TSMC Sued in China by SMIC for ‘Unfair Competition’

Semiconductor Manufacturing International (SMIC) has filed a lawsuit against rival Taiwan Semiconductor Manufacturing (TSMC), claiming TSMC engaged in “unfair competition” and hurt its reputation by suing SMIC for alleged violations of an earlier settlement.

TSMC “rather than competing fairly in the marketplace, have undertaken a concerted effort to infringe SMIC’s legal rights unfairly,” SMIC said in a filing with the Hong Kong stock exchange. SMIC, which is based in Shanghai, filed the lawsuit in the High People’s Court in Beijing.

In addition to charging TSMC with unfair competition, SMIC alleged in the suit that the Taiwanese government had restricted its “development in China,” the filing said.

SMIC is seeking an injunction to stop TSMC from making statements that harm its reputation, a public apology from the Taiwanese chip maker, and profits that TSMC has made from actions taken against SMIC.

J.H. Tzeng, a spokesman for TSMC, said the company had not yet seen the complaint and could not immediately comment on SMIC’s allegations.

The SMIC lawsuit is the latest legal challenge in the ongoing battle between the two contract chip makers. In August, TSMC sued SMIC in a U.S. court for violating the terms of a 2005 settlement that ended a patent-infringement lawsuit between the two companies.

In the complaint, TSMC alleged that SMIC continued to use its trade secrets, despite having agreed in a 2005 settlement not to use them. “SMIC’s continuing misappropriation of TSMC’s trade secrets … allows SMIC unlawfully to build a reputation that SMIC does not deserve,” TSMC said.

SMIC responded in September with a countersuit in the same U.S. court, accusing its larger rival of seeking to discredit it and failing to act in good faith over the terms of an earlier lawsuit settled in 2005. Many of those same charges are echoed in the complaint filed in the Chinese court.

The lawsuits filed by SMIC and TSMC revive a legal battle that started in 2003, when TSMC sued SMIC in the United States for infringing five of TSMC’s chip-making patents and misappropriating trade secrets. TSMC later expanded that suit to include additional allegations of patent infringement and asked the court to ban the import of certain SMIC-made products in the United States.

The legal battle appeared to end in January 2005 with a settlement that required SMIC to pay TSMC US$175 million over six years, with five annual payments of $30 million to be followed by a final payment of $25 million. In addition, the two companies agreed to cross-license their patents to each other through December 2010.

TSMC canceled that cross-license agreement when it filed suit against SMIC in August.

-Sumner Lemon, IDG News Service (Singapore Bureau)

Related Links:

• SMIC Widens Legal Battle With TSMC Countersuit

• TSMC: SMIC Violated Terms of ’05 Settlement

• TSMC Q3 Profit Hit by Chip Glut

Check out our CIO News Alerts and Tech Informer pages for more updated news coverage.