UK court says Chinese operation must sell Scottish chip biz stake without delay

'Satisfied' the risk to national security is 'a real and significant one' that should not be 'prolonged'

The High Court of Justice in the UK has rejected a plea from a China-owned operation for a temporary injunction on a government order requiring it to sell its stake in a Scottish chip design business.

The London court this month handed down a judgment refusing an application for interim relief from FTDI Holding Ltd, while a judicial review is carried out on the order requiring it to dispose of its 80.2 percent share of FTDI, a fabless semiconductor company specializing in USB devices.

FTDI Holding is listed at Companies House as a company registered in Britain, but is owned by five limited partnerships based in China linked to Jiayin Investment Ltd, a state-owned investment company.

The order in question was made last November by the Chancellor of the Duchy of Lancaster, stating that China's acquisition of a controlling interest in the chip company had given rise to national security risks. These were cited as the potential for transfer of UK-developed semiconductor technology and IP to the Middle Kingdom, and that FTDI's ownership could be used to disrupt critical national infrastructure.

This was a final order requiring the holding company to produce a draft disposal plan within 30 days and followed a call-in notice sent to it almost a year earlier on November 22, 2023, after it acquired its 80.2 percent share of FTDI in December 2021.

As previously noted, the Chancellor of the Duchy of Lancaster is the second-highest-ranking minister in the British Cabinet Office after the Prime Minister, and the current holder of the post, Pat McFadden MP, was exercising powers under the National Security and Investment Act 2021 (NSIA), which allow the government to intervene in business acquisitions in order to protect national security.

In its judgment, the High Court stated that the Chancellor was exercising, and was entitled to exercise, the powers of the Secretary of State under the NSIA.

It further stated that it was satisfied that the risk outlined by the Duchy of Lancaster was "a real and significant one," and that the grant of interim relief would "prolong the period of the risk."

The NSIA has most notably been used by the UK government in the case of Newport Wafer Fab, the country's biggest semiconductor manufacturing facility, which had been sold to Dutch semiconductor biz Nexperia, which was itself owned by a Chinese entity, Wingtech Technologies.

In that case, the UK government used the legislation to retroactively unpick the deal, and Newport Wafer Fab was controversially sold off to US-based technology company Vishay Intertechnology instead.

In a statement sent to The Register, FTDI Holding said it was disappointed by the court's decision, and rejected the notion that it represented a security risk.

"FTDIHL continues to believe that its ownership of Future Technology Devices International Limited ('FTDI') does not, nor has it ever, presented a risk to UK national security and that a remedy short of divestment would adequately mitigate any apparent national security concerns.

"One of the purposes of the injunction was to pause the requirement to divest FTDIHL's shares in FTDI whilst the outcome of the judicial review proceedings remains undecided.  As part of its application for the injunction, FTDIHL had proposed a package of interim measures which would have mitigated any perceived risk to national security."

The company noted, however, that the court stated "there is a realistic prospect that permission for judicial review would be granted on one or more grounds." ®