SMIC to pay $175 million to TSMC in suit settlement

By Mark LaPedus
Silicon Strategies <http://www.siliconstrategies.com/>
01/30/2005, 11:47 AM ET

SAN JOSE, Calif. - Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) on Sunday (Jan. 30) said that it has reached an out-of-court settlement with Chinese silicon foundry rival Semiconductor Manufacturing International Corp. (SMIC) over patent infringement and related issues. Under the terms, SMIC will pay TSMC some $175 million to settle the bitter patent and trade secret suit.

In 2003, TSMC filed a suit against SMIC over foundry patents and misappropriation of trade secrets. The original complaint stated that SMIC hired over 100 TSMC employees and asked some of them to provide SMIC with TSMC's trade secrets (see Dec. 21, 2003 story ).

Over the last two years, TSMC expanded its legal battle with SMIC. For example, TSMC also alleged that SMIC stole TSMC's 0.18-micron process and related chip-production technologies (see Feb. 23, 2004 story <http://www.siliconstrategies.com/article/showArticle.jhtml?articleID=18401479>).

The suits were filed amid SMIC's meteoric rise in the foundry business. The Chinese company came from no where to become the world's fourth largest pure-play foundry, behind only TSMC, UMC, and Chartered, according to IC Insights Inc.

But TSMC's patent suit raised some questions about SMIC's sudden rise in the foundry business. Questions about intellectual-property (IP) became a central theme at SMIC as well for China as a whole, according to analysts.

SMIC denied that it had ever infringed upon TSMC's patents and claimed it never stole trade secrets, it was noted.

Meanwhile, under the terms of the settlement, SMIC (Shanghai) will pay TSMC (Hsinchu, Taiwan) some $175 million, payable in installments over six years. Some $30 million will be paid in the first five years, with $25 million owed in the sixth year, according to the companies.

In addition, the two parties will cross license each other's patent portfolio through December 2010. The agreement also provides for the dismissal of all pending legal actions without prejudice between the two companies in U.S. District Court, California State Superior Court, the U.S. International Trade Commission, and Taiwan District Court as well, the companies said.

TSMC stated that it would not sue SMIC for itemized acts of alleged trade secret misappropriation, although the settlement does not grant a license to use any of TSMC's trade secrets. Other terms of the settlement are confidential.

"With this settlement, we have amicably resolved all of our pending litigation with SMIC and believe that it is in the best interest of our shareholders," said F.C. Tseng, deputy chief executive for TSMC, in a statement.