December 23, 2003, 8:34 AM — Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), the world's largest contract chip maker, has detailed accusations of patent infringement and the misappropriation of trade secrets in a lawsuit that could hurt rival Semiconductor Manufacturing International Corp.'s (SMIC's) plans to go public early next year.
TSMC, based in Hsinchu, Taiwan, filed the lawsuit Friday in the U.S. District Court for the Northern District of California. It alleges that SMIC has infringed on five of TSMC's chip-making patents and misappropriated trade secrets, and seeks monetary damages and a permanent injunction against SMIC. The suit was filed along with TSMC North America and TSMC subsidiary Wafertech LLC.
Sarina Huang, an SMIC spokeswoman, declined to comment on the lawsuit and said the company's lawyers are studying the complaint.
The complaint filed by TSMC alleged that "SMIC has used its knowledge of TSMC's trade secrets ... to price its products at a substantial discount to what would have otherwise been possible had SMIC incurred its own research and development and ramp-up expenses."
TSMC alleged that SMIC's recruitment of TSMC employees helped the company to gain access to TSMC's technology. The company noted that an injunction issued by a Taiwan court has barred SMIC from recruiting TSMC employees above a certain level in Taiwan. SMIC has ignored that injunction, TSMC said.
"SMIC has seeded its workforce, from the highest ranks down to process engineers who work on the chip fabrication line, with over 140 personnel from (TSMC) and from TSMC affiliates ... in order to acquire and utilize their knowledge of TSMC's proprietary fabrication processes and business trade secrets," the complaint said.
The TSMC complaint cited the case of a former employee as an example of how SMIC recruited its employees to gain access to its technology and trade secrets.
"SMIC's executives actively solicited at least one of TSMC's employees, Katy Liu, TSMC's quality control manager, directly to steal TSMC's trade secrets for SMIC's use while she was still employed by TSMC," the complaint said.
"For almost six months Liu acted as a corporate spy for SMIC," the complaint alleged. "SMIC regularly requested and received from Liu detailed information regarding the operation of TSMC's fabs including: the layout of its laboratory equipment; TSMC's mask shop layout and practices, design criteria, defect analyses, TSMC's usage and specification of raw materials such as gases used in semiconductor manufacturing, water, power and natural gas; and lists of TSMC vendors and equipment."
The complaint also accused Liu of acting on SMIC's behalf to "steal TSMC's crown jewels," referring to detailed information on TSMC's 0.35-micron, 0.28-micron, 0.25-micron, 0.22-micron, and 0.18-micron chip-making processes.
To back up this claim, TSMC's complaint contains a copy of what it says is an e-mail to Liu from Marco Mora, SMIC's vice president of operations, requesting that Liu obtain this information for SMIC. Mora is also a former employee of TSMC subsidiary Worldwide Semiconductor Manufacturing Corp. (WSMC.) The same e-mail asked Liu to obtain training materials from TSMC for SMIC.
"Can you pull out from WSMC and TSMC the training plan for the new hired technicians and engineers? Also, if you can pull out some of the training materials, both in Chinese and English, ... will be very helpful," Mora wrote in the e-mail, according to the complaint. "Sorry for the long list, but we need a lot of material to set up the new operation."
WSMC was acquired by TSMC in 2000. SMIC President and CEO Richard Chang was formerly president of the company.
TSMC is seeking a permanent injunction requiring SMIC to stop using its trade secrets and return any stolen information, along with any proceeds generated by the use of that information. It is also seeking double the monetary damages arising from the patent infringement component of the case, and treble damages for the misappropriation of trade secrets, the complaint said.
Beyond the prospect of the injunction and monetary damages, the TSMC case could hurt SMIC's plans for an initial public offering early next year, according to Kathleen Ng, managing director of the Center for Asia Private Equity Research Ltd., a Hong Kong company which tracks venture capital investments in Asia.
Private equity firms have invested between US$600 million and $700 million in SMIC, accounting for just under half of the $1.6 billion that SMIC has raised, Ng said. Investors are counting on a successful listing for SMIC, anticipated to take place in New York and Hong Kong early next year, she said.
