“Who’s Suing Whom over What?” Patent Litigation in the Semiconductor Industry, Rosemarie Ziedonis STEP Board IP Meeting Washington, DC October 22, 2001

Motivation Role of patents in “cumulative” technologies (Cohen, Nelson & Walsh, 2000; Hall & Ziedonis, 2001; Merges and Nelson, 1990) Value of patents tied to patents owned by others Broader incentives to innovate Patents as “bargaining chips” Cross-licensing in semiconductors, yet “patent portfolio racing” and active patent litigation since mid-1980s

Objectives Track patent litigation histories of firms within an industry characterized by cumulative innovation (semiconductors) Complement cross-industry studies of patent litigation (e.g., Lanjouw & Schankerman, 2001; Moore, 2000; Somaya, 1999) Determinants of conflict (and cooperation)? Variation within an industry (manufacturers v. design firms)? Effects of patent system on cumulative innovation? (pre and post- CAFC)

Limitations A sample of firms in one industry A view from the “iceberg’s tip” Observe filed patent cases (not case outcomes) Describe events (for now)

Approach 1: Select sample of semiconductor firms 2: Identify patent lawsuits that involve these firms (and their subsidiaries), : Assemble information about each case filed: Type of case (infringement, validity) Role of semiconductor firm Characteristics of other parties involved Characteristics of patents involved 4: Answer simple questions 5: Examine broader trends

1. Sample Firms Dedicated US semiconductor firms (SIC design; publicly-traded, ) 136 firms (95 of which in Hall-Ziedonis study) 81 manufacturers (e.g., Intel, Texas Instruments, Micron) 55 specialized design firms (e.g., Altera, Xilinx, Rambus) in 2000, combined sales=$88B, R&D=$12B, owned ~31,000 US patents Annual R&D, sales, employees, etc. (Compustat) Specialized Design firm? Founding/Exit Years US Patents Granted (1996 ownership status)

Number of Sample Firms: Mfg and Design

2. Linking Firms to Lawsuits 136 Firms Litalert data: Patent cases filed in US District Courts, 1973-June 2001 USITC website: Section 337 cases filed, 1973-June 2001 Annual 10-K reports, trade press, (legal proceedings) 346 cases (287 “clean”) 674 patents (504 unique) 292 entities (260 firms, 30 Ind. Inventors) 272 unique plaintiff/defendant pairs

3. Cases identified (by forum) Both (12 cases)

3. Cases identified (by type)

3. Observation The market for semiconductor IP seems quite active before lawsuits are filed 118 cases involve patents not originally assigned to the plaintiff or defendant (“unclassified”) Of these, 82 (70%) involve patents that were reassigned (almost always to the plaintiff in an infringement suit) Implication: at least 30% of our cases involve “purchased” patents

4. Who’s involved (and who isn’t) Of 136 sample firms, ~56% involved in patent-related disputes 53% of the manufacturers 65% of the design firms On average, firms NOT involved: Are smaller Invest less in R&D Invest less intensively in R&D (relative to employees or sales)

4. What’s involved 674 patents (504 unique) 55% “semiconductor product” inventions (+process) 23% “production process” inventions (process only) 20% “downstream product” inventions 1% ??? Top owners of patents litigated #1: TI (70) – e.g., Boone calculator or Kilby IC patents #2: Intel (34) – e.g., math co-processor, EPROM/EEPROM #3: Jerome Lemelson (17) – e.g., scanners

5. Broader Trends Increased patent litigation in this industry over time (not surprising) More interesting: Calculation 1: Litigation rate falls (per patent) Calculation 2: Litigation rate rises (per R&D$) Even more interesting: Active presence of design firms in litigation 4 out of every 100 patents involved in a case More like biotech than semiconductors

Patent v. Patent Litigation Activity (136 US Semiconductor Firms, 01/ /2001)

Litigation Rates (Mfg Only) Period 1: Period 2: % Change A. # Cases per 1,000 patents % B. # Cases per million real R&D$ %

Litigation Rates: Mfg v. Design Firms ( only) ManusDesign Firms Magnitude Difference A. # cases per 1,000 patents x B. # Cases per million real R&D$ x Note: Using # of disputed patents assigned to the firm as the numerator generated similar results.

Profile of disputes (Mfg vs. Design) Design firms (on average) Most commonly oppose other design firms in dispute Enforce patents that are “newer” than the average patent in their portfolios Are almost always engaged in disputes over product-related inventions (not surprising) Manufacturers (on average) Face a more diverse set of opposing parties (more firms in unrelated businesses; independent inventors; non-US firms) Enforce patents that are “older” than the average patent in their portfolios Are involved in more disputes over purely “process” inventions (not surprising)

In Summary Patent litigation has become more common in semiconductors (not surprising) Whether the rate of litigation has risen or fallen or risen depends on how you measure it Regardless of how it’s measured, the litigation rate of design firms is high