The government to enhance measures for the protection of intellectual property (IP) rights of Samsung Electronics and SK hynix because of increased pressure on them to cross-license more of their memory chip technology to Chinese manufacturers, company officials said Monday.

"The trade ministry and officials at relevant government agencies are looking into the ongoing investigation by Chinese regulatory authorities over allegations that Samsung and SK broke antitrust rules in China. The ministry wants to know what China wants and how this issue will be addressed in a way to protect the best interests of the Korean companies," said an official at the ministry.

Samsung Electronics confirmed Chinese regulatory authority officials visited its offices in that country seeking "certain information." However, it didn't respond to questions about the information sought by the officials.

A spokesman at SK hynix said its offices were searched by Chinese antitrust regulator officials and added it was cooperating with them. "We are keeping an eye out for further developments. For the time being, we have no further comments about this issue," the spokesman said.

Korean companies active in China have often complained of the country's trade ministry doing "too little to rein in" risks related to IP rights, though Samsung and SK are two of the largest foreign investors in that country.

"A new war is looming. This time, the war isn't just about money but more about the corporate future. Chinese companies want more cross-licensing with Samsung and SK. They want the Koreans to lower the royalties paid for the use of their patents. We want more supportive measures from the trade ministry," a Samsung insider said.

Chinese authorities have officially expressed their concern over DRAM prices and asked the Korean pair to cut their prices for Chinese tech companies.

While Samsung and SK denied they were involved in "any type of price-fixing scheme," the companies are accused of limiting the manufacturing volume of DRAMs in an effort to push up prices.

China has made significant progress in the chip sector, with multiple construction projects underway and sizable equipment orders being placed with a view to production starting late this year.

But the largest concern for Beijing is that its technology remains three to five years behind Samsung and SK. In semiconductors, technology is critical to the cost structure.

"Competition in memory chips can be brutal where technological leadership leads to cost advantages and any significant disadvantage can challenge even the deepest pockets. This could mean significant losses in an oversupply scenario. A Taiwan case study is a miserable tale. What happened to the Taiwanese DRAM industry in the 2000s is a good reminder to China of what not to do," said Mark C. Newman, a senior analyst at Bernstein Research.

How could China be different?

Beijing wants to have more comprehensive cross-licensing deals with Samsung and SK to hedge against such external risks. China's typical pattern is to sue foreign companies over antitrust rules and stretch out negotiations until there's a big compromise offer from the "negotiating" partners; then the issue is closed.

Earlier, China imposed an over 1 trillion won fine on U.S.-based mobile chip titan Qualcomm, the largest fine on a foreign company at the time. Qualcomm paid the fine with no contest and didn't pursue further legal proceedings after it agreed with major Chinese smartphone vendors to collect less royalties from them.

Samsung, SK and Micron Technology of the United States supplied over 90 percent of the global DRAM chip demand as of the first quarter this year, while the three companies collectively control more than half the global market in NAND chips.

By: DocMemory
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