Semiconductor Trade Secrets Case Settles for $200 Million

• Zusha Elinson, The Recorder
• On 3:03 am EST, Tuesday November 10, 2009

Semiconductor rivals TSMC and SMIC came to a settlement agreement Monday as they headed into the damages phase of an acrimonious trade secrets trial.

China's SMIC will pay Taiwan's TSMC $200 million plus an undisclosed amount of stock and warrants, according to TSMC's lead trial counsel, Jeffrey Chanin of Keker & Van Nest in San Francisco.

The Keker lawyers had been seeking a jaw-dropping $2 billion in damages from the same jury that handed them a resounding victory last week. During the separate liability phase, the jury found that SMIC, represented by Wilson Sonsini Goodrich & Rosati, had stolen secret recipes for making semiconductors and broken a 2005 settlement agreement between the companies by continuing to use the trade secrets.

Going into settlement negotiations last week, TSMC seemingly had the upper hand.

"Once the jury has concluded that the defendant is guilty, it is more likely that they're going to find against the defendant in damages," said Chris Scott Graham, a veteran trade secrets lawyer with Dechert in Mountain View, Calif., who was not involved in the case.

So why would Keker and TSMC settle for what appears to be much less than the damages they sought, especially with the momentum of the favorable verdict?

Graham said that "collectability" most likely was a factor. If the lawyers had pushed for a verdict on damages, they could have ended up with a foreign judgment that would be difficult to enforce in China, where SMIC is located, the Dechert lawyer said. The settlement also allows for the more easily payable mix of cash and stock. The jury could have only awarded cash, and the Keker lawyers were asking for more than SMIC -- with its $1 billion market cap -- could pay.

Neither Keker's Chanin nor SMIC's lead lawyer, Wilson Sonsini's David Steuer, would comment on the settlement negotiations.

Chanin said that pursuant to stipulations by both parties, a judgment was entered in favor of his client TSMC on all claims and counterclaims Monday morning by Alameda County Judge Steven Brick. He also said that court will maintain jurisdiction until the judgment is satisfied.

The two sides were in the midst of the damages phase when the court announced the settlement.

The two companies originally settled a trade secret dispute in 2005 with SMIC agreeing to pay TSMC $175 million. But TSMC claimed SMIC didn't comply with the agreement, and filed the current lawsuit in 2006.

The jury found that SMIC broke the settlement agreement for the first time on Feb. 4, 2005, just five days after the agreement was signed, by continuing to use the trade secrets.

Wilson Sonsini's Steuer referred questions to SMIC, which did not return an e-mail seeking comment.

SMIC also announced on Monday in a press release that its CEO, Richard Chang, has "resigned to pursue other personal interests." The press release did not say weather Chang's resignation was related to the case.

 

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