Parties to a global patent dispute involving chip-sector companies from the US, China and Germany called it quits last week after injunctions on both sides of the Pacific appeared to test all sides’ risk thresholds.
The deal between New York-based Veeco, Shanghai-based AMEC and Germany’s SGL Carbon was announced on Thursday. All three companies are important players in the supply chain for MOCVD reactors – machines used to assemble LEDs. While no indications were given as to licence or financial terms, the agreement ends litigation in New York’s Eastern District, the Higher People’s Court of Fujian, China, and both the US and Chinese patent offices.
Veeco initiated the conflict in July 2017, telling a US judge that its market leading business in LED manufacturing equipment had been undercut by Chinese competitor AMEC through a combination of IP infringement and state subsidies. The US firm asked SGL Carbon – a common supplier – to stop doing business with its rival, and when the German company refused, it asserted multiple patents against it.
In the course of that case a US federal judge issued, and then refused to stay, a preliminary injunction halting SGL from supplying certain components to AMEC pending the trial. The components in question – wafer carriers – would be difficult for AMEC to source elsewhere, the US company assured.
But following Veeco’s US suit against its supplier, AMEC had quickly reacted with patent litigation of its own in China. After a validity review preserved AMEC’s patent in somewhat narrowed form, the Higher People’s Court of Fujian wasted no time in slapping Veeco with a preliminary injunction covering several MOCVD products, which took effect in mid-December.
The Chinese injunction was a surprise to many, including Veeco shareholders. Preliminary injunctions are quite rare in Chinese patent litigation, practitioners say. And it is unclear why the order was issued by the higher court in Fujian, when intermediate courts are the normal venues of first instance in Chinese patent cases. On top of everything, the Chinese right was based on a utility model patent – a ten-year right with a lower threshold for inventive step, which can nevertheless be enforced in the same way as an invention patent.
What is beyond question is that the Chinese court order had a concrete business impact. On January 12th, according to AMEC, Chinese customs detained two MOCVD reactors that Veeco was seeking to import into the country. The confiscation was temporary – no word on how Veeco secured their release. But it must have been a major headache for executives at Veeco, which ships around 50 of the large reactors in a good year and does up to 60% of that business with Chinese customers.
From the looks of it, patent remedies took a business toll on all three parties involved, and at that point only a settlement deal makes sense. The broader context to this dispute is that AMEC has nearly caught up to MOCVD sales leader Veeco in just two years of rapid growth. Without details on the agreement, it is difficult to say whether the terms are favourable to any side. The answer will come to light as we watch the commercial environment in this small corner of the semiconductor space develop over the coming years.