'Patent Bomb' Threatens World's No. 1 TSMC...Exports at Risk in Worst-Case Scenario [Taiwan Chip Report]

Under Review by U.S. ITC; Preliminary Ruling Expected This Month
Potential U.S. Export Ban if Infringement Confirmed
Taiwan Warns: "Supply Chain at Core, Exposure to Patent Disputes Increasing"

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest foundry (semiconductor contract manufacturing) company, is embroiled in a patent infringement lawsuit in the United States. Amid the artificial intelligence (AI) boom, there is growing analysis that the global semiconductor industry’s battleground is expanding beyond customer acquisition and market share to now include disputes over patents, trade secrets, and core technologies.

A panoramic view of the headquarters of Taiwan Semiconductor Manufacturing Company (TSMC) located in Hsinchu, Taiwan. Photo by Yonhap News Agency

According to major foreign media outlets such as Axios and Taiwan’s Economic Daily News on June 14, TSMC is currently under investigation by the U.S. International Trade Commission (ITC) after being sued for alleged patent infringement. The plaintiffs in this case are Longitude Licensing, an Ireland-based non-practicing entity (NPE), and Marlin Semiconductor. Both are subsidiaries of IPValue Management, which is owned by the large San Francisco-based private equity fund Vector Capital.

They claim that TSMC’s advanced process chips infringe their patents. The infringed patents are reportedly related to technologies used in AI accelerators. Marlin Semiconductor acquired the relevant patents from the Taiwanese foundry company UMC in 2021. In addition to TSMC, global companies such as Apple and Broadcom have also reportedly been sued. A preliminary ruling by the administrative law judge is expected later this month, while the ITC’s final decision is anticipated around October.

If TSMC is ultimately found to have infringed on the patents as a result of this lawsuit, there are growing concerns within and outside the industry that exports of semiconductor products using the relevant technology to the United States could be banned. At the end of last month, four Republican members of the U.S. Congress sent a letter to the ITC urging the agency to block the import of foreign chips that infringe U.S. patents. They argued that strict enforcement of relevant regulations is necessary to maintain U.S. competitiveness, and that even strategically important companies like TSMC should not receive any special exceptions.

In Taiwan, there is a growing assessment that as domestic companies occupy key positions in the global AI supply chain, the likelihood of being exposed to global patent disputes and legal risks is increasing. The Taiwanese media outlet United Daily News cited the main objectives of such intellectual property (IP) lawsuits as: protecting R&D achievements and technology, establishing a monopolistic position in the market, enhancing bargaining power in global business negotiations, and securing time for product shipments or launching counterclaims if sued. The report added that major Taiwanese companies such as AUO, ASUS, and HTC have previously been sued for patent infringement by so-called patent asset management companies, often referred to as 'patent trolls.'

However, some observers are optimistic that this lawsuit will not lead to substantial business setbacks or a decline in TSMC’s performance. Taiwan’s Economic Daily News reported, “Both inside and outside the industry, it is noted that these kinds of lawsuits are not uncommon, and in the past, the parties often ended up signing cross-licensing agreements or reaching settlements after patent disputes.”

Regarding the lawsuit, TSMC stated, “We comply with local laws in every country where we operate our global business.”

Taiwan’s Ministry of Economic Affairs also stated, “Taiwanese semiconductor companies have long respected intellectual property rights and maintain close cooperative relationships with global customers and supply chain partners, operating in compliance with the law at major business sites around the world.” The ministry added, “The government will continue to monitor the situation and provide appropriate support if necessary to ensure the international competitiveness of Taiwan’s semiconductor industry.”

Taiwan Economic Daily News = Reported by Hye-ryeong Jong and Louise Kang / Translated by The Asia Business Daily

※This column was published through a strategic partnership between The Asia Business Daily and Taiwan Economic Daily News.

This content was produced with the assistance of AI translation services.