Nov. 18, 2008 – Is the new litigation from Spansion (and unit Saifun Semiconductor) against Korean chip/electronics giant Samsung a move of desperation? Or is it a savvy IP strategy that could rock the industry and set an example? Objective Analysis’ Jim Handy explains what’s going on and what’s likely to come about.
A quick recap: Spansion, on behalf of its recently acquired unit Saifun Semiconductor, has filed a complaint with the US International Trade Commission (ITC) against Korean electronics giant Samsung Electronics, seeking to block imports of allegedly infringing devices to the tune of one million MP3 players, cell phones, digital cameras, and other consumer electronic devices. Per ITC rules, Spansion is also naming downstream manufacturers in the Samsung product chain, essentially a who’s who of electronics OEMs: Apple, Lenovo, RIM, and Sony; plus Asus, Kingston, and Samsung’s other consumer electronics units, plus other third-party manufacturers. A simultaneous filing in US District Court in Delaware seeks an injunction and treble damages for flash memory patent violations.
The stakes, according to Spansion, are tremendous. In a PR, the firm calls the lawsuit “one of the largest patent infringement claims ever filed” — the technology at issue is “fundamental to floating gate technology, which is the foundation for approximately 90% of the flash memory market,” and the Delaware action cites Samsung’s flash memory sales as exceeding $30B since 2003. And Boaz Eitan, EVP of Spansion and CEO of Saifun Semiconductor, went even further, stating that Samsung’s alleged misuse of proprietary flash memory technology no less than “threatens the foundation of technology innovation.”
Building an IP empire
This litigation has been building since Spansion acquired Saifun in Oct. 2007, and the companies’ current path harkens to a similar situation in 2002 between Saifun and Spansion parents AMD and Fujitsu, notes Jim Handy of Objective Analysis. “Saifun brought to Spansion a true understanding of how to use the patent system to gain a strong revenue stream,” he writes in a research note [PDF version]. Combined, the two companies wield “a strongly synergistic ability to achieve significant royalty revenues.”
Spansion says Saifun brought to the table a new way to evaluate patents; previous internal strategy had been “defensive,” with patents used to provide a stronger position in any IP lawsuits. Saifun, though, has a more proactive stance, seeing the patents as a potential revenue source and seeking out potentially infringing devices. So, Spansion has been trying to shop around licenses to its charge-trapping technology, which it hopes will gain broad adoption by (and generate major royalties from) NAND flash manufacturers at the sub-32nm nodes.
Talks with flash memory makers about licensing the charge-trapping IP have been ongoing, but according to Spansion talks with Samsung broke off abruptly a few months ago, notes Handy — and then Spansion says it found various past, current, and future-generation devices from Samsung that infringe upon some patents, some of which Samsung itself had referred to as prior art in its own patent filing (and hence the treble damages request in Delaware, indicating infringement was both known and intentional).
Industry on notice
It’s worth noting, Handy points, out, that Samsung is in similar wranglings with memory IP licenser SanDisk, which similarly is poised to cash in on a popular memory patent portfolio (which was the perceived key behind Samsung’s proposed M&A takeover of the company, since abandoned after valuations crumbled in the economic crisis). “Samsung seems to be taking a firmer stance than they have in the past to avoid paying royalties to other firms,” he writes. But right about now there are probably some “difficult conversations” being had between Samsung and the suppliers named in Spansion’s ITC suit, who likely weren’t expecting the possibility of being shut out of the US market thanks to one of their suppliers — and being publicly named means they’re probably pressuring Samsung even harder to come to a resolution, he notes. “If these customers are driven to either stop selling their products or to stop buying Samsung flash, guess which path they will take?”
The upshot of all this, Handy says, is that the industry has been put on notice that Spansion wants to build up a royalty stream off its 3000-strong patent portfolio — and those negotiating with the company for its charge trapping technology can consider themselves warned to not take the firm lightly. Furthermore, OEMs should also be checking with their suppliers to make sure there’s no similar risk to supply sources from licensing issues.