SK hynix (000660) was sued for patent infringement in the United States in May this year. The plaintiff claimed SK hynix used its patented technologies, including a three-dimensional vertical stacking structure and transistor layout, without permission in manufacturing high-bandwidth memory (HBM). Notably, the plaintiff was not a rival chipmaker but Monolithic 3D, a non-practicing entity (NPE). SK hynix had already been sued by the same firm in February.
The SK hynix case illustrates the pattern of U.S. semiconductor patent litigation that Korean companies are being drawn into. Overseas NPEs allege patent infringement by large Korean chipmakers and ask U.S. federal district courts to settle the dispute. Patent suits targeting Korean firms have risen to a record high this year, driven in part by the recent upturn in the chip industry.
According to data from the Korea Institute of Intellectual Property Protection obtained by The Seoul Economic Daily on the 6th, NPEs were the plaintiffs in 17 of the 24 U.S. semiconductor patent suits filed against Korean companies over the five years from 2022 through the end of July this year, or 70.8%. Of the nine suits filed against Korean companies this year, seven, or 77.8%, were brought by NPEs. NPEs have no production facilities; they buy patent rights and generate revenue by enforcing them, claiming that other companies have used their patents without permission and collecting settlements, damages and royalties.
Behind the rise in patent suits entangling Korean chipmakers and NPEs is the entities' intent to extract financial gains from Korean firms. NPEs typically accuse large companies with the financial capacity to pay settlements or damages. With Samsung Electronics (005930) and SK hynix expected to post record operating profits amid a chip boom, NPEs have naturally turned their attention to the two companies. Kim Yong-sun, head of the Intellectual Property Office of Korea (a newly created prime-minister-level IP policy body, distinct from the Korean Intellectual Property Office), said in a recent interview with this newspaper, "The bigger semiconductors loom in Korean industry, the more we see overseas NPEs stirring up chip-related patent disputes."
The U.S. policy environment has also fueled the increase in patent disputes. Since President Donald Trump took office, the U.S. administration has strengthened its policy stance of protecting the patent rights of domestic companies. One prominent example is that the U.S. Patent and Trademark Office has more frequently declined to institute inter partes review (IPR), a key defense tool for companies facing suits. Backed by this policy stance, U.S. NPEs have become more active than before.
Korean companies, by contrast, have few tools at their disposal in court battles with NPEs. NPEs merely enforce patent rights and do not make or sell products using the technology. In disputes between manufacturers, a company can strike back with a countersuit using its own patents, but against an NPE, even the patents held by a large firm are of no use as a weapon. For this reason, industry officials say companies facing such suits often settle regardless of whether infringement actually occurred, out of concern over litigation costs and damage to their corporate image.
More recently, core memory chip technologies have become targets of disputes. Following SK hynix, Samsung Electronics was sued in June by Mare Infinitus, an NPE, over HBM-related patents. The patents at issue in the two cases include the 3D vertical stacking structure and through-silicon via (TSV) technology, both regarded as key HBM technologies. These technologies are used not only in HBM but also in products such as NAND flash. Because the suits target core memory technologies, the industry is closely watching whether the disputes will spread to other products.
Mid-sized companies have also been drawn into semiconductor patent litigation. Everlight Electronics, a Taiwanese light-emitting diode (LED) maker, filed a patent suit against Seoul Semiconductor (046890) in the United States in February. It is the first time Seoul Semiconductor has been sued over semiconductor-related patents. Everlight based its suit not on technology it developed itself but on patents it had purchased from other companies in the past. The case has drawn industry attention as a Taiwanese company squaring off against a Korean firm in a U.S. court.
Korean companies are not only on the receiving end. Korean firms filed nine U.S. semiconductor patent suits this year, a considerable number of them brought by Korean NPEs. As intellectual property rights grow in importance, an NPE industry is emerging in Korea as well. Cases are increasing in which domestic NPEs buy patent rights from small and mid-sized companies or research institutes and then enforce them against foreign firms.
As semiconductor patent disputes intensify, the most worrying scenario is U.S. restrictions on chip exports. Some suits are brought before the U.S. International Trade Commission (ITC), which can issue an exclusion order barring imports of products found to infringe patents. In that case, imports and distribution of the product in the United States would be restricted. A worst-case situation in which an ITC ruling puts the brakes on chip exports to the United States cannot be ruled out.
Experts agree that perceptions of U.S. semiconductor patent litigation need to change. Noh Jae-il, chairman of the Korea Intellectual Property Management Association, said, "An ITC exclusion order could shake our industry's entire semiconductor supply chain," adding, "It is now time to treat semiconductor patent disputes as a trade issue for a strategic industry."
Others point out that Korea's relatively inadequate domestic framework should be overhauled first. Sung Yun-mo, chairman of the steering committee of the Intellectual Property Strategy Forum and a former minister of trade, industry and energy, said, "In the United States, federal policies that support the legitimate exercise of patent rights and state-level policies that curb indiscriminate patent litigation are developing together." He added, "Korea, by contrast, has not sufficiently discussed support measures to help key industries avoid patent infringement or systems to back the monetization of patent rights at home and abroad." He proposed that "the government and the private sector should work together to devise a new framework."
