trajectory and development,” the US company said in a March 2022 filing.
Beijing E-Town Dragon Semiconductor Industry Investment Center is backed and operated by the city’s government.
“We are taking legal action to ensure our intellectual property rights are protected,” Applied Materials said in a statement, adding that it “vigorously safeguards” its IP and declined to comment further because of the pending litigation.
The lawsuit, which hasn’t previously been reported, is proceeding as concerns grow about the extent to which China is willing to go in its goal of circumventing US sanctions and acquiring the capabilities to build a world-class chip industry.
Mattson has denied any wrongdoing.
“The claims against Mattson have no merit and will be resolved in our favor,” a spokesperson for the company said in a statement to Bloomberg News. “The complaint in this case was filed 16 months ago and it did not include any evidence to support the allegations against Mattson. No evidence has appeared since then despite a vigorous court process, and none will appear in the future because the allegations are false.”
In a declaration to the court, the most recent defector, Canfeng “Ken” Lai, admitted he sent documents from his Applied email address to a personal account, but only to keep “souvenirs” of his accomplishments.
“I did not intend to use or disclose any confidential Applied information in my new role at Mattson,” he said. “I have never used or disclosed any Applied confidential information (whether or not reflected in the documents I sent to 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 technological information — the second such allegation linked to the Asian country in a year. This week, South Korea prosecutors accused a former Samsung Electronics Co. executive of trying to set up an entire semiconductor plant in China based on stolen blueprints and designs.
In its complaint, Applied Materials laid out in unusual detail what it said were suspiciously similar circumstances around the departure of key employees. It said most of the departing staff wiped their company-issued phones and refused to disclose their new employer, or in some cases lied. One updated his LinkedIn profile with false new employment information temporarily.
In the case of Lai, Applied Materials described how he first tried unsuccessfully to download information onto a USB drive a day after accepting Mattson’s job offer in February 2022, and then emailed volumes of information to himself.
The information transferred 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 chipmaking process in which thin films of chemicals are deposited on a wafer to create layers of insulating and conducting materials.
As a leader in the deposition field, Applied Materials said the new chamber is the first of its kind and will enable production of advanced high-performance chips. Lai also was accused of taking the company’s roadmap for his dielectric deposition products group for 2022 and beyond.
In his declaration, Lai said his responsibilities at Mattson have nothing to do with that technology.
Lai, who has a doctorate and master’s in electrical engineering from US colleges, spent more than three years at Applied Materials in his most recent stint with the company, according to his LinkedIn profile. He previously worked for Applied between 1997 and 2012 and was at two different points employed by its US peer Lam Research Corp.
Lai “attempted to conceal his actions by using innocuous email subject titles like ‘tax,’ ‘note,’ ‘length’ and ‘heater’,” and then during exit interviews, “he lied on three separate occasions,” Applied Materials alleged.
Applied simultaneously sued a group of unknown individuals or corporations that aided Mattson with the “misappropriation” of its trade secrets. The company said in the complaint that its investigation was still ongoing and the full extent of the defendants and potentially others’ wrongdoing was still unknown.
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Applied Materials and ASML make some of the world’s most sophisticated equipment for fabricating chips, a vital component for industries from defense to EVs and computing. China, which imports more semiconductors than oil annually, has been trying to wean itself off a reliance on the US as tensions rise. Washington, for its part, has enlisted allies from Japan to the Netherlands to contain China’s efforts on that front.
US officials have long accused China of engaging in corporate espionage to obtain trade secrets from Western tech firms, allegations that Beijing has repeatedly denied and called slander of legitimate scientific achievement.
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To obtain tech expertise, Chinese firms often relied on acquiring foreign firms in the past, although the maneuver has become increasingly difficult as governments around the world have tightened scrutiny over such deals in recent years.
But back in 2015 and 2016 when few were paying much attention to Chinese firms’ overseas acquisitions, E-Town announced and completed its purchase of Mattson. After ownership restructuring, Mattson is now a wholly-owned subsidiary of E-Town’s eponymous affiliate, Beijing E-Town Semiconductor Technology Co.
Mattson’s parent filed for an initial public offering on China’s Nasdaq-like STAR board in 2021. In its prospectus, the Chinese chipmaker said it supplies equipment to top global customers including Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co., and China’s own Semiconductor Manufacturing International Corp.
E-Town also said it is trying to venture into deposition beyond its existing businesses, a move Applied also highlighted in its complaint. Others that compete in the field include Lai’s former employer Lam and Tokyo Electron Ltd.
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In 2018, under the Trump administration, the Justice Department launched what it called the “China Initiative” to investigate crimes connected to China, focused especially on corporate espionage. But it shut down the program after it was accused of stoking discrimination and multiple cases against academics failed in court or were withdrawn.
–With assistance from Gao Yuan, Ian King and Peter Blumberg.
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