(Image courtesy of Getty Images).
(Image courtesy of Getty Images).
(Image courtesy of Getty Images).
(Image courtesy of Getty Images).
(Image courtesy of Getty Images).

TSMC Returns Fire in Legal Battle With Globalfoundries

Oct. 9, 2019
TSMC Returns Fire in Legal Battle With Globalfoundries

TSMC, the world’s largest contract chip maker, sued Globalfoundries for patent infringement, in response to a legal challenge launched by its smaller American rival in August. TSMC, trying to protect its more than 50% foundry market share, is looking for courts in the United States, Germany and Singapore to ban Globalfoundries from making and selling chips that infringe its patents.

TSMC last week said it filed a series of lawsuits against Globalfoundries, one of the largest chip manufacturers in the U.S., for infringing on 25 of its advanced chip making patents. TSMC, which serves more than 460 customers and many of the world’s largest chip designers including Apple, Huawei and Qualcomm, accused Globalfoundries of using the patents in its 40nm, 28nm, 22nm, 14nm and 12nm process nodes.

"TSMC's patents reflect decades and tens of billions of dollars of investments in innovation," said Sylvia Fang, TSMC general counsel, in a statement. She added that the opposing lawsuit seeks "to protect our reputation, our significant investments, our nearly 500 customers, and consumers worldwide to ensure everyone benefits from the most advanced semiconductor technologies that enable a wide range of applications."

The countersuit comes after Globalfoundries launched a broad legal assault against TSMC in August, also alleging patent infringement. Globalfoundries said TSMC is infringing 16 patents used in advanced chip production lines, including the 7nm, 10nm, 12nm, 16nm and 28nm nodes. It is seeking "significant" compensation from TSMC, which it said has made more than $10 billion from selling of chips containing its patents.

Globalfoundries is also looking for injunctions to stop imports to the U.S. and Germany of products that use the patents in question. It named TSMC customers Apple, Nvidia, Broadcom, Qualcomm, Mediatek, Xilinx and Apple. The suits also name indirect customers that use chips manufactured by TSMC in smartphones, networking gear and other devices. Those defendants include Cisco Systems, Motorola, Lenovo and Google.

TSMC is also seeking to win "substantial" damages from Globalfoundries, which holds a little more than 8% market share in the made-to-order chip business and sells chips to Qualcomm, Broadcom and Advanced Micro Devices, among others. AMD said its new line of server processors uses compute cores based on 7-nanometers from TSMC and I/O cores based on the 14-nanometer process from Globalfoundries.

Globalfoundries, the world's No.3 contract chip maker, launched its legal fight as the Trump administration protests U.S. intellectual property theft, particularly by China. The company said it asserted the patents in order to protect its investments in the U.S. and Europe, which have total more than $20 billion over the last five years. Globalfoundries was formed in 2009 after AMD spun out its chip manufacturing operations.

"TSMC has long used its dominant market position to exert pressure on smaller competitors, and the retaliatory litigation filed today is in keeping with that history," Sam Azar, senior vice president in charge of legal and government affairs at Globalfoundries, said in a statement last week in response to TSMC's new suit. "We have confidence in our position and the legal process, and we are not intimidated by these actions."

The Silicon Valley company may be trying to win Washington's favor amid the trade war with China, analysts say. It has also complained to the U.S. International Trade Commission, which has the authority to ban imports to the U.S. Globalfoundrieswhich also happens to be building a chip production plant in Chinasaid TSMC is tapping the "shift in global supply chains out of the U.S. and Europe into Greater China."

It will probaly take years for the legal battle to be resolved. Maybe the most probable outcome is a patent licensing agreement, analysts say. The legal spat could have harsh consequences for Globalfoundries and TSMC’s direct and indirect customers. That has added to the stress facing the global electronics space, which has been hammered due to uncertainty surrounding the China trade war and the threat of steeper tariffs. 

TSMC, which opened its latest chip production center last year in Nanjing, China, also stressed its investments in the U.S., where it has around 1,000 employees. TSMC has played a leading role in establishing the fabless chip industry, which it said is worth hundreds of billions of dollars in the U.S. It highlighted more than $20 billion in spending on equipment and services from U.S.-based businesses over the last five years. 

TSMC, which has been granted more than 37,000 patents, said in August that the allegations by Globalfoundries are baseless. "TSMC invests billions of dollars each year to independently develop its world-class, leading-edge semiconductor manufacturing," the company said in a statement. "We are disappointed to see a foundry peer resort to meritless lawsuits instead of competing in the marketplace with technology,” it added.

Globalfoundries has struggled over the last decade to snatch market share from TSMC, which has stolen the crown in advanced chip production from Intel. TSMC started supplying chips based on 7-nanometers to customers including Apple and AMD. TSMC also plans to boost the production of its 5-nanometer foundry offering in the first half of 2020, potentially a whole year ahead of Intel's comparable 7-nanometer process.

TSMC has long outpaced rivals by outspending them, with its capital spending estimated to be more than $11 billion in 2019. Globalfoundries halted development at the 7-nanometer node after burning through billions of dollars and losing out on major chip making contracts to TSMC, which made more than $11 billion in profit in 2018. TSMC has been the exclusive supplier of the A-Series SoCs in Apple’s iPhones since 2016.

The legal skirmish comes as Globalfoundries continues to lose market share to rivals such as Samsung, which is pushing aggressively into the market for outsourced chip production. Samsung, which holds more than 18% market share, formed a separate foundry business as part of a challenge TSMC. UMC and SMIC—the No.4 and No.5 in market share, respectively—are other rivals looking to gain ground on Globalfoundries.

Thomas Caulfield, the chief executive officer of Globalfoundries, is trying to turn things around. The Santa Clara, California-based company is moving out of the high-end smartphone and data center spaces to seize the broader Internet of Things market. Globalfoundries, which has long struggled to turn a profit, over the last year has sold its custom chip business and key production plants in the U.S. and Singapore to cut costs.

Caulfield has also said that he wants to file an initial public offering for Globalfoundries by 2022. The company today is privately owned by Mubadala Investment, an Abu Dhabi state-backed fund.

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