SMIC: US courts have no jurisdiction over TSMC claims

Chinese contract chip maker Semiconductor Manufacturing International Corp. (SMIC) hopes to bring a swift end to allegations of trade-secret misappropriation by arguing that U.S. courts do not have jurisdiction over several charges contained in a lawsuit brought against it by rival chip maker Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC).

On Apr. 23, SMIC plans to ask the judge, Maxine M. Chesney, to dismiss the allegations of trade-secret misappropriation contained in the lawsuit, saying the matter is outside the court’s jurisdiction, according to a court document filed on Feb. 17 by lawyers representing SMIC.

“There is simply no basis to invoke this Court’s jurisdiction to hear a dispute between two foreign corporations over events that occurred in Taiwan and China and which involve no issues of U.S. federal law,” the SMIC filing stated.

TSMC’s lawsuit, filed in the U.S. District Court for the Northern District of California in December, alleged that SMIC infringed on five of its patents and misappropriated trade secrets related to the manufacture of semiconductors. The lawsuit was jointly filed by TSMC, TSMC North America and a U.S.-based subsidiary, WaferTech LLC, against SMIC, Semiconductor Manufacturing International (Shanghai) Co. Ltd. and SMIC Americas.

SMIC’s filing argued that TSMC’s amended complaint and allegations of trade-secret misappropriation are “filled with inaccuracies and distortions that are clearly designed to convey a false impression of wrongdoing and to malign the character and integrity of SMIC and its personnel but are unrelated to the patent infringement claims which form the sole basis for federal jurisdiction.”

The filing did not address the five allegations of patent infringement brought against SMIC by TSMC. SMIC plans to address those charges within 10 days of the court’s ruling on its motion for dismissal of the trade-secret misappropriation charges, the filing said.

TSMC alleged that SMIC recruited more than 140 employees from TSMC and TSMC-affiliated companies in a bid to gain access to TSMC’s technology and trade secrets. In addition, TSMC’s complaint alleged that Katy Liu, a former TSMC quality control manager, was directed to obtain TSMC trade secrets for SMIC while still employed by TSMC.

TSMC’s complaint contained a copy of an e-mail allegedly sent from Marco Mora, SMIC’s vice president of operations, to Liu asking her to obtain for SMIC information on TSMC’s 0.35-micron, 0.28-micron, 0.25-micron, 0.22-micron and 0.18-micron chip-making processes as well as training materials.

In response to TSMC’s allegations, SMIC said the e-mail contained in TSMC’s complaint is not dated and TSMC has not offered any evidence that Liu provided SMIC with any of the information mentioned in the e-mail.

TSMC’s charges mirror similar allegations made in 2002 by TSMC in a Taiwanese court. At that time, TSMC accused Liu of sending confidential documents, including equipment layout plans for a chip fabrication plant, via e-mail to SMIC while still an employee at TSMC. That case is still pending and an arrest warrant has been issued in Taiwan for Liu, who did not appear in court to answer the charges, according to TSMC.

In December, SMIC spokeswoman Sarina Huang confirmed that Liu worked for SMIC after leaving TSMC but said she left the company after charges were filed against her in Taiwan. SMIC believes Liu is innocent of the charges and is not aware of her current whereabouts, Huang said at that time.

The stakes are high for SMIC, which plans to issue up to US$714 million worth of shares in an initial public offering (IPO) on the New York Stock Exchange. That IPO is slated to take place on Mar. 17 and will be followed on Mar. 18 by a second listing on the Hong Kong Stock Exchange.

“If we are unable to successfully defend pending patent and trade secret litigation by TSMC, we may be required to pay damages, obtain a license from TSMC or discontinue sales of certain of our products in the United States,” SMIC wrote in a Feb. 11 filing with the U.S. Securities and Exchange Commission (SEC).

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