Semiconductor M&As breed more chip litigation
MADISON, Wis. — One of the unintended consequences of the M&A feeding frenzy in the semiconductor industry is that more chip vendors are getting targeted by patent trolls.
Jean-Christoph Eloy, president and CEO of Yole Développement (Lyon, France), told EE Times that the semiconductor market embodies “all the ingredients” that make it attractive to patent licensing companies (PLC).
A PLC, also sometimes called a non-practicing entity (NPE) or more pejoratively “Patent troll,” neither makes nor markets products. It derives its income from licensing patents to or litigating against operating companies suspected of infringing patent rights, Eloy explained.
Eloy believes chip vendors have become more vulnerable in recent years. Because of a strong consolidation trend with many mergers and acquisitions in the semiconductor market, a plethora of patents is up for sale, and countless products integrated with semiconductor devices are already on the market.
Eloy shared several key findings based on research done by KnowMade, Yole’s sister company — including identifying the main patent trolls in the semiconductor field, litigation risk assessment from patent licensing companies that acquired patents from 2013 to 2016, and specific patented technologies acquired by patent licensing companies since 2013.
KnowMade’s data shows that between 2013 and 2016, more than 40 NPEs acquired US patents in the semiconductor field. Those NPEs include Wi-LAN, Tessera, Intellectual Ventures and Conversant IP management.
Topping the list is Wi-LAN Inc. based in Ottawa, Canada. The company acquired 2,048 U.S. patents in 2015, mainly from Infineon/Qimonda and Freescale.
In 2015, the same year the company acquired patents from Freescale and Infineon, Wi-LAN also started to litigate. Yole expects such patent litigation to continue for years.
Meanwhile, Acacia Research Corporation (Newport Beach, Calif.), despite its relatively small stash of semiconductor patents, “has fielded the highest number of patent litigations,” Eloy observed.
Next page: Wi-LAN, Acacia -- Who are those guys?
Asked about this accelerating NPE activity, Mike McLean, senior vice president of IP Services at TechInsights, told EE Times that it’s not exclusive to the U.S. “Japan has been a major source of patents to the large NPEs.”
Freescale and Micron have had large deals publicized and the Qimonda and Elpida portfolios are being managed by enforcement entities, he added. “Otherwise, smaller portfolios come from a range of sources — startups, peeled off M&A deals, bankruptcies, companies regularly selling patents to fund other activity etc.”
Wi-LAN, Acacia: Who are those guys?
In Yole’s opinion, hands down, Wi-LAN is the biggest threat today. “On average, Wi-LAN files patent litigations within the next two years after their acquisition.”
Asked about Wi-LAN’s potential targets, Yole listed: Apple, HP, Micron, Amkor, Cypress, Nanya, UMC, Qualcomm, Toshiba, Texas Instruments, Fujitsu, Sharp, Socionext, Sony, MicroSemi, Philips, Intel, Hitachi, Texas Instruments, UMC, Broadcom, Nikon, Canon, Zeiss, OmniVision and Samsung.
EE Times asked KnowMade’s IP, patent and technology analysts — Fleur Thissandier and Audrey Bastard — specific examples of patent litigation filed by Wi-LAN in the semiconductor field.
In 2016, Wi-LAN filed 17 suits. “These patent litigations are part of Wi-LAN litigation campaigns started in 2015-2016,” the KnowMade analysts explained. “Most of these litigation cases are still open.”
Among the Wi-LAN’s campaigns Wi-LAN in recent years, one is specifically related to semiconductor memory products that include SRAM, DDR SDRAM, DRAM and flash memory. By “litigation campaign,” KnowMade means “all cases filed by the same plaintiff (inclusive of all members in the corporate family) where each case has at least one patent or family member of a patent in common with another case in the campaign.”
Among those targeted in this particular semiconductor memory-related litigation campaign are IDT, Nanya, UMC, Etron, Toshiba, ISSI and ESMT. Wi-LAN subsidiaries (North Star Innovations and PLL Technologies) announced earlier this year they have entered into license agreements with Nanya Technology. (http://www.wilan.com/news/news-releases/news-release-details/2017/WiLAN-Subsidiaries-Enter-into-License-Agreements-with-Nanya-Technology/default.aspx)
Asked about the current status of Wi-LAN cases in semiconductor memory in the campaign that opened in 2015, KnowMade noted that the case with Etron is still open. Others have closed at various times just within the past six months.
Wi-LAN’s case against Kingston, filed in 2016 on SSD and DRAM, remains open. Wi-LAN also filed a still open case against Nvidia and Dell on mobile processors in 2016, according to KnowMade.
It’s important to note that Wi-LAN never publicly shares the value of license agreements in its press release. All other terms of the license agreements remain confidential.
Yole also flagged Acacia Research as “the most hostile Patent Licensing Company in Semiconductor filed, with numerous patent litigation campaigns over many past years.” As Acacia maintains its aggressiveness, Yole cautioned that Acacia in coming years is likely to target, in particular, “Samsung, Texas Instruments, Micron, SK Hynix, Sharp, Cypress, Fujitsu, UMC, Intel, Toshiba, Broadcom, IBM, Analog Devices, AMD, Xilinx, Honeywell, HP, Sony, Siemens, Infineon and UMC.”Litigation risk assessment
Yole also warned, “Many industrial companies in every level of the semiconductor supply chain are potential targets for Patent Licensing Companies.”
Those in the supply chain include: IDMs, outsourced semiconductor assembly and test providers (OSATs), equipment and material suppliers.Next page: How to deal with patent trolls
Further, Yole stressed, “According to our analysis, the main companies facing the highest risk of patent litigation from patent licensing companies are the end-user companies.”
These potential targets include Apple, Canon, Fujitsu, Google, Hitachi, HP, Huawei, IBM, Motorola, NEC, Nikon, Samsung, Sharp, Siemens, Texas Instruments, Toshiba, the components and devices makers AMD, Amkor Technology, Bosch, Broadcom, Cypress Semiconductor, Honeywell, Infineon, Intel, Kingston Technology, Marvell Technology, Nvidia, NXP, Qualcomm, SEL, SK Hynix, SMIC, ST Microelectronics, UMC, Xilinx, Foxconn, Globalfoundries, TSMC, and the pure play companies Aptina Imaging, Crossbar, Ememories, Everspin, Inotera Memories, Monolithic3D, Nantero, Nanya Technology, OmniVision, Pelican Imaging, StatsChipPAC.
How to deal with patent trolls
In summary, the analysis by Yole’s partner KnowMade appears to indicate that nobody working in semiconductors today (including supply chain and end customers) is immune to suits or litigation campaigns by NPEs.
The question, then, is: How do you protect yourself?
TechInisghts’ McLean said, “To deal with NPE’s, operators need to either take patents off the market before [NPEs] get in their hands, or you need to be able to effectively challenge patentable subject matter or validity. Building up sources of prior art relevant to the technologies found in the operators product lines is a worthwhile activity.”
In other words, more homework and meticulous preparation are essential. Getting professional risk-assessment help is also considered a reasonable step.
TechInsights (Ottawa), for example, is a technology company that offers intellectual property consulting, patent brokerage services, and technical analysis.
Yole’s partner Knowmade (Sophia Antipolis, France) also offers technology intelligence and IP strategy consulting.
Joining a patent pool — like the one offered by RPX Corp. — is an option. McLean said, “RPX is a useful defense mechanism — allows for sharing of costs to get deals done or take patents out of the market.”
Patent pools are formed by tech companies banding together to fight trolls.
RPX (San Francisco), founded in 2008, describes itself as a patent risk management company. Technically it isn’t patent pool, a spokesperson told us, although RPX offers “defensive patent aggregation.” RPX also provides patent litigation insurance and market intelligence services. Additionally, RPX offers prior art searches and we independently file inter partes review petitions.
Asked about RPX, McLean said, “I believe RPX fees scale with revenue so this can be particularly effective for a mid-sized company whose products align with NPE activity. It may not be as cost effective for large companies with only a portion of that revenue exposed to NPE activity.”
So, how active is RPX in the semiconductor industry today?
Steve Swank, senior vice president and head of client development and client relations at RPX, told us that clients include more than “a dozen companies in the semiconductor sector, as well as their suppliers and customers.”
So, how does this work? Is RPX on the lookout for M&A’s to acquire patents?
Swank explained that although RPX does not pursue mergers or acquire patents, it pays attention to corporate restructuring, whether through M&A, divestiture or reorganization. “They can influence or change a company’s strategy, including how that company views its patent portfolio.”
Such changes “can ultimately lead to patent sales or licensing activity,” Swank added.
“When these portfolios are offered for sale, RPX is often an active participant, depending upon the amount of risk we determine the portfolio poses to our clients. By acquiring rights to these portfolios, we remove the risk of litigation for our clients,” he explained.
If however, RPX can’t buy these patents before they end up being litigated, Swank claimed, “Our trusted role in the market allows us to negotiate with NPEs on behalf of our clients, and acquire rights to the litigated patent, and achieve an early and cost-effective dismissal for RPX clients in the lawsuit.”
In his opinion, “individual defendants can rarely negotiate favorable terms unilaterally.”
Next page: Defensive patent aggregation
Defensive patent aggregation
There are some examples of RPX helping the semiconductor market.
As mentioned in this story earlier, a subsidiary of Wi-LAN—North Star Innovations—acquired a portfolio of patents from Freescale in October 2015 due to its merger with NXP, and began a litigation campaign in November 2015 that ultimately targeted 28 companies.
Swank noted, “RPX recently completed a transaction wherein we acquired sublicense rights to more than 3,300 patent assets from North Star Innovations, a subsidiary of Wi-LAN, in order to terminate litigation against our clients.”
In another transaction, RPX acquired patent assets and rights from Fairchild in 2011, many derived from the 2002 acquisition of a company called I-Cube, Swank explained. “We have also recently acquired patents from several other semiconductor companies that we believe were a direct result of evaluation of their portfolios post-M&A.”
Calling itself “one of the most active patent buyers in the patent market,” RPX claims it has spent more than $2 billion on patent assets to date, acquiring more than 16,600 US and international patent assets and rights.
If RPX has amassed so many patents, what would make RPX different from Wi-LAN, for example?
Swank made it very clear. “Every patent we acquire is defensive; RPX does not assert or litigate its patents.” In contrast, litigation is Wi-LAN’s business.
Not every semiconductor company is interested in joining the RPX network. Some prefer negotiating legal fees directly with law firms.
Swank said, “We don’t believe this is an ‘either/or’ question. There are going to be times when a company will choose to engage in litigation as a means to resolving a licensing dispute, and that’s fair. Sometimes you’re sure that you haven’t infringed the patent and will prevail.”
However, Swank argued, “Our research shows us that 95% of cases brought by NPEs end in settlement. The advantage then of joining a collaborative network like RPX is that we can negotiate licenses on behalf of all of our client companies, creating a much more efficient process than if each company negotiated a license on its own.”
He noted that on average, RPX is able to resolve a suit 60% cheaper than what a client would pay on its own. “Further, it is nine times more efficient for RPX to buy a patent before it is litigated than it is for a company to go to trial. With that, we’re motivated to help our clients early and to end their litigations quickly.”
— Junko Yoshida, Chief International Correspondent, EE Times