WASHINGTON: Chip companies, faced with a bleak sales outlook in 2009, are turning to the U.S. federal government in the hopes of recouping revenue lost to patent infringement.
Qimonda, LSI and Spansion are among the chip companies using the U.S. International Trade Commission to try to block imports of rival products or garner patent royalties. The commission, a federal agency, has started investigating 42 intellectual-property complaints this year, the most since 1983.
"Lawyers are expensive, particularly patent lawyers in Silicon Valley, but it's a great area to get money," said Hans Mosesmann, a semiconductor industry analyst for Raymond James in New York. "You're going to see more litigation and more aggressive maneuvering."
Chip makers, already reeling from plunging prices caused by overproduction, now face falling demand. Chip sales slid 4.4 percent worldwide this year and will slump by 16 percent in 2009, the first back-to-back decline on record, according to Gartner, the research firm in Stamford, Connecticut.
Qimonda, LSI and Spansion, which make chips for mobile phones and computers, brought cases to the commission because it typically completes investigations in half the time of a U.S. court and has the power to stop imports at the border. That situation serves as an incentive for companies to sign patent licensing agreements, increasing the patent owner's revenue.
"Jerry Sanders, the founder of AMD, used to say, 'Real men own fabs,"' said Craig Berger, an analyst at Friedman Billings Ramsey, referring to the chip-fabrication plants run by Advanced Micro Devices. "That's kind of changed. Now it's, 'Real men have huge armies of lawyers."'
Bertrand Cambou, the chief executive of Spansion, said it could bring in "hundreds of millions of dollars a year" in licensing revenue from patents. The company, which has not made a profit since going public in 2005 and does not reveal how much it collects in licensing, filed a patent-infringement complaint last month against Samsung Electronics after licensing talks failed. Spansion, based in Sunnyvale, California, asserts that its patents cover flash-memory chips made by Samsung, which are used in phones and music players.
If Spansion succeeds, the commission could ban products using Samsung's chips, including the BlackBerry and the? iPod.
Qimonda, which is the memory-chip unit of Infineon Technologies and is based in Munich, filed a complaint in November to block chips made by LSI for Seagate Technology.
LSI, based in Milpitas, California, is battling with Freescale Semiconductor, Cypress Semiconductor and Elpida Memory. LSI has accused the companies of violating its patent for making semiconductors using tungsten metal.
Officials with Qimonda, LSI and Samsung declined to comment on the litigation.
A case with the trade commission can be more expensive than a civil lawsuit because of the tight deadlines for filing paperwork, questioning witnesses and holding hearings, so patent owners have to weigh whether it is worth the $5 million or more in legal costs. Meanwhile, targets of the complaints must decide whether paying a licensing fee is cheaper than fighting for the right to sell their products in the United States, said Robert Krupka, co-head of the intellectual property group at law firm Kirkland & Ellis.
"No one in an economic downturn wants to be excluded from the biggest market in the world," Krupka said. "It's like a toll. I'm willing to pay a royalty if the total royalty still leaves me with a profit and is less than the litigation."
Though the commission cannot require royalty payments, he said, its power to ban imports is a strong incentive to reach an agreement.
James Adduci, a lawyer at Adduci, Mastriani & Schaumberg in Washington, specializes in patent cases with trade commission. "These complaints are filed not simply to get competitors excluded but to ratchet up the pressure for a licensing deal," Adduci said. "In tough economic times, you are likely to see an increase in that kind of activity."
The commission, which had four judges two years ago, hired its sixth this month. It handled 43 claims in 1983, when the U.S. had its worst recession since World War II, said a spokeswoman, Margaret O'Laughlin.
Not all of its cases involve computer chips. Eastman Kodak, the photography company, has a case pending against Samsung and LG Electronics over camera-phone technology. Microsoft went to the commission to push a licensing agreement with Primax Electronics, a Taiwanese company, over technology used in computer mice. The case was settled last week.
"The ITC is a very important and very effective mechanism to address intellectual property situations," said Horacio Gutierrez, Microsoft's general counsel for intellectual property licensing. "It's clearly an important approach because of the efficiency and speed and the sophistication they've developed on the patent legal questions."
