In September, the International Trade Commission ruled that Actions Semiconductor, a Chinese chip-design company, had infringed upon two digital audio processing patents owned by SigmaTel, an Austin, Texas, chip designer. Both companies specialize in chips used in MP3 players. In the past, Actions shrugged off the likelihood of being found guilty of infringement by declaring that the chips at issue represented only a small part of its business and would soon be obsolete anyway. But last week, Actions launched a counter-offensive, asking the U.S Patent Office to reexamine the validity of SigmaTel's patents, while simultaneously filing patent infringement claims of its own against SigmaTel in a Chinese court.
SigmaTel's chairman, Ron Edgerton, dismissed the claims, declaring that Actions' moves "are merely an attempt to regain some credibility in the marketplace with respect to its intellectual property situation." That may well be true. SigmaTel has been amassing a hoard of MP3-related patents and is determined to cash in on them. And despite having some of the best legal representation money can buy before the ITC, Actions did lose.
But the significance of the ongoing scuffle may not lie so much in who is right, but in the ferocity with which it is being conducted. As one IP lawyer who has been dealing with patent infringement cases involving Asian companies for decades told me last year, the historical pattern is that established companies usually don't file suit against newcomers unless they're pretty sure that their target isn't going to turn around and countersue. And usually, up-and-coming Asian companies focusing on low-cost manufacturing haven't amassed their own stockpile of patents with which to conduct a counter-attack.
But such companies learn fast. First the Japanese, then the Taiwanese, and now the Chinese quickly figured out how to play the game, and started filing their own patent claims and initiating their own countersuits. And when two companies start suing each other, the ultimate result is often a deal in which the two parties agree to cross-license their patents, rather than bleed each other dry funneling millions of dollars to IP lawyers.
Again, there's no telling right now whether SigmaTel and Actions will ever find their way to peaceful coexistence, but as a snapshot of the evolving competitive landscape in the international semiconductor industry, the picture is pretty clear. Chinese semiconductor companies, increasingly funded by Western venture capital and employing teams of Western lawyers, are learning how to sue their rivals on intellectual property grounds, just like Westerners.