TSMC, SMIC settle patent disputes under hefty compensation term

Jan 31, 2005 Ι Industry In-Focus Ι Electronics and Computers Ι By Ken LPM, CENS
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Taipei, Jan. 31, 2005 (CENS)--Taiwan Semiconductor Manufacturing Co. (TSMC) and threatening rival Semiconductor Manufacturing International Co. (SMIC) of mainland China reached settlement over several patent disputes between them yesterday under the term that SMIC will pay a hefty money to TSMC.

According to the term, SMIC will pay TSMC, currently the world's No. 1 suppler of contract chips, US$175 million over the next six years for its use part of TSMC's intellectual properties in return for TSMC's abortions of patent lawsuits against SMIC, mainland China's largest chipmaker, filed at a California district court, a U.S. federal court, the U.S. International Trade Commission (ITC) and a court in Hsinchu of Taiwan.

The compensation, industry watchers pointed out, is much lower than expectations. Andrew Lu, a senior market analyst at Citi Global Markets tracking world chip industry, forecast last year that SMIC would pay TSMC at least US$730 million for a settlement. Such expectations once caused SMIC share prices to sharply plunge.

Many industry watchers considered the Jan. 30 settlement to be an advantage to SMIC, which will hold a press conference today addressing the course of the settlement.

Industry watchers said the Beijing authority's concern about the disputes was likely the major reason behind the quick settlement between the two foundry giants. They analyzed that TSMC might be concerned about the authority's attitude since it had been actively pushing production plan in the mainland and began volume production at its first mainland Chinese factory last year.

TSMC and its U.S. affiliate WaferTech filed the lawsuit in December 2003 at a California district court, charging SMIC with stealing its patents and trade secrets.

Although the lawsuit abortions, TSMC said it still retain the right to recharge as a settlement term. The settlement agreement also demands the two signatories to cross-license related patents in the disputes by December 2010. In the agreement, TSMC spells out that it forbids SMIC from using its trade secrets again.

Both sides agreed not to release contents of the agreement.

TSMC vice chief executive officer F.C. Tseng said that it the settlement is in concordance with our shareholders' interests.
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