by Debra Vogler, Senior Technical Editor, Solid State Technology
April 23, 2008 – SEMI is set to release results of a yearlong study commissioned at the behest of its board of directors: “Intellectual Property (IP) Challenges and Concerns of the Semiconductor Equipment and Materials Industry.” Undertaken by the Noblemen Group, the report provides details of the real-world challenges SEMI’s member companies have experienced protecting their IP.
Of the 85 companies that were targeted by the study, a little more than half (49) participated, representing a similar share (56.3%) of the equipment/material industry’s total annual sales of ~$78B in 2006. Almost 90% of the participating companies report that they have experienced some form of IP violation, including infringement, counterfeiting, and theft of core technologies, core products, spare parts and components, trade secrets, and trademarks (see Figure 1).
Fig. 1. Types and degrees of IP violations: “Somewhat serious” to “Extremely serious.” (Source: SEMI)
The ongoing issue of IP protection has become a much higher priority for SEMI’s members lately due to escalating R&D costs and an intense need for a return on that investment, Vicki Hadfield, president of SEMI North America, told WaferNEWS. “This issue imperils innovation in the industry,” she said. “Remedies will require a very strong dialog at all levels within the industry,” she noted, involving collaboration between customers and suppliers, suppliers and the respective government regions, and between suppliers themselves.
According to the report, equipment and materials suppliers typically invest ~10%-15% of annual sales into R&D, and these firms are increasingly carrying a heavier burden of the industry’s R&D needs. The report also notes that equipment and materials companies headquartered in North America, Japan, and Europe source 95% of all global semiconductor equipment and materials produced — so it’s not surprising that companies in these regions own a large portion of IP.
The study’s participants identify Taiwan, China, Korea, and North America as the regions of greatest concern with respect to IP violations, although reasons for the concern varied by region (see Figure 2). North America, though recognized as having strong legal protection of IP rights, is cited by respondents for a tendency toward lengthy litigation — particularly in key areas including patent validity, weak IP, trade secret theft (often by former employees), and unintentional infringement — coupled with this region being a “hotbed of innovation.”
Fig. 2. Percent of respondents expressing “Serious to Very serious” concerns about each region. (Source: SEMI)
Perhaps the most confounding aspect of IP protection facing SEMI’s membership is reluctance among members to challenge those who engage in the various ways IP is compromised. Roughly 53% of the companies participating in the study report that they experienced IP violations by their customers, the chipmakers. The report also notes that there appears to be a close link between IP violations in Asia and customer violations. Compounding the problem is a prevailing view that suppliers will not take legal action against customers for fear of antagonizing them and losing sales.
Among the practices of chipmakers that contribute to IP violations: providing product details, parts specifications, and pricing information to third-party companies to encourage providing infringing spare parts and assemblies; providing equipment and product access to competitors; and passing along process parameters and process performance details to competitors. Even joint development projects are cited as leading to IP violations.
However distasteful taking action against IP violators might be, the economic impact is real, though the report only offers order of magnitude estimates (not actual data) on economic losses to the semiconductor equipment and materials industries. According to the study, in aggregate, industry revenue losses due to IP violations could be ~$2B-$4B/year. Based on a sampling of equipment and materials industry statistics, with average sales of ~$396K/employee, each 1% loss in industry annual sales (~$78B in 2006) would correspond to 1970 lost jobs.
Recognizing that many IP-related disputes arise among the members of SEMI, one of the report’s recommendations is for IP management education among that group — and to that end, SEMI has been developing and offering pragmatic IP management training. “We’ve already held a course in San Jose in October of 2007 and we’ve held several symposia in Europe, in Korea, and other regions,” said Hadfield. “We’re going to build those into content on IP best practices we can use around the world.”
Educating governments is also key. “One of the issues that any developing country faces is that it won’t be a place that attracts a lot of foreign investment and R&D expenditures if it doesn’t have a strong IP framework,” she said. — D.V.