IP Theft: Innovation at Risk

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…