Patents in the Knowledge-Based Economy (2003) / Chapter Skim
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Patent Litigation in the U.S. Semiconductor Industry
Patent Litigation in the U.S. Semiconductor Industry
Pages 180-216
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From page 180... ...
patent system by tracing the incidence and nature of patent-related legal disputes over the past three decades in one important cumulative technological setting semiconductors. Much like software or computer firms, semiconductor firms typically require access to a "thicket" of external intellectual property to advance technoliThis study received financial support from the GE Fund of the Wharton School's Reginald H
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semiconductor firms. On the 2Throughout this chapter, the term "pro-patent" refers to a series of legal reforms and rulings discussed in the second section that tilted the judicial treatment of patents in the United States more in favor of the patentee (see Merges, 1997 and Jaffe, 2000 for a review of related studies and empirical evidence)
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How do the characteristics of semiconductor firms involved in legal patent disputes over the past three decades compare with those of nonlitigating semiconductor firms? To what extent have firms in this sector been involved in more legal disputes over intellectual property during the so-called "pro-patent" era?
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Typically, patent litigation rates are calculated by denominating the number of filed patent cases with the number of patents "at risk" for litigation (Lerner, 1995; Lanjouw and Schankerman, 2001, 2003; Somaya, 2003~. Yet, as mentioned above, the decision to patent for many semiconductor firms is, in fact, driven by a desire to deter litigation (Hall and Ziedonis, 2001; Cohen et al., 2000~.
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exhibited a slight decline between the two periods. The apparent decline in litigated patents per patents awarded during the latter period is driven, however, by the dramatic rise in patenting by semiconductor firms since the mid1980s (as reported in Hall and Ziedonis, 2001~.
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For example, after failing to reach agreement on the terms of a renewed cross-license agreement, Hyundai sued Texas Instruments in 1991 for infringing five patents four of which Hyundai had purchased from outside inventors. There also was an apparent rise in infringement suits brought by specialized "patent licensing" companies.7 On one hand, the emergence of specialized patent management and enforcement companies may help "tilt the table" more in favor of independent inventors or patentees from small businesses (see Lerner, 1995; Lanjouw and Lerner, 2001)
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legal environment during the 1980s and discusses its effects on the use of patents in the semiconductor industry. The third section presents the data and methodology used to trace patent litigation involving U.S.
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examine applications and decide whether an invention qualifies for patent protection, the courts ultimately determine the strength of patent rights once granted. By deciding whether a patent is valid or whether another party has infringed on the patent owner's rights, courts play a pivotal role in determining the strength (and hence, the value)
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patent doctrine, the Federal Circuit put in place a number of procedural and substantive rules that collectively favored patent owners. For example, the new court endorsed the broad, exclusionary rights of patent owners through its interpretation of patent scope, increased evidentiary standards to make it more difficult to invalidate the rights of patent owners, was more willing to halt allegedly infringing actions early in the dispute process by granting preliminary injunctions, and was more willing to sustain large damage awards and thereby penalize infringing parties more severely.~3 The plaintiff success rates in patent infringement suits also increased substantially during this period (Lerner, 1995~.
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, representatives from the semiconductor industry emphasized the importance of this case, along with Texas Instruments' successful patent infringement cases against Japanese and Korean firms during 1985-1986, in demonstrating the "new power of patents." Not only did TI and other large patent owners such as IBM and Motorola increase the price (i.e., royalty rates) charged for "rights to use" their patents, but the increased value associated with patents may have induced entry into the patent licensing business as the licensure of patents became more profitable under the new regime (as discussed below)
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Firms with large patent portfolios, such as Texas Instruments, IBM, AT&T, and Motorola, adopted a more aggressive licensing and litigation strategy to profit directly from their patent portfolios both by seeking licenses from a larger number of firms and by increasing royalty rates on use of their inventions. For example, in the early 1980s, Texas Instruments launched a more aggressive patent licensing program initially against Japanese and Korean competitors in the market for memory chips.
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find a sharp increase in patenting rates by capital-intensive semiconductor firms around the mid-1980s. Instead of being driven by a desire to win strong legal rights to a stand-alone technological prize, these firms appear to be engaged in "patent portfolio races" aimed at reducing concerns about being held up by external patent owners and at negotiating access to external technologies on more favorable terms.
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After describing the sample of semiconductor firms selected for study, this section identifies the main sources used to compile information about (1) sample firms, (2)
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An additional set of 37 dedicated U.S. semiconductor firms was identified with annual reports from Integrated Circuit Engineering, Inc.
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semiconductor manufacturers and design firms. 2iThe resulting database, which includes 1,728 firm-year observations, is therefore an unbalanced panel.
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_ ~ 15% En 0a 5% ~ ~ ~ Design Firms 30%r ~ Manufacturers ~ 0~ 0~ ~ ~ ~ ~ ~ ~ A, ~ ~ ~ ~ 0% 9 9 9 9 93 9 9 9 9 9 99 .~9 .~9 .~9 .~9 .~9 .~9 .~9 .~9 .~9 ,~9 ,~9 ,~9 ,~9 ,~9 ,~9 Year FIGURE 2 Average annual R&D intensity of sample firms: design firms v. manufacturers, 1985-2000.
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. Similarly, I sought to examine the characteristics of semiconductor firms that have not been involved in patent lawsuits filed in the United States over the past three decades.
