Analysis: plot thickens in TSMC-SMIC IP suit

By Mark LaPedus <>
Silicon Strategies <>
03/23/2004, 10:40 PM ET

SAN JOSE, Calif. -- The new court filings in Taiwan Semiconductor Manufacturing Co. Ltd.'s (TSMC's) dramatic suit against Semiconductor Manufacturing International Corp. (SMIC) reveal more explosive charges against the Chinese foundry start-up, including the alleged blatant theft of TSMC's 0.18-micron process technology.

The court papers, filed by TSMC on Monday (March 22) and announced today (March 23, 2004), cite additional individuals, that TSMC alleges were involved in a scheme to steal TSMC's process technology and then transfer it to rival foundry SMIC. TSMC also claims it has caught SMIC with the goods, alleging that a chip SMIC manufactured for Broadcom Corp. was based on manufacturing process technology stolen from TSMC, according to the papers.

The new accusations increase the stakes in the high-profile foundry suit. If TSMC can prove its case, SMIC stands to lose millions of dollars, its credibility and customers such as Broadcom, Elpida, Fujitsu, Infineon, Texas Instruments, Toshiba, and others, according to analysts.

SMIC has denied any wrong-doing and could also prevail in the suit but analysts believe the evidence is mounting against the Shanghai-based silicon foundry start-up. The publicity comes at a bad time for SMIC, given that it has just floated its initial public offering in the United States and Hong Kong.

And it is going from bad to worse for SMIC. In December of 2003, TSMC filed the original suit against SMIC over foundry patents and misappropriation of trade secrets. The complaint claimed that SMIC hired over 100 TSMC employees and asked some of them to provide SMIC with TSMC's trade secrets. The suit alleges that an SMIC official asked a then TSMC manager to obtain TSMC process information and forward it to SMIC (see December 21, 2003 story <>). SMIC denied those charges, it was noted.

Probably the most dramatic piece of evidence in that suit involves an e-mail allegedly sent by SMIC's vice president of operations, Marco Mora, to then-TSMC quality control program manager Katy Liu. In the e-mail, Mora is claimed to have asked Liu for "detailed process flows....including process target and equipment type" for the 0.35-, 0.25-, 0.22- and 0.18-micron logic nodes; 0.28-micron ROM; and 0.25-micron 6T SRAM."

TSMC alleges that Liu worked as a corporate spy for about six months, until she was fired (see January 5 story <>).

Then, this week, TSMC filed new papers in the U.S. Federal Court, claiming that it has "eyewitness affidavits and new technical verification of trade secret misappropriation by SMIC." TSMC alleges that SMIC stole TSMC's 0.18-micron process and related chip-production technologies (see March 23 story <>).

The foundry spies?

"SMIC has engaged in an ongoing scheme of industrial espionage and unfair trade competition conducted through the wholesale theft, misuse, and infringement of TSMC's patented and trade secret intellectual property," according to the new papers, filed by TSMC in the U.S. District Court in the Northern District of California.

The papers also claim that SMIC stole 90 percent of TSMC's 0.18-micron technology and has caught the Chinese company with the goods. "Based on forensic examination of SMIC 0.18-micron logic chips sold to Broadcom in California, it is evident that SMIC's misuse of TSMC's technology has been far reaching; it includes patented and trade secret technologies from the full spectrum of TSMC's fabrication processes," according to the court papers.

TSMC also claimed that SMIC lured away certain key employees with offers of SMIC stock and stock options. SMIC expected those employees to bring "presents" of TSMC's latest proprietary technologies and improvements when they came to work for SMIC, according to TSMC.

"TSMC's filing included affidavits of former SMIC engineers who personally witnessed SMIC's misconduct," according to the Hsinchu, Taiwan-based silicon foundry giant. "According to the filing, one witness estimated that 90 percent of SMIC's 0.18-micron logic process was copied from TSMC," the company said.

"Other witnesses declared that SMIC attempted to disguise the origin of the information by internally referring to TSMC and its technology by the code name 'BKM1,' referring to 'Best Known Method 1'. Still another sworn statement reveals that SMIC's use of TSMC technologies was 'no secret' and was openly discussed by SMIC engineers," according to TSMC.

In the papers, TSMC claims that C.Y. Shih, the company's former manager of the technology transfer division, "copied stacks of TSMC technical documents that are not generally available to TSMC staff on the weekend before he unexpectedly quit to become the director of the thin film department at SMIC's Fab 2.

"Prior to this copying, Shih had asked his colleagues for all of the latest improvements to TSMC's 0.18- and 0.13-micron processes, including thin film processes," the papers alleged. "Not realizing that he was about to depart for SMIC, TSMC's employees provided this information."

TSMC claims Shih had "all of TSMC's technical information necessary to run a semiconductor manufacturing fab operation. After he joined SMIC, Shih recruited other TSMC employees, telling them that SMIC would provide 100,000 or more SMIC shares and options as an enticement."

There were other individuals involved as well. TSMC also alleges that Hiang C. "Charles" Chan, a SMIC Americas vice general manager and former TSMC executive, also misappropriated TSMC "workarounds, process refinements and yield improvement techniques," according to the suit.

SMIC is expected to deny the charges.

The parties are expected to meet in court on April 23. At the time, the court will decide whether to dismiss the suit or move to trial.