Taiwan has initiated trade secrets investigations within its crucial chip sector, operating under its broader national security framework. The focus of these investigations has surprised many on the island.
Notably, the initial targets are not companies originating from China. Instead, prosecutors are examining Tokyo Electron and Intel, entities that Taiwan typically considers allies.
This development has raised questions regarding the extent to which Taiwan is prepared to go to safeguard its core chip technology amidst a constantly shifting global political landscape.
Key Investigations and Legal Actions
Prosecutors announced last week that they have charged the local subsidiary of Tokyo Electron for alleged failures to prevent technology theft linked to TSMC.
Just days prior, investigators conducted searches at two residences associated with Lo Wei-jen, a former TSMC executive who departed the company in July to join Intel. Authorities stated that the raid was prompted by concerns that Lo might have divulged "national core critical technology" to his new employer.
TSMC had previously filed a lawsuit against Lo for violating a non-compete agreement, expressing strong suspicion that he would "use, leak, disclose, deliver, or transfer TSMC’s trade secrets and confidential information to Intel."
Geopolitical Context and Shifting Alliances
Legal and industry experts in Taiwan have expressed approval of the authorities' decision to finally address these threats seriously, recognizing TSMC's technology as pivotal to the island's position in the global economy.
TSMC remains the world's leading chip manufacturer, supplying the most advanced chips essential for applications ranging from data centers to AI servers. However, the direction of these investigations has been unexpected.
While China has historically been identified as a primary source of technology theft, these initial cases involve Tokyo Electron, a supplier of chip manufacturing equipment, and Intel, a company that both purchases TSMC chips and competes with it.
Sources in Taipei suggest that the timing of these probes is connected to concerns about the reliability of the island's principal security partner, the United States. Officials have expressed unease following remarks by Donald Trump regarding a potential "deal" with China and his claims that Taiwan had been "stealing" US chip business while simultaneously relying on American defense support.
A Taiwanese chip executive based in the US reportedly described the situation as a "man bites dog" moment, given that the probes target companies that deviate from the typical threat narrative. Taiwan's actions could potentially jeopardize its geopolitical relationships, and provoking Trump at this juncture, while still requiring protection against China, is seen as a risky move.
Heightened Political Tensions and Regulatory Framework
Earlier this year, under pressure from the Trump administration, TSMC increased its planned US investment from $65 billion to $165 billion. Despite this, US officials have indicated a desire for half of all chip production to occur on American soil, a target that extends beyond TSMC's immediate capabilities.
In August, Washington announced its intention to acquire a 10% stake in Intel, aiming to re-establish the struggling American firm as a national champion.
While prosecutors have not accused Intel of any wrongdoing and have stated that the investigation solely concerns Lo, analysts suggest that Washington could still exert pressure on Taipei if the case becomes detrimental to US interests.
James Chen, a professor at Tamkang University in Taipei, commented that Taiwan possesses "very limited options to refuse US requests and pressure," particularly as it seeks to mitigate Washington's 20% tariff on Taiwanese exports and secure support for President Lai Ching-te's firm stance against China.
The legal framework established in 2022 was specifically designed to prevent the leakage of "national core critical technology," with a particular emphasis on China.
For years, Taiwan has witnessed engineers moving to Chinese chip manufacturers. Liang Mong-song, who joined SMIC in 2017 and is now its co-CEO, is one such example. He and other former TSMC employees have played a role in helping SMIC reduce its technological gap.
The updated legislation imposes more severe penalties for leaks to China compared to those directed at partners like Japan or the US. Nevertheless, experts believe it still falls short of the government's initial objectives.
Former President Tsai Ing-wen had advocated for extensive powers enabling the state to initiate cases independently. However, Parliament ultimately approved a version that more closely resembles the US Economic Espionage Act, stipulating that prosecutors can only act upon a complaint filed by a Taiwanese company.
Investigators are now tasked with building robust cases.
In the case involving Tokyo Electron, prosecutors have already charged former TSMC employees with technology theft. However, the charge against the company itself pertains to its alleged failure to prevent such actions. Jeremy Chang, director of an institute affiliated with Taiwan's tech ministry, stated that this case establishes a clear precedent requiring companies to implement more stringent compliance programs.
Tokyo Electron has asserted that the indictment does not claim the company instructed anyone to steal technology and has pledged to enhance its internal controls. Intel has stated that it prohibits its teams from utilizing external technology and sees no basis to believe the claims against Lo hold merit.
Observers anticipate that behind-the-scenes political pressure may emerge as Taipei prioritizes maintaining US support.
Chen further commented, "The government might have some thoughts of intervening or using leverage, but they cannot directly intervene in the judicial system." He added that the situation is now "very politicised and sensitive."