Patent Lawsuit Strategy
Global companies are continually trying to check Korean firms' influence. It shows that the Korean industry has grown in stature, but experts point out that local companies should come up with preparatory measures, since foreign companies' moves might put a damper on the management activities of local companies.
According to industry sources on July 22, SK Hynix was given one copy of the complaint filed by Toshiba and Sandisk. Last March, the two Japanese firms brought a lawsuit against SK Hynix to the Tokyo District Court for violating the Prevention of Unfair Competition Act as a result of technology leakage. They alleged that a worker at Sandisk leaked technology about NAND flash memory chips to SK Hynix.
At that time, Toshiba and Sandisk demanded that the Korean chip maker pay damages worth 1.1113 trillion won (US$1.0800 billion), and that the company be banned from selling NAND flash memory. The amount is similar to SK Hynix's quarterly operating profits.
Previously, the Korean memory chip manufacturer was embroiled in patent disputes with US-based Rambus for 13 years. But those disputes were settled in the end, as they decided to sign a 5-year comprehensive cross-licensing agreement worth 272 billion won (US$264.4 million) this year. A series of lawsuits against the world’s second-largest maker of memory chips can be interpreted to reflect that rival companies feel threatened by SK Hynix's growth.
According to market research firm IHS iSuppli, Samsung Electronics accounted for 37.4 percent of the global NAND flash memory market in the first quarter of this year, which put the company in the top spot. Toshiba occupied the runner-up position with a 31.9 percent share, followed by Micron (20.1 percent) and SK Hynix (10.6 percent). Thanks to strong sales of DRAM, SK Hynix outperformed Toshiba in the global semiconductor market and nabbed the sixth spot in rankings. The Korean firm reported a 42.8 percent year-on-year increase in sales in Q1 2014.
SK Hynix is not the only Korean company being dragged into a lawsuit. In addition to the patent infringement lawsuit between Apple and Samsung, there are three more ongoing legal cases: a legal action brought by DuPont against Kolon Industries for revealing confidential business information on aramid fiber, a lawsuit filed by Nippon Steel & Sumitomo Metal Corporation against Korean steel giant POSCO for leaking technology related to manufacturing high functional steel plates, and a patent infringement case brought by Celgard against LG Chem. According to the United States Patent and Trademark Office, US companies filed 100 lawsuits against Korean firms as of March 2013. Among these, 43 cases were against Samsung, 31 cases against LG, 11 against Pantech, 7 against SK Hynix, and 6 against Hyundai Motor.
However, it is too early to talk about the contraction of the local industry caused by global companies' actions. The United States Court of Appeals for the Federal Circuit overturned the first court ruling against Kolon Industries. The Federal Circuit ruled that since DuPont's technology to make aramid fiber was already made public through previous lawsuits, the technique is no longer regarded as confidential business information.
Even with unsuccessful cases, global enterprises continue to bring legal action against Korean companies, so that local firms reach an agreement stemming from financial burdens like legal costs. Foreign companies are also aiming at a reduction in investment made by local firms because of worries about losing lawsuits.
As a result, local companies have been taking aggressive steps to deal with the problem. Samsung established Intellectual Keystone Technology as an enterprise specialized in buying patents. Last year, Samsung and SK Hynix reached a comprehensive cross-licensing agreement to respond to patent disputes.
At the governmental level, the Korea Fair Trade Commission is planning to come up with measures to regulate Non-Practicing Entities (NPEs) within the year.