Taiwan sentenced a former Tokyo Electron engineer to 10 years for stealing TSMC chip secrets

The case is the first in Taiwan to use national security legislation to prosecute theft of critical chip technology

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A Taiwanese court sentenced a former Tokyo Electron engineer to 10 years in prison Monday for stealing proprietary data from Taiwan Semiconductor Manufacturing Co., in the first case in which Taiwan has used national security legislation to prosecute the theft of critical chip technology.

The sentence was handed down by Judge Chang Ming-huang at Taiwan's Intellectual Property and Commercial Court to Chen Li-ming, who had previously worked at TSMC $TSM before moving to Tokyo Electron, where he was let go after charges were brought against him. According to Reuters, three additional ex-TSMC employees were each given prison terms of between two and six years. A manager at Tokyo Electron, found guilty of directing others to destroy protected TSMC documents, was given a 10-month term that will not be served, provided no further violations occur within three years.

According to Reuters, the misappropriated information covered two areas of TSMC's cutting-edge manufacturing: its 2-nanometre process node and a next-generation technology designated A14. Under Taiwanese law, semiconductor processes below the 14-nanometre threshold fall into a protected category designated as critical national core technologies.

According to The Wall Street Journal, the court determined that Chen approached three engineers still working at TSMC and persuaded them to hand over restricted documents so that Tokyo Electron could upgrade its equipment. Reuters reported that the court determined four of the five individual defendants had breached Taiwan's National Security Act; files containing the protected information were discovered stored within Tokyo Electron's cloud infrastructure, indicating intent to move the data beyond Taiwan's borders. Four of the five defendants pleaded guilty.

Tokyo Electron's Taiwan unit was fined NT$150 million (about $4.8 million), of which NT$100 million is to be paid to TSMC and the remaining NT$50 million to Taiwan's state treasury. Judges found that Tokyo Electron's local subsidiary had fallen short of its oversight duties, pointing to the fact that the company's own employee reviews had documented Chen's knack for extracting sensitive data from clients and rivals. A financial settlement was reached between Tokyo Electron, its local subsidiary, and TSMC, though neither side has disclosed what it entails.

"We take the court's finding with the utmost seriousness," Tokyo Electron said in a statement. Tokyo Electron further stated that investigators and the court alike concluded the breach was not the result of any institutional wrongdoing on its part or that of its Taiwanese subsidiary, that the data had not been disseminated beyond the company, and that its earnings would be unaffected. Tokyo Electron said the two companies had worked together to put stronger safeguards in place for protecting proprietary information.

TSMC, whose fabrication customers include Nvidia $NVDA, Apple $AAPL, and Advanced Micro Devices, reaffirmed its commitment to pursuing any breach of trade secret protections and announced plans to reinforce the internal controls it uses to safeguard its technology.

According to The Journal, the probe began after TSMC's own monitoring tools picked up unauthorized activity involving restricted data last July. All defendants, including Tokyo Electron's Taiwan branch, have the right to appeal.

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