TSMC sues SMIC for alleged patent infringement

Taipei, Dec. 24, 2003 (CENS)--Taiwan Semiconductor Manufacturing Co. (TSMC) recently filed a lawsuit against Semiconductor Manufacturing International Corp. in a U.S. district court, alleging that the mainland Chinese rival stole its trade secrets and infringed its patents, according to TSMC sources.

The world No. 1 chip-foundry supplier is seeking an injunction against the Shanghai-headquartered SMIC and an undisclosed amount in monetary damages with the U.S. District Court of Northern California.

Taiwanese industry watchers analyzed this legal move will take a serious toll on SMIC's plan to make initial public offering (IPO) on Nasdaq stock exchange at a time when its major shareholders are eager to make money by selling their stakes. Above all, this move, they added, will hamstring SMIC's threat in foundry competition. Since its fabs began operation in 2000, SMIC has lured heavyweight customers such as Texas Instruments, Motorola and Broadcomm from TSMC with its 60% cheaper charge. Toshiba, Fujitsu and Infineon have entered strategic alliances with the mainland chipmaker.

Currently, SMIC runs three eight-inch wafer fabs in Shanghai, has acquired one such facility from Motorola in Tianjing and is constructing three 12-inch wafer fabs in Beijing. It is likely to unseat Chartered Semiconductor Manufacturing of Singapore as the world's third-largest dedicated foundry supplier next year.

In response to TSMC's legal action, Richard Zhang, SMIC chairman, said his company has not received court notification and declined to make any comment. SIMC's PR manager, K.M. Huang, emphasized the company always respects intellectual properties of others.

In a lawsuit statement, TSMC said SMIC has hired away hundred of engineers from TSMC, currently the world's No. 1 pure foundry, and asked some of them to provide TSMC's trade secrets. A TSMC executive said his company has caught a photomask that SMIC uses to build chips for its customers carrying TSMC's layouts. Photommask is a pattern of opaque material used to shield selected areas of the surface of a semiconductor in integrated-circuit deposition or etching.

According to TSMC executives, TSMC has registered some 5,000 patents with the U.S. patent and Taiwan patent authorities.

Some Taiwanese insiders of the chip industry pointed out that the legal problem reflects the feud between Morris Chang and Richard Zhang since TSMC acquired Zhang's Worldwide Semiconductor International many years ago without notifying Zhang and dropped his top executive post. Both Chang and Zhang served as senior executives at Texas Instruments around 20 years ago.

Boosted by the legal action, TSMC's share price surged 2% this Monday to close at NT$62.