Engineer Who Fled Charges of Stealing Chip Technology in US Now Thrives in China
(Bloomberg) -- 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.
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As trial testimony alleged, Yu recruited engineers from the ASML division where they worked developing OPC software, and the departing employees assured their managers they would be working on unrelated technologies.
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.
The data taken by Lan, who became Xtal’s vice president of engineering, included source code for ASML’s OPC software, according to the filing. Lan testified that he took the code inadvertently, while backing up his ASML email to preserve personal data. The code was in a file attached to an email that Lan said he never opened.
ASML’s attorneys said they weren’t able to learn the full scope of Lan’s activities. After ASML informed Xtal of its intent to sue, Lan used a wiper program on the hard drive and erased as much as 61 gigabytes of data, according to the filing. Lan didn’t address the deletion in his testimony, as Xtal’s attorneys objected to a question about it.
Another former employee, Wanyu Li, who became Xtal’s IT director, downloaded the source code for ASML’s OPC software—all 2 million lines of it—to a hard drive, according to testimony from ASML forensic experts. Investigators found evidence that Li used it immediately at Xtal, uploading part of the code to a GitHub server where it was accessible to about 30 engineers with Xtal and Dongfang, according to the testimony.
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.
For Yu, Xtal’s troubles did little to slow Dongfang’s ascent.
In 2015, Dongfang signed a research agreement with the Institute of Microelectronics of the Chinese Academy of Sciences, the government’s semiconductor research center, according to Chinese documents. There, Yu caught the attention of Tianchun Ye, the institute’s director and the chief scientist directing China’s chip equipment development. Dongfang and the institute created a joint venture for chip technology development. Since then, Dongfang has won repeated honors and praise from the Chinese government.
Despite losing the Xtal case, Chinese authorities granted Dongfang a wide-ranging patent in 2019 that includes OPC software. Last year, Dongfang announced that it was named a “little giant” by China’s Ministry of Industry and Information Technology, a designation often followed by significant new investment and expectations of rapid growth.
Since returning to Beijing, Yu has raised millions of dollars while being courted by Chinese officials. He appeared on the reviewing stand for a military parade marking the 70th anniversary of China’s founding—an invitation-only affair reserved for elites.
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