Taiwan Semiconductor Manufacturing Company (TSM) finds itself fighting a two-front war over allegations that its most valuable secrets are walking out the door. And when you're the world's most advanced chipmaker sitting at the center of the global AI boom, those secrets are worth protecting.

Taiwan prosecutors escalated matters Tuesday by charging Tokyo Electron's Taiwan unit with violations of the National Security Act and the Trade Secrets Act, according to Reuters. This follows an earlier indictment of a former Tokyo Electron employee accused of stealing confidential information from the contract chipmaker.

If convicted, the Japanese equipment giant's local subsidiary could face fines reaching 120 million New Taiwanese dollars, roughly $3.82 million. Tokyo Electron and its Taiwan unit haven't responded to requests for comment, though the company previously insisted it found no evidence that the organization itself was involved in any alleged theft.

The Intel Connection

Meanwhile, Taiwan Semiconductor opened a second legal front by hauling a former senior executive into Taiwan's Intellectual Property and Commercial Court. The target is Wei-Jen Lo, who left his senior vice president role at TSMC to join rival Intel Corp. (INTC).

TSMC's lawsuit argues that Lo poses a "serious risk" of using or leaking the company's confidential technology and trade secrets now that he's working for a competitor. The case leans on Lo's employment contract, his non-compete agreement, and Taiwan's Trade Secrets Act. Investigators are already looking into whether Lo carried advanced chip data with him to Intel.

Intel CEO Lip-Bu Tan pushed back against the allegations last week, dismissing them as speculation and emphasizing that Intel respects intellectual property rights. Translation: this one's going to get messy.

Why This Matters

Taiwan Semiconductor isn't just any chipmaker. It's the dominant producer of the world's most advanced semiconductors, the kind that power everything from iPhones to the AI servers driving the current tech frenzy. When TSMC worries about trade secrets leaking, it's not paranoia. It's protecting the crown jewels of modern technology.

The timing is particularly sensitive given the geopolitical tensions swirling around semiconductor manufacturing. Taiwan Semiconductor represents a strategic asset that multiple countries and companies would love to understand better, whether through legitimate business relationships or less savory means.

Business Is Booming Anyway

Here's the interesting part: none of this legal drama seems to be slowing down TSMC's business momentum. The stock has climbed 46% year-to-date, propelled by third-quarter results that exceeded expectations and showed just how hungry the market is for advanced AI chips.

Major customers like Nvidia Corp. (NVDA) and Apple Inc. (AAPL) are driving demand through the roof. Taiwan Semiconductor reported third-quarter revenue of $33.1 billion, up 30% year over year and above its own forecast. Net income jumped 39% to $15.1 billion.

The really impressive part? Advanced nodes accounted for 74% of wafer sales, which helped TSMC expand both gross and operating margins. This is a company firing on all cylinders, trade secret lawsuits notwithstanding.

Management confirmed it's continuing heavy capital spending to meet surging AI requirements. Executives said AI demand remains stronger than they anticipated, with customers clamoring for additional capacity.

For the fourth quarter, Taiwan Semiconductor expects revenue between $32.2 billion and $33.4 billion, with profit margins forecast to hold above 59%. Those are the kind of numbers that explain why TSMC is willing to fight so aggressively to protect its technological edge.

TSM Price Action: Taiwan Semiconductor shares traded up 1.44% at $291.82 in premarket trading Tuesday.