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a suit for declaratory judgment if the defendant was the original assignee of one or more of the disputed patents.25 Using this approach, I identified 146 infringement suits and 23 declaratory judgment suits. However, I was unable to classify a large number of cases (118 cases, or 41 percent of the total)
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As discussed in Appendix A, roughly 75 percent of the patents involved in these disputes pertained to product-related inventions either for semiconductor devices or downstream products; approximately 23 percent of the litigated patents pertained solely to production processes. Finally, recognizing the potential downward bias in the number of cases reported in Derwent during the early period of my study (discussed in the introduction)
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District Courts.30 MAIN FINDINGS How do the characteristics of semiconductor firms involved in legal patent disputes over the past three decades compare with those of nonlitigating firms in the industry? To what extent have semiconductor firms been involved in more patent lawsuits during the "pro-patent" era?
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, and have larger patent portfolios than "peer" semiconductor firms not involved in legal patent disputes during this period. In a study of intellectual property-related case filings before the USITC during 1976-1990, Mutti and Young (1996)
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, the propensity of semiconductor firms to patent (relative to their R&D spending) more than doubled between 1982 and 3iThe number of annual patents awarded to sample firms rose from approximately 1,750 in 1995 to 5,430 in 2000.
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semiconductor firms, 1973-2001~. 1992, from about 0.3 to 0.6.32 Similar calculations for the expanded sample suggest that the upward trend reported in Hall and Ziedonis did not level off during the decade of the 1990s: Between 1992 and 1997, patenting per million real R&D dollars in semiconductors continued to climb from 0.6 to almost 0.8.
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CAdjusting the two periods by 1-2 years did not substantively alter the results. portfolios more successfully avoid litigation; semiconductor manufacturers may have deterred litigation events more effectively or reached agreement more easily in licensing negotiations as their patent portfolios grew larger.
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For clarity, the tables distinguish among cases in which firms are enforcing their own patent rights against others (plaintiffs in infringement suits) , are defending themselves against claims 34Lanjouw and Schankerman (2003)
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By characteristics of opposing party:b percent cases "within sample" percent with other US semiconductor 16.75% 28.71% 31.87% 38.46% 35.71% manufacturers percent with US Design firms 11.96% 18.81% 4.40% 0.00% 7.14% percept eases with foreign firms 24.40% 27.72% 14.29% 7.69% 14.29% percept eases with non-semiconductor 49.28% 32.67% 45.05% 53.85% 28.57% firmsc percent cases with independent 8.61% 2.97% 6.59% 23.08% 0.00% inventors percept eases with univs orgovtlabs 0.96% 0.99% 0.00% 0.00% 0.00% By characteristics of litigated patents: percent in electronics-related classes 90.59% 91.21% 90.38% 88.24% 98.39% (G01-G21; H- ) percent that pertain to new or improved 53.23% 65.93% 55.77% 45.10% 48.39% semiconductor devices (Invention Type=l)
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3.25 (3~5) By characteristics of opposing party:b Percent cases "within sample" Percent with other US semiconductor manufacturers Percent with US Design firms Percent cases with foreign firms Percent cases with non-semiconductor firmsc Percent cases with independent inventors Percent cases with univs or govt labs By characteristics of litigated patents: Percent in electronics-related classes (G01-G21; H- )
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Because of the limited number of declaratory judgment suits in the sample, the discussion below focuses on the trends reported in the overall and patent infringement columns. In general, we see from Tables 4A and 4B that cases involving manufacturers tend to include a more disparate set of parties and inventions than is true of disputes involving design firms.
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On one hand, I find that semiconductor firms involved in litigation over the sample period are larger, invest more in R&D, and own more patents than nonlitigating firms in the industry. This result holds both across the sample and within each group of design and manufacturing firms.
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(2002) similarly suggest that, in the shadows of stronger patent protection, the relationships between incumbents and start-up firms may become more cooperative than competitive in nature, whereas others emphasize the importance of patent rights in sustaining entry by specialized firms (e.g., Arora et al., 2001~.
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. "A Quasi-Statistical Analysis of the Acquisition and Enforcement of Patent Rights in the Computer and Semiconductor Industries for the Period 1986- 1995," Stanford Law School directed research, Fall 1996.
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. "Trends in Patent Litigation: The Apparent Influence of Strengthened Patents Attributable to the Court of Appeals for the Federal Circuit." Journal of the Patent and Trademark Office Society 76: 579-590.
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. Firm Strategy and Patent Protection in the Semiconductor Industry, unpublished doctoral dissertation, Walter A
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At the same time, some of the most publicized patent infringement suits in the semiconductor industry over the past two decades involved manufacturingrelated inventions. For example, Texas Instruments earned millions in royalties on its patents covering methods to transport wafers after successfully suing Korean and Japanese firms in the mid-1980s.
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used in semiconductor manufacture or more general manufacture. Processes Product: Definition: inventions Broader that pertain to new or Electronics or improved products that Computer-Related use or embed semiconductor devices but that are not standalone semiconductor products Note: dominated by inventions related to data processing and computing Definition: inventions that pertain to new or improved products or processes that appear unrelated to semiconductors 277 (55%)
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This suggests that 75 percent of the litigated patents in the sample pertain, broadly, to product innovation and 25 percent focus solely on processes used in manufacturing. In follow-on studies, I hope to use these results to inform whether concerns about "hold up" by manufacturers are illuminated by a change in the age or types of patents enforced by or against these firms in the period associated with stronger patent rights.
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