The Importance of Patenting Intellectual Property in Semiconductors

There is no denying that the semiconductor business is experiencing a revival of sorts. The continuous shortages of chips, which have caused delays in everything from smart phone supplies to auto manufacturing, are largely responsible for the increased public awareness of semiconductors. Furthermore, the industry's dependence on East Asia, particularly Taiwan, has prompted unprecedented state interventions by the US, European governments, and Indian governments, who have offered semiconductor companies a huge opportunity to invest in their production facilities.

In a statement, Indian IT Secretary S. Krishnan said that it was critical to take advantage of the geopolitical advantage that India has over other nations when it comes to businesses and nations searching for robust electronics and semiconductor supply chains. This advantage is only expected to last for four or five years. He recalled that ten years prior, Intel had backed out of plans to build a semiconductor packaging and testing facility in India because a government grant of $1 billion had fallen through.

The industry is currently facing new circumstances, including direct subsidies and production-linked incentives. Mr. Krishnan refers to government subsidies for semiconductor assembly and manufacturing facilities as "generous," as the government covers the majority of the setup costs. "Today, the government really funds almost 70% of the project's cost as a subsidy, with about 50% coming from the Indian government and about 20% coming from the state governments in the form of subsidies."

Additionally, he stated that claims to intellectual property related to hardware would need to be made in India “Bengaluru is home to at least 20,000 chip designers." Regarding semiconductor architects, he underlined how important it was for Indian businesses looking to join the semiconductor sector to claim ownership of the underlying software in hardware projects, pointing out that even an iPhone sold for $1,000 had a bill of materials that did not surpass $250. "They have to place that wager next."

Intellectual property (IP) has always been important to the semiconductor industry, and different kinds of businesses need different approaches to protecting their IP. Three main types of businesses make up this industry: a) Integrated Device Manufacturers (IDMs), which include companies like Intel and Samsung, design and produce chips themselves; b) Fabless Design Companies, which include companies like Nvidia and Qualcomm, design and produce chips themselves but contract out manufacture to foundries; and c) Pure-play Foundries, which include Taiwan Semiconductor Manufacturing Company (TSMC), produce chips on behalf of other businesses. While intellectual property is crucial for each of these kinds of businesses, the business models of fabless design companies revolve around IP licensing.

There are significant changes occurring in the semiconductor industry. The way semiconductor businesses respond to maintain their market share will surely affect their long-term prospects. The importance of intellectual property strategy is not going away, and we think the time has come for businesses to start preparing for these challenges. Process technology that was previously likely to have remained trade secrets should be carefully considered. Additionally, semiconductor businesses ought to consider their clients and search for ways to provide value through higher-level patenting that secures industry-specific uses for their technology.

The primary market refers to the intellectual property that these corporations’ control and assert. These businesses occasionally sell intellectual property to non-practicing entities (NPEs), who attempt to make money from it through licensing and assertion. Semiconductor patents have a developing secondary market, with several NPEs acquiring the portfolios of former semiconductor companies. For instance, Daedalus Prime started suing other semiconductor businesses after acquiring a portfolio of Intel patents.

What adjustments should the patent strategy make?

The semiconductor industry faces both opportunities and risks because of the changes. To what extent may patents and trade secrets help semiconductor businesses maintain their competitive edge in the marketplace? Here, we highlight three important topics that semiconductor businesses ought to be focusing on in the upcoming months.

A stronger emphasis on manufacturing technology

In the past, foundries in Taiwan produced goods that design firms in the US and Europe had created. Asian manufacturing techniques were typically maintained as trade secrets, and the businesses that sold the goods safeguarded their offerings. The distinctions between semiconductor design houses and foundries have become fuzzier over time. By providing "pure-play" fabrication to outside parties, businesses such as Intel and Samsung are directly competing with companies like GlobalFoundries and TSMC.

A significant danger facing Integrated Device Manufacturers (IDMs) is an increase in pure-play foundries' patenting activity, particularly regarding devices. TSMC has already increased the number of patent applications it has filed in Europe.

The IDMs must give great thought to how they will safeguard industrial processes. It might be necessary to patent methods that were previously better off as trade secrets in order to give the IDMs some protection from pure-play foundries. The ability to identify process techniques in the final product will still be important in this situation, but we anticipate a further movement in favor of patents over trade secrets.

Additionally, the manufacturing of semiconductors necessitates the use of extremely specialized equipment that is quite expensive in terms of capital expenditure (capex). Historically, major US and European players like Applied Materials and ASML built the machinery used in the production of semiconductors. Taiwan and other East Asian fabrication facilities were the main buyers of these machines. Patent protection was thought to be less crucial because of the high obstacles to entry, the small number of machines supplied, and the capital expenditure needed. Like process patents, we anticipate a rise in patent applications pertaining to the actual production equipment.

Creating value by safeguarding clients

For most semiconductor companies, the traditional patent strategy would involve patenting innovations at the bottom of the stack. A patent for an enhanced transistor would be awarded for an invention pertaining to transistor operation. This is beneficial and safeguards the company's primary inventions.

A low-level component like this can be ideal for a certain application or even sector. An upgrade in transistors, for instance, would be especially useful in a circuit for power regulation, which might be appropriate for an automotive application. There may be difficulties in implementing such circuits that lead to patentable inventions.

This kind of application-level innovation may have been considered the domain of semiconductor companies' clients by legacy patent tactics. Nonetheless, a growing number of semiconductor manufacturers are collaborating with their clients to offer solutions for difficulties unique to certain industries. As a result, the people who are creating the solutions to those issues are frequently semiconductor engineers.

For instance, Texas Instruments (TI) recently received US patent number 11284062 for a technique for validating car displays. It is quite likely that TI will sell the system-on-a-chip (SoC) mentioned in the patent; nonetheless, TI has chosen to file for patent protection for their product's use in the automotive industry.

Businesses ought to take industry-specific application-level solutions into account. The resulting patents could be quite valuable and useful in defending clients. With application-level patents, semiconductor companies could be able to shield their clients from rivals while also generating more cash from joint ventures.

If semiconductor businesses cooperate with their clients, there will probably be an increase in cross-industry lawsuits. Additionally, it's conceivable that automobile businesses may run into disagreements with semiconductor companies or NPEs that own semiconductor patents, like what's happening in the telecom industry. Being sued by businesses from other industries is more likely; therefore, building a defensive portfolio that extends beyond a company's primary intellectual property (IP) will become more crucial.