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HomeHome > Judicial Development > China > Patent

Chip Makers Reach Another Court Settlement

Post time：11-25 2009 Source：China Daily Author：
tags： chip
font-size: +-
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Taiwan Semiconductor Manufacturing Co Ltd (TSMC) reached an out-of-court settlement valued at $290.2 million with the Chinese mainland's biggest computer chip maker after a courtroom victory in a case concerning allegations of theft of trade secrets, patent infringement and breach of contract over a prior settlement between the two companies.
 
As part of the settlement, Semiconductor Manufacturing International (SMIC) will pay TSMC $200 million in cash, as well as stock and warrants that could allow TSMC to take up to a 10 percent stake in SMIC
 
The stock and warrants were valued at around $90.2 million by Steve Chang, a stock trader at Taishin Securities in Taipei.
 
A jury at the Superior Court of Alameda County, California, earlier this month ruled in favor of TSMC, the world's largest contract chip maker, in the case against SMIC, the biggest contract chip maker in the mainland. The court had already started proceedings to determine damages.
 
The settlement ends all outstanding court actions between the two companies, including a remaining $40 million payment that SMIC owes TSMC from a previous case. The deal will also allow SMIC to continue to use TSMC trade secrets and technology disputed in the case.
 
"SMIC believes this settlement is a win-win for the parties, resolving uncertainty for their employees, mutual customers and other stakeholders," SMIC said in a statement to the Stock Exchange of Hong Kong.
 
But the settlement could lead to new problems for TSMC with the authorities of Taiwan.
 
Regulations on the island prohibit certain technology transfers and investments in the mainland.
 
A TSMC spokesman said that regulatory authorities will have to change rules to permit the ownership of stock offered by SMIC as part of the settlement. "This would be a passive ownership of shares," said J.H. Tzeng, a TSMC spokesman.
 
TSMC will not be allowed to vote for members of SMIC's board of directors with its shares, SMIC said in the statement. TSMC's voting rights will also be restricted to a vote in favor of actions recommended by the board.
 
SMIC will issue 1.79 billion new shares, or 8 percent of the company, of its Hong Kong-listed stock to TSMC as part of the settlement, after new shares are issued.
 
SMIC will also give TSMC warrants to buy an additional 696 million shares for HK$1.30 (17 cents) per share. Should TSMC opt to exercise the warrants, it would gain another 2 percent of SMIC, for a total ownership of 10 percent of the Chinese chip maker.
 
The two chip makers first went to court in December 2003 in a patent infringement and trade secrets theft case. That case was ultimately settled in 2005 with a $175 million payment to TSMC and a cross-licensing deal. But the relationship turned sour soon afterward, and TSMC filed the current case just a year later.
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