TSMC Details Claims Against SMIC

By Jeff Chappell -- Electronic News, 3/23/2004

Taiwan Semiconductor Manufacturing Co. (TSMC) filed court papers Monday in U.S. district court detailing alleged corporate espionage on the part of its mainland China competitor, Semiconductor Manufacturing International Corp. (SMIC).

SMIC's American office didn't immediately respond Wednesday morning to a request for a response to Monday's filing by TSMC. But news reports out of Hong Kong Wednesday said that SMIC planned to respond to the latest allegations by TSMC by April 9, and accused its Taiwanese competitor of engaging in a smear campaign.

This was the latest salvo in the case between the leading foundry giant and the upstart Chinese foundry, which just went public last week. TSMC first filed its suit against SMIC in U.S. District Court of Northern California in San Francisco last December, alleging infringement of five U.S. patents as well as stolen trade secrets. Among other claims, TSMC alleged that SMIC recruited TSMC employees and asked them to bring TSMC process technology with them to SMIC.

The two foundries are currently embroiled in a similar suit in Taiwan, and legal authorities have issued a preliminary injunction against SMIC in the case.

SMIC filed a motion in February seeking to have the suit in the United States dismissed. At the core of its argument for dismissal is the claim that the court has no jurisdiction. The Chinese foundry's lawyers essentially argued TSMC's allegations involve activities that have only taken place in China and Taiwan, therefore federal and California state laws cited by TSMC in its complaint are not applicable.

Prior to its IPO last week, SMIC retracted an earlier statement from its CFO, Jenny Wang, who said at a Hong Kong press conference March 7 that TSMC's lawsuit in the U.S. was without merit. "The company believes this statement is inaccurate because the company and its legal advisors are still in the process of reviewing the claims contained in such complaint and have therefore not formed a definitive view of on the merits of those claims," SMIC stated in an item in the South China Morning Post March 16.

In its filing Monday, TSMC included signed affidavits of former SMIC engineers who stated that they personally witnessed SMIC's knowing use of TSMC technology. TSMC asked that the identity of one such engineer remain sealed because of the witness' fear of reprisal from Chinese government officials.

According to the documents filed Monday, TSMC specifically cites 0.18-micron chips manufactured by SMIC for Irvine, Calif.-based Broadcom Corp. The Taiwanese foundry examined chips extracted from a Linksys wireless notebook adapter.

"From TSMC' s examination, it is apparent that SMIC's 0.18-micron process and chips sold to Broadcom both were created using TSMC' s patented and trade-secret processing techniques, and also contain TSMC patented and trade secret features resulting from SMIC's use of TSMC process steps," Mickey Ken, deputy director of the CTO's office at TSMC alleged in his affidavit filed with federal court.

TSMC further alleges that the chips bear little resemblance to foundry Chartered Semiconductor's 0.18-micron process. Chartered is the only SMIC technology partner to license relevant 0.18-micron technology to SMIC, according to documents SMIC has on file with the U.S. Securities and Exchange Commission. The only other 0.18-micron technology it has licensed is FCRAM technology from Fujitsu Ltd., according to American Depository Share documents filed with the SEC March 17.

SMIC said in a statement Wednesday that it regrets the "outside-the-courtroom" smear campaign being waged against it by TSMC, as reported by Dow Jones News Service in Hong Kong. "TSMC continues to make public out-of-court statements whenever it files papers with the court. SMIC is disappointed that TSMC once again has resorted to such unfair and bullying tactics outside the courtroom," SMIC said.

A hearing in the case in which a judge may decide on SMIC's motion for dismissal is scheduled for April 23.