Tue, Dec 23, 2003 - Page 10 News List

TSMC sues SMIC over patent rights

HI-TECH ESPIONAGE TSMC alleges that its Chinese rival made chips according to its patented technologies and also tried to get trade secrets from former employees

By Lisa Wang  /  STAFF REPORTER , WITH BLOOMBERG

Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world's largest made-to-order chipmaker, yesterday said it filed a lawsuit against Chinese rival Semiconductor Manufacturing International Corp (SMIC, 中芯國際集成電路) for patent infringement.

"We feel that we have no other choice than to proceed through the courts in order to protect our technology," Dick Thurston, TSMC's vice president and general counsel, said in a statement.

"It's our obligation to protect our patents and trade secrets to maintain shareholder value," he said.

The lawsuit was filed on Friday in the US District Court of Northern California by the Taiwanese chipmaker through its US units North America and WaferTech. In the complaint TSMC also said SMIC has misappropriated trade secrets.

TSMC alleged that SMIC, the biggest contracted chipmaker in China, has hired more than 100 former TSMC employees and asked some of them to provide the Chinese foundry entrant with TSMC's trade secrets.

TSMC claims that it has evidence showing that SMIC is using some of its patented technologies.

"We already have substantial evidence at hand after a thorough study of SMIC's products sold into the US market," Tzeng Jinnhaw (曾晉皓), a manager in TSMC's public relations department, told the Taipei Times.

"We requested that SMIC be banned from selling thse chips manufactured on the infringed patented technologies," Tseng said.

TSMC requested an injunction against and unspecified damages from its Shanghai-based smaller rival.

SMIC, which produces memory chips for Germany's Infineon Technologies AG, the world's second largest memory-chip maker, said it has not received notice of the suit, but stressed that it "always respect" others' intellectual property rights, spokesperson Sarina Huang said.

As SMIC is too small to challenge TSMC's dominance, semiconductor analysts did not see the Taiwanese chipmaker's action as a way to slow the movement of its customers, but to slow the movement of its engineers.

"SMIC is unlikely to shake TSMC's market position at this stage in terms of technologies or customer base, but is just a price destroyer. So, TSMC's action is a warning to its smaller Chinese rival not to go too far head-hunting TSMC's engineers, or infringing on the company's patent rights," said Joyce Hsu (許宜君), an analyst with SinoPac Securities Corp (建華證券).

TSMC shares jumped 2.5 percent to close at NT$61.5 on the TAIEX, outperforming the benchmark index's 1.32 percent rise yesterday.

Another analyst said the lawsuit shows that TSMC is becoming more serious about competition from SMIC and is using legal action to extend pressure to both SMIC and its customers.

"Legal action is the last resort for TSMC [to prevent SMIC from taking its engineers]," said Paul Hsu (許博惟), a semiconductor analyst with Insight Pacific Investment Research (月涵投顧) in Taipei.

"TSMC's step is also signaling that it is paying more attention to intellectual property right issues," he said.

Last March, TSMC filed a lawsuit against a former manager, alleging she sold secrets related to advanced 12-inch wafer manufacturing technology to SMIC.

To prevent Taiwanese high-tech companies' core technologies, including semiconductor processing technologies, from being stolen or leaked to their Chinese rivals, the government is drafting a national technology protection law. The law is still pending at the Legislative Yuan.

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