Now Hear This!

In one of the boldest and most extreme reaching semiconductor industry legal claims in recent history, Spansion has filed two separate memory patent infringement complaints against Samsung with the ITC (International Trade Commission) and in the US District Court in Delaware.

In doing so, Spansion is seeking the exclusion from the US market of more than 100 million MP3 players, cell phones, digital cameras, and other consumer electronic devices containing Samsung's flash memory components, which the company claims violate 10 of its patents for floating gate technology. The complaint in the US District Court in Delaware also seeks an injunction and treble damages (awarded only when a patent is knowingly and intentionally violated) for the alleged infringement relating to Samsung flash memory, which Spansion estimates has accounted for more than $30 billion in Samsung's global revenues since 2003.

Although Samsung is the target of the litigations, Spansion named possibly impacted device makers in its ITC complaint that use the Samsung memory. In addition to Samsung, Spansion named Apple, Asus, Kingston, Lenovo, PNY, RIM, Sony, Sony-Ericsson, Transcend, some of their subsidiaries and third-party manufacturing companies.

Expect Samsung to put up a good fight, but if Spansion were to prove victorious in this legal action, any of the end products these companies make that contain the alleged infringing Samsung NAND -- like the iPod and BlackBerry -- could be blocked from sale here in the US. As Objective Analysis' Jim Handy put it in a statement this morning, "These companies could not have anticipated being shut out of the US market through the actions of one of their key suppliers -- that's just not supposed to happen."

Indeed, while Spansion was required to name potentially impacted electronics makers in its ITC complaint, doing so really turned up the heat on Samsung. Spansion estimates the first opinion on the ITC matter will come in nine months, just before we enter next year's holiday shopping season, with the first possible ITC action preventing sales of products using Samsung’s flash in around a year’s time. Nine months from now, consumer electronics makers will be planning out their Q3 calls and Q4 estimates, and by November 2009, they will most likely already be battered from what's shaping up to be a rough year. Samsung could lose NAND business simply based on shut-out concerns.

What's behind the claims

Much of the claims are based on Spansion's spring buy of non-volatile memory IP provider Saifun Semiconductors. With that acquisition, Spansion expanded its IP portfolio and took a key step in its strategy to create a major licensing business and generate new streams of significant revenue with high margins for itself (an especially important aspect of the deal as memory prices continue to fall and hurt company financials).

According to Spansion, its patents named in the law suits are fundamental to floating gate technology, which it boasted as the base for some 90% of the flash memory market. Spansion in its statement on the legal actions also noted its MirrorBit, a charge-trapping technology, that it claims represents a growing share of the flash memory market and is expected to replace floating gate technology in the future. Samsung has stated plans to transition to charge-trapping-type technologies for its future generation memory products.

Spansion also secured Saifun's legal team with the acquisition, a team that had previously won patent litigation against Samsung when the two companies couldn't work out a licensing agreement. Similarly, Spansion in the current suits claimed Samsung has been violating its patents for more than six years, despite its efforts to negotiate a patent licensing deal.

It should be noted that Spansion has said it is currently in talks with other flash manufacturers for charge-trapping IP licensing agreements. If those talks don't work out, although costly and time consuming, this action against Samsung may only be one of many suits to come.

What do you think? Is Spansion making legitimate claims here or is this a nuisance suit? Will Samsung lose business because of shut-out concerns? Voice your opinion below.