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US chipmaker sues a Taiwanese rival on patents

[SAN FRANCISCO]  One of the biggest semiconductor makers in the United States on Monday initiated a broad legal attack on Taiwan's dominant chip manufacturer, the latest twist in a complex geopolitical battle over electronic components that could affect big chip users like Apple and Google.

Globalfoundries, which runs former IBM chip factories in New York state and Vermont but is owned by an Abu Dhabi investment firm, filed a series of suits accusing the Taiwan Semiconductor Manufacturing Co of infringing 16 patents covering processes used in manufacturing computer chips.

The suits were filed in two federal courts in the United States and two German courts. Globalfoundries also complained to the US International Trade Commission.

In addition, the suits name a number of companies that either design chips manufactured by TSMC or use chips manufactured by that company in devices such as smartphones and networking equipment. Those defendants include Apple, Google, Qualcomm, Cisco Systems, Nvidia, Broadcom, Xilinx, Lenovo and Motorola.

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One Globalfoundries trade commission complaint said a series of products that use chips built by TSMC, including Apple's iPhone XS, iPhone 7, Airpods, Watch 4, TV 4K and iPad mini, should be excluded from import to the United States.

Globalfoundries' surprise move underscores the electronics industry's overwhelming reliance on TSMC, a large manufacturer of chips designed by other companies. The Taiwanese company accounts for nearly 50 per cent of the market for outsourced chip production, the market research firm TrendForce estimates. Globalfoundries claims the TSMC share of production of the most advanced chips is nearly 90 per cent.

"How did we let that happen?" asked Saam Azar, a Globalfoundries senior vice president in charge of legal and government affairs. These suits, he added, were "designed to protect the manufacturing base of America."

Reliance on foreign manufacturers has worried Defense Department officials who are concerned about trusted sources of components for advanced weapons and intelligence-gathering systems, and the Trump administration has repeatedly complained about theft of US intellectual property, particularly by China.

Analysts said Globalfoundries might have been emboldened by Trump administration comments about the trade war with China.

"It's almost like someone in the US State Department gave them the green light for this suit, and said ‘We'll give you air cover,'" said Patrick Moorhead, with Moor Insights & Strategy.

Globalfoundries, though it has been setting up manufacturing facilities of its own in China, said in its trade commission complaint that TSMC recently completed construction on an advanced chip plant in that country that rides "the shift in global supply chains out of the US and Europe into Greater China."

TSMC officials did not immediately respond to a request for comment. The other defendants, including Apple, either declined to comment or could not be immediately reached.

Globalfoundries' move, involving 25 separate complaints, is unusual. Many chip manufacturers concluded decades ago that so many common techniques were being used by rivals that it made more sense to issue so-called patent cross licenses rather than be tied up in endless litigation.

Another issue is that suing a company like TSMC runs the risk of angering current or potential customers for Globalfoundries. Mr Azar stressed that Globalfoundries was compelled to name direct and indirect TSMC customers to help seek a ban on imports of products containing infringing technology, a common legal strategy to put pressure on defendants in intellectual-property cases.

Globalfoundries was founded in March 2009 from former manufacturing operations of Advanced Micro Devices. It later expanded with the purchase of Chartered Semiconductor. The company in 2015 took over former IBM facilities in East Fishkill, New York, and Essex Junction, Vermont, a deal that came with a US$1.5 billion payment from IBM.

The IBM deal included more than 16,000 patents. But Globalfoundries stresses its own substantial technology investments, including a US$15 billion factory in Malta, New York. Mr Azar said a majority of patents cited in the TSMC case were developed separately by Globalfoundries.

His company last year announced it was stopping development of advanced production processes beyond those now being used at Malta. It also announced a deal to sell the East Fishkill plant to ON Semiconductor by the end of 2022, and has lately said it has begun turning a profit.

NYTIMES