[Centric Column] Comments on Veeco's lawsuit against SGL, a supplier of Advanced Micro Devices

Source: The content comes from Strategy Analytics, which is the world's leading semiconductor industry research organization. It provides authoritative research reports and comprehensive analytical research on companies, funds and governments. It is a widely recognized semiconductor industry research company in the industry.

With the rapid development of China's semiconductor industry, the global semiconductor industry competition has entered a new era of full development in various market fields. International semiconductor industry players are also facing strong challenges from latecomers represented by Chinese enterprises. "Intellectual property" and "legal litigation" have always been the trump cards of international giants to block latecomers in industrial competition. With the emphasis on intellectual property rights and the accumulation of experience in dealing with legal litigation by domestic enterprises, such litigation tactics have also begun to "upgrade". Recently, VEECO, the former world's leading MOCVD equipment manufacturer, "bypassed" AMEC and sued SGL, AMEC's ​​supplier, under the strong competition of AMEC. "Pointing at the mulberry tree and cursing the locust tree, Xiang Zhuang dancing with a sword", this new litigation method deserves the attention of the industry. This lawsuit in the Eastern District Court of New York, the United States, imposed a preliminary embargo on SGL's supply to AMEC before determining whether VEECO's patent for the MOCVD reactor substrate tray is valid and whether the design of the AMEC tray is infringing. This is extremely rare in the industry, especially when SGL did not know that the AMEC tray they made was infringing and was not intentional infringement. The embargo is unprecedented.

MOCVD (Metal Organic Compound Vapor Deposition) equipment is the core key equipment for the epitaxial growth of LED chips and is the core equipment of the national strategic industry. In the past 20 years, only the United States, Germany and Japan have mastered the manufacturing technology of this equipment and have adopted strict technical blockades and controls on China. In the past, all MOCVD equipment for the production of LED chips in my country relied on imports, and the core links of the LED industry were seriously controlled by others. In addition, many local governments in China have given LED companies quite high subsidies for purchasing MOCVD equipment from the United States and Germany to promote the development of the LED industry. After years of independent research and development and unremitting efforts, AMEC has not only achieved the localization of MOCVD equipment and broken the foreign monopoly, but also the second-generation super-large MOCVD equipment developed by AMEC has become the mainstream product in the domestic market in the past year with more advanced designs and more thoughtful customer service than some American and German equipment, and has led the development direction of the latest technology with its own strong R&D capabilities.

However, when SMIC was winning in the market, it encountered a familiar "lawsuit" in the industry competition. On November 2, the U.S. District Court for the Eastern District of New York issued a preliminary injunction against SGL, the tray supplier of SMIC, prohibiting SGL from providing SMIC with the wafer carrier components required for the MOCVD system. This injunction actually blocked the source of key components for SMIC's key products. This will make it impossible to sell SMIC's MOCVD equipment, and many of SMIC's core customers will be forced to stop production due to the lack of this consumable - substrate trays, which will ultimately affect the future development of the domestic LED chip industry.

When the enemy comes, we will stop him; when the water comes, we will block it with earth. AMEC is taking proactive measures to deal with it. In fact, AMEC has accumulated a considerable number of patent technologies in the development of CVD and MOCVD equipment over the years, some of which have long been ahead of VEECO. It is reported that VEECO has infringed AMEC's ​​patents in some aspects, especially in the locking of the tray and the shaft, which VEECO's design clearly infringes. Recently, AMEC has launched various counterattacks: on the one hand, it appealed to the patent offices in China, South Korea and the United States that VEECO's 2001 MOCVD reactor patent is invalid (because there are a large number of previous similar patents in the 50 years since 1966, the patent VEECO used to initiate the lawsuit is obviously invalid); on the other hand, it sued VEECO in the Fujian High Court that its tray and shaft locking patents clearly infringed.

A careful review of the progress of the VEECO and AMEC cases shows that litigation and debates continued. VEECO was aggressive at the beginning, but AMEC gradually gained the upper hand as time went on:

• On April 12, 2017, VEECO USA sued SGL, a supplier of micro-trays, for patent infringement in a New York court in the United States, involving baseless reaction chambers and tray technology.

  
  

• On November 2, 2017, the judge issued a rare temporary injunction prohibiting SGL from providing trays to AMEC without having the opportunity to fully understand the evidence of patent invalidity and without making a clear judgment on the validity of the patent involved and whether AMEC's ​​substrate trays actually infringed. In fact, the patent technology involved has been disclosed by a large number of previous patents as early as the 1960s, and should be an invalid patent.

  
  

• On May 3, 2017, AMEC submitted evidence to the Patent Reexamination Committee of the State Patent Office, claiming that the patent was invalid in relation to the Chinese patent family of the US patent involved in the case. On December 18, 2017, the State Patent Office held an oral hearing.

  
  

• On August 14, 2017, AMEC also submitted evidence to the Korean Patent Office regarding the Korean patent family of the US patent involved in the case, claiming that the patent was invalid. Currently, VEECO has repeatedly postponed its reply.

  
  

• On December 8, 2017, AMEC filed an invalidation application with the U.S. Patent Office regarding the pallet patent involved in the case.

  
  

• On July 13, 2017, AMEC sued VEECO Shanghai in the Fujian High Court, alleging that its EPIK 700 series products infringed AMEC's ​​patent No. CN202492576, and demanded more than RMB 100 million in damages for the infringement.

  
  

• On August 21, 2017, VEECO Shanghai filed an invalidation application against AMEC’s patent at the Chinese Patent Office. Another natural person also filed an invalidation application against the patent. The Patent Reexamination Board held separate hearings for the two requests and rejected the requests on November 24, 2017, confirming that AMEC’s patent was valid.

  
  

• On December 7, 2017, the Fujian High Court issued an injunction against VEECO Shanghai, prohibiting VEECO Shanghai from importing, manufacturing, selling or offering to sell any MOCVD equipment and related substrate trays that infringe on AMEC's ​​patent No. CN202492576. The injunction covers the TurboDisk EPIK 700, EPIK 700 C2 and EPIK 700 C4 models and related substrate trays. The injunction is effective immediately and cannot be appealed. AMEC believes that VEECO's EPIK 868 model also infringes on AMEC's ​​patented technology.

  
  

• On December 21, 2017, the Fujian Court will hold a hearing on the VEECO infringement case.

During the eight-month dispute, both parties went back and forth, with some winning and some losing. We will closely follow the follow-up progress to see what the final outcome will be. But in addition to the case itself, when reviewing the entire dispute process, we can find some new tricks and strategies used by overseas companies to "deal with" China's rising stars, which deserve our vigilance.

SGL has been manufacturing this type of pallets for 20 years and had been supplying them to many companies before supplying them to AMEC. AMEC has also been using SGL's pallets for a long time. VEECO has long known this. If VEECO believes that this type of purchase is an infringement, it could have filed a lawsuit long ago. So why didn't it take action in the past, but instead filed a lawsuit now? The story behind this is actually not about infringement, but is entirely related to market competition.

AMEC entered the MOCVD equipment field in 2010 and, after unremitting efforts, launched the second-generation Prismo A7 in the second half of 2016. Compared with VEECO's equipment, Prismo A7 has better performance, higher output and lower cost. It is rare in the industry that China is no longer a follower in the direction of semiconductor equipment, but is leading the development of technology.

The progress in market share is also rapid. From 2016 to 2017, AMEC has developed rapidly in the field of MOCVD. At present, it has a market share of more than 70% in the domestic Chinese market, surpassing VEECO to become the undisputed "leader". In addition, the domestic MOCVD market demand continues to be strong, and AMEC's ​​performance continues to be red. The rise of AMEC poses a great threat to VEECO, the