The Battle for Intellectual Property in the Semiconductor Business

January 31, 2007 | BY

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Many Chinese semiconductor producers lack IP portfolios rendering them increasingly vulnerable to infringement claims by their foreign rivals. The IP war has begun.

By Cybil Chou

Few people fully understand the technology behind products that shape our daily lives, from new PC operating systems to digital entertainment like music players and multifunctional phones. So many of the modern comforts and conveniences taken for granted rely on tiny semiconductor chips, ranging in size from 4 cm2 to less than 0.04 cm2. Yet as small as they are, disputes over infringement of any aspect of the design or manufacturing process of these integrated circuits (ICs) can cost millions of US dollars in settlements and legal fees.

The Chinese government has endorsed the development of the domestic semiconductor industry as a major economic focus in its 11th five-year plan, effective from 2006 to 2010. China may even surpass the US, Japan, Korea and Taiwan to become the world's largest chip consumer as well as manufacturer. According to forecasts by the US-based Semiconductor Industry Association, Asia will continue to be the fastest-growing chip consumption market, accounting for 48.2% of global consumption in 2009, with the vast majority of consumption in China. But the lack of intellectual property (IP) assets owned by domestic semiconductor firms, as indicated by the China Semiconductor Industry Association, means that China owns merely 3% of the world's semiconductor-related patents.

"With well established IP portfolios and comprehensive technology coverage by sophisticated semiconductor companies elsewhere in the world, Chinese companies will encounter challenges in launching new inventions with quality and quantity growth in years to come," says Xie Xiao Yong, a director of the Intellectual Property Development Research Centre of the China State Intellectual Property Office (SIPO).

The concerns over IP protection in China play a role in foreign semiconductor companies' IP strategies in China.

"The challenges faced when investing in any economy, not just China, will depend in part on the degree to which the laws of the economy satisfy fundamental international IP legal standardsand the transparency of those laws and regulations," said Richard Thurston, vice president and general counsel of Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest semiconductor foundry. "It will also depend on the abilities of the courts to enforce fairly, consistently and uniformly IP laws and regulations throughout the economy."According to Thurston, the most important intellectual property a high-tech company possesses

is often its trade secrets, and the protection of trade secrets will depend on all these factors.

Due to the above concerns, as Thurston has observed, depending on the stage in the economic development cycle, most global companies operating in developing economies will carefully manage the nature and level of technologies that they manufacture, transfer and license to third parties.

"They will usually start with older, more mature technologies, which is especially true for most semiconductor manufacturers."

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