Betrayal: A Silicon Valley way of life

A Santa Clara chip equipment manufacturer accuses a Chinese competitor of stealing trade secrets. So what else is new?

Topics: China, Silicon Valley, Globalization, How the World Works,

In the arsenal of semiconductor company tactics, a lawsuit is often as popular as a way-new bleeding-edge technological breakthrough when the goal is gaining an edge in the marketplace. So the suit alleging “misappropriation” of trade secrets filed in October by Santa Clara’s Applied Materials against Shanghai’s Advanced Micro-Fabrication Equipment (AMEC) is, on one level, no more than business as usual. Similar intellectual-property-related lawsuits are filed almost every day in the chip business.

But the U.S.-China angle means the dispute immediately carries with it all the tensions inherent in that most fractious of all current global trade relationships. Could this be another case of Asian pirates, supposedly incapable of true innovation, stealing hard-earned proprietary technology from the West? And the high-tech gizmos at issue — state-of-the-art chip equipment manufacturing machines — occupy a symbolically potent niche at the top of the semiconductor ecosystem, a niche that has traditionally been dominated by Japan, the U.S. and a few European countries.

Applied Materials is the king of chip equipment manufacturing. Say what you want about Taiwanese and Chinese chip foundries grabbing market share away from the U.S. for the production of semiconductors, but all those foreign companies buy the machines to make their chips from Applied Materials or a tiny handful of other companies.

AMEC is an newcomer to this world — a Shanghai-based start-up aiming to be the first Chinese member of an exclusive club. AMEC specializes in machines that use plasma etching technology (Etch) and chemical vapor deposition (CVD) to build chips — a market currently dominated by Applied Materials.

But guess what? AMEC’s founders include a couple of ex-Applied Materials employees who just happened to be in charge of Applied’s Etch and CVD divisions when they worked for the Santa Clara company. In fact, according to the lawsuit filed by Applied, no less than 30 ex-Applied employees now work for AMEC.

So Applied Materials is hopping mad, or at least pretending to be. In its suit, Applied alleges that Gerald Yin, a former corporate vice president, general manager and chief technology officer at Applied, and Aihua Chen, the general manager of its CVD product group, masterminded a scheme of nefarious behavior including “breach of contract, misappropriation of trade secrets and unfair competition.”

Led by Defendants Yin and Chen, AMEC seeded their company with a multitude of former Applied employees ranging from Applied corporate vice presidents to technologists and engineers…

While semiconductor manufacturing tools are very sophisticated and complex machines that typically take years to design and build, AMEC, armed with Applied confidential information and trade secrets, designed, built and announced the availability of its CVD and Etch tools within one year of starting business in China.

The betrayal!

At the time Yin left Applied, he filled out a Notice of Termination form explaining the reason that he had decided to leave Applied. Yin wrote that he had chosen to retire because he would soon be 60 years old and because he had been working for 36 years after obtaining his college degree.

But then, before you could blink an eye, the dastardly renegade had lined up hundreds of millions of dollars of capital and gone into business competing with his former employer. Oh, the perfidy.

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AMEC, naturally, swears that everything is on the up-and-up. And while asking the district court judge to dismiss the case, the company’s Silicon Valley law firm hasn’t been shy about firing broadsides of their own.

Applied is anxious to label its former employees thieves — but not a single Applied witness has signed his or her name to a sworn document asserting that the named defendants had any access to any particular trade secret, asserting that there is any reason to believe that they misused Applied’s confidential information or breached their employment contracts, asserting that the technologies shown in the AMEC patent applications were actually developed at Applied (and were developed before the applicants left Applied’s employ), or asserting that there is any particular customer of Applied’s that is in imminent danger of being lost to AMEC.

It is impossible to tell from the court documents who is truly in the right, but after reviewing them, the conclusion How the World Works comes to is that the dispute doesn’t tell us anything meaningful about differing approaches to technological innovation on the part of the Chinese and Americans. Instead, it offers a case study of Silicon Valley corporate culture — as it has historically evolved.

A better capsule description of how the game is played in the Valley is hard to imagine. Employees of established companies, armed with a lifetime of know-how and specialized skills, are always abandoning ship to start their own firms, often in direct competition with their former employers. One of the touchstones of Valley lore is the story of the “traitorous eight” — the eight engineers who split from their infamous boss William Shockley to found Fairchild Semiconductor. Almost every chip company in the Valley today, including, most famously, Intel, can trace its own genealogical heritage back to Fairchild.

Academics eager to explain the Valley’s enduring vitality often point to the wide diffusion of intellectual property propelled by wave after wave of start-ups as essential to understanding how the region continues to prosper.

Applied Materials is as familiar with how this works as anyone. Gerald Yin has been in the chip business for a long time. Before joining Applied in 1991, he worked for Applied’s main competitor, Lam Research. (And one assumes he might just have brought some knowledge of Lam’s trade secrets with him when he came over to Applied.) But before Lam, he worked for Intel. Indeed you can connect the dots all the way from AMEC back to the traitorous eight. By deciding to start up his own company, Yin is just doing what the Valley’s DNA dictates, albeit on the other side of the Pacific.

This isn’t necessarily a story about cheating. It’s a story about how technological knowledge spreads.

Andrew Leonard
Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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