Alexander E. Braun

IP Theft: Innovation at Risk
April 23, 2008

I had a long conversation with Vicky Hadfield, president of SEMI North America (San Jose, Calif.), and Bob Akins, chairman and CEO of Cymer (San Diego, Calif.). They walked me through what, without fear of exaggeration, is probably SEMI’s most important report of the decade, a white paper entitled,“Intellectual Property Challenges and Concerns of the Semiconductor Equipment and Materials Industry.” Hadfield and Akins headed the IP study effort, with the latter leading SEMI’s IP Working Group.

Recognizing that IP theft is one of the most crucial problems of our industry, SEMI commissioned the study last year from the Noblemen Group (Dallas, Texas), to better understand the problem. The results are disquieting.



Source: SEMI

The Noblemen Group surveyed SEMI’s global members, querying most of the major OEMs and materials companies; of the 80 targeted, 49 participated. Results indicate that IP is everyone’s major concern—from general overall systems infringements down to trade secrets and trademarks—with about 53% also expressing concerns regarding IP infringement by customers. Another major emerging issue for the respondents is spare-part counterfeiting. The regions most mentioned included Taiwan, China, Korea, and North America, with concerns differing for each. While some 60% stated that they had taken some legal action, the net conclusion was that it wasn’t as productive as hoped. While this is nothing new, the nature of our business has changed and there are many more semiconductor manufacturing markets, so companies must now protect their IP globally.

Hadfield thinks that SEMI, as a trade association, should work with its members to educate them on IP management best practices and increase the dialogue with customers. “This is a threat to overall innovation in the industry, with R&D costs escalating it is very important for companies to get their ROI to stay in business.”

“Our business is global, and over the last 20 years it increasingly has moved to Asia,” Akins said. “This has brought many countries, legal systems, and cultures into play, complicating the problem.” OEMs typically spend anywhere from 10 to 15% of revenues on R&D, and more so when there is a slowdown. This translates into significant risks in developing next-generation capabilities. As we move along Moore’s Law, advancements and innovations become that much more expensive to develop and deploy and without proper global IP protection all suppliers will be undermined. The incentives and rewards for these very large investments to be first to market and meet schedules are rapidly disappearing as others profit from IP theft and the R&D savings that it brings.

SEMI’s white paper concludes that IP theft is costing semiconductor OEMs between $2 to $4B; however, those closer to the problem, such as OEMs, think this extremely conservative. In any case, that money could have financed the development of next-generation materials and equipment, or gone to the companies’ bottom lines.

During the report’s production, discussions with the larger material suppliers revealed that some have decided that their investment dollars are better spent in other industries, whether it be pharmaceuticals, automotive, nano, or photovoltaics, and as a strategic business decision are reducing the semiconductor segment of their markets. This could have a harmful cascading effect. Some of the problems materials suppliers face are analogous to those of the pharmaceutical industry: enormous R&D funding goes into developing some new, specialized molecule, and once it’s available a third party analyzes and synthesizes it, enabling it to enter that marketplace quickly and inexpensively. However, unlike the pharmaceutical industry, which has been extremely aggressive in defending its IP, our industry lags globally. If one cannot or does not protect IP, eventually the incentive to continue development is reduced or disappears. Because few industries must develop new technologies at the rate that the semiconductor industry does to stay on Moore and Wang’s laws, the future looks bleak.

SEMI is optimistic. Some two years ago, when it was first proposed that this report be commissioned, the response from all companies, including those in regions that—as it was diplomatically expressed—“are newer to the IP protection concept,” was overwhelmingly positive. Obviously, it is to be hoped that things will work out, and that these truly worthy efforts bring the intended results. However, I have some reservations.

It does not seem enough to bring the problem to the offenders’ attention or to try to sue them. As many companies can sadly testify, often some of these countries’ governments are complicit in the effort to acquire protected IP. Going to court in those regions can take years and be a disheartening and expensive proposition that often yields at best uncertain or at worse negative results.

In the case of the United States, unless the government brings pressure to bear I expect that little can be accomplished. And, with practically every means of production offshore, and just about everything we require for our daily existence coming from the very regions that are major offenders, there seems to be little leverage to be employed. And, although it is a discussion for another time, our human infrastructure—like our bridges and highways—has decayed horrendously… just take a look at how many graduating Ph.D.s are born in this country.

Paradoxically, we’re our own worst enemy. When I’ve spoken about IP theft on a one-on-one basis with some CEOs, presidents, and CTOs, they’ve indignantly told me that something must be done to stop it. Minutes later, they give a presentation on globalization in front of an audience and if someone asks about IP theft, that same person shrugs it off saying something to the effect that, “It really isn’t that serious and, in any case, because we innovate so quickly by the time they field their product we’ll be doing something completely new!” It’s hard to offend the hand the feeds us, even if the other picks our pocket.

Good luck, SEMI. I think you’re going to need it…

Posted by Alexander E. Braun on April 23, 2008 | Comments (4)