Intel Corp (INTC)

[Windsock]

Companies take off the gloves over IP patents

By Spencer Chin, EBN
Sep 24, 2002 (9:51 AM)
URL: http://www.ebnews.com/story/OEG20020924S0045

The global electronics industry has become a legal battleground as more and more suppliers patent their intellectual property and sue one another over alleged infringements.

Disputes between semiconductor makers and semiconductor IP houses -- for example, between Infineon Technologies A.G. and Micron Technology Inc. and IP design firm Rambus Inc. -- and a recent upsurge of patent activity by Asian flat-panel-display suppliers underscore the industry's reliance on patents to generate royalty revenue and ward off stiffening competition from lower-cost vendors.

But by forcing rivals to pay royalties as well as worry about lawsuits, patent-laden suppliers also restrict OEMs' choices by suppressing competition and enabling them in some instances to keep prices abnormally high.

“In every aspect, patents are becoming more important,” said Peter Eng, a senior associate at law firm Wilson Sonsini Goodrich & Rosati, Palo Alto, Calif. “If suppliers can't get rid of competitors,” they sue them for patent infringement, he said.

“We've had an embarrassment of riches in patent litigation,” said Bill Anthony, an attorney at Orrick, Herrington, Sutcliffe LLP, Menlo Park, Calif. “And it's getting typical to see companies establish departments to mine patent portfolios.”

Patent cases often drag on for months or even years, costing companies millions of dollars and tying up personnel in court. Still, suppliers-or at least those with deep pockets-are willing to pay the price, according to Wilson Sonsini's Eng.

“Look at the results. If you win, you prevent someone from selling your product,” he said.

Some industry observers say large suppliers are patenting products even with short lifecycles, keeping smaller vendors out of the market long enough to profit from charging OEMs higher prices.

EBN's staff economist, Jim Haughey, said many disputes between chipmakers, like those between Intel Corp. and Taiwan's Via Technologies Inc., involve products that could be made obsolete within months by new technology.

“It's very profitable for Intel to delay Via's production for a few months or scare off big buyers from buying from Via,” Haughey said.

Intel declined to comment.

Eng agreed that some suppliers use their patent strategy to corner a market and charge higher prices.

“There's no doubt customers pick up part of the patent cost. When suppliers come up with a next-generation product, they charge a premium until someone else comes up with a better solution.”

Different opinion
But Joel Pollack, vice president of the Displays Business Unit at Sharp Microelectronics of the Americas Inc., Camas, Wash., denies that patent costs affect product pricing.

“All costs associated with developing and introducing a product are associated with the cost of the product itself and nothing else. Pricing, on the other hand, is determined by market value,” Pollack said.

Patent controversies are likely to rage on because each year more patents are being issued than in previous years.

In the United States in 2001, the U.S. Patent and Trademark Office in Washington issued 57,126 patents classified as electrical technology and including electronics, up from 53,164 in 2000 and almost double the number of patents in 1995, when 29,855 were issued.

Attorneys believe the high number of patents granted stems partially from an overworked U.S. Patent and Trademark Office that is not always able to discern what is and what is not patentable.

“Too many patents are being issued on things that shouldn't be patented,” said Orrick, Herrington's Anthony. “The burden is on the patent office examiners.”

Brigid Quinn, a spokeswoman for the U.S. Patent and Trademark Office, said the agency is hoping to hire 750 additional examiners in 2003. But she defended the staff's ability. “The people examining patent applications have the same education and experience as those designing electronic equipment,” she said.

Suppliers pleased
While conceding that the patent system is not perfect, suppliers say it gives them the freedom they need to develop and sell products in various markets.

“We think the patent office is doing a pretty decent job,” said Fred Telecky, general patent counsel and senior vice president at Texas Instruments Inc., Dallas.

And the decision to develop and defend a patent isn't taken lightly, insisted Lou Hecht, corporate secretary and general counsel at Lisle, Ill., connector supplier, Molex Inc.

“It costs a lot of money to acquire and maintain a patent portfolio,” Hecht said.

While declining to comment on Molex's patent strategy, Hecht said he didn't see any clear indication of increased patent activity in the connector industry. “Some companies have increased patent activity, some have decreased, while others have remained flat,” he said.

Display patent wars
One industry certainly experiencing increased patent activity is displays, where Japanese and Korean LCD makers are arming themselves against stiff competition from Taiwan.

Earlier this month, Korea's LG.Philips LCD Co. Ltd. filed a lawsuit against Chungwha Picture Tubes Ltd. in the U.S. District Court in Los Angeles, alleging the Taiwanese supplier infringed on six of it U.S. patents related to thin-film-transistor technology.

Chungwha was also sued in January by Japan's Sharp Corp. over alleged patent infringement.

Japanese newswire services reported last month that Sharp and Seiko Epson Corp. were adding patent staff, while Hitachi Ltd. said it would file more patent applications in Korea and Taiwan.

Semiconductor suppliers, too, are relying more on patents as their products become increasingly complex and proprietary.

International Rectifier Corp., El Segundo, Calif., now derives half of its revenue from proprietary products such as advanced circuit devices and power systems, and considers patents a means of helping to implement its strategy, according to Robert Grant, executive vice president of global sales and corporate marketing.

International Rectifier is currently engaged in litigation with IXYS Corp., Santa Clara, Calif., over alleged infringement of several IXYS patents related to power module designs.

Likewise, TI, which derives 5% of its revenue from patent royalties, expects patents to gain importance as chip complexity increases.

“We're talking about using a single chip in a cell phone within two to three years, integrating more functions,” Telecky said. “Parts will get faster and geometries will become smaller. There will be more things to protect [through patents].”