Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC, Hsinchu, Taiwan) settled its trade secrets lawsuit with Semiconductor Manufacturing International Corp. (SMIC, Shanghai, China) today, with SMIC agreeing to pay $200M in cash and an undisclosed amount of stock and warrants to TSMC. Judge Steven Brick discharged the jury in the two-month-long civil trial in the California Superior Court in Oakland, Calif., saying that "unexpected news is not always bad."

The 12-member jury last week had unanimously found SMIC guilty on nearly all of the 20 questions alleged by TSMC. The jury heard testimony during the damages phase late last week, and this week was expected to recommend a settlement amount. However, the two parties agreed to a settlement on all claims and cross-claims, including a "no appeals" clause, Judge Brick said.

The $200M is an additional payment, coming roughly four years after a December 2005 settlement that called upon SMIC to pay $175M for stealing TSMC's process recipes and other intellectual property. Those payments continue, with SMIC paying roughly $25M per quarter to TSMC. 

Keker & Van Nest (San Francisco), the law firm that represented TSMC, said the court-approved settlement awards TSMC "$200M and an undisclosed amount of stock and warrants. The court will maintain jurisdiction to enforce the judgment until it is finally satisfied. All the other terms of the settlement are confidential."

Although the detailed settlement terms are confidential, SMIC may disclose them in filings with securities regulators. In the case of the December 2005 settlement, SMIC divulged the terms several months later, both with the U.S. Securities and Exchange Commission (SEC), and with the Hong Kong stock exchange.

Jeff Chanin, the lead attorney of the TSMC team at Keker & Van Nest, said the settlement agreement includes cash, stock and warrants, and an assortment of agreed-upon "incentives for SMIC to behave."

Chanin said the 2005 settlement was "conditionally agreed upon, depending on SMIC cleaning up its act. That was the essence of the deal." Instead, Chanin said, SMIC set out to create a matching 130 nm process compatible with TSMC's, using TSMC process recipes obtained illegally.

In the 2009 proceeding, TSMC claimed that SMIC had failed to put all of its TSMC-related documents into a document escrow, or depository, as called for in the 2005 settlement agreement. TSMC's attorneys produced damaging emails from SMIC staff, including what Chanin called a "smoking gun" email exchange, shortly after SMIC was founded, between SMIC COO Marco Mora and then-TSMC employee Katy Liu, in which Mora asked Liu to obtain a long list of TSMC process recipes and other information. That 2001 email exchange was disclosed early in the trial, along with a 2009 deposition of Mora that provided more background about the company's early IP acquisitions from TSMC. Liu later joined SMIC as an employee.

After the 2005 agreement, CEO Richard Chang ordered his staff to examine their computers and either remove or rename any files that referred to TSMC or BKM1, the SMIC code name for TSMC, referring to Best Known Methods. During the trial, Chanin said SMIC was shown to have removed or renamed TSMC-related technical information from PCs and shared servers on two occasions following the 2005 agreement.

By: DocMemory
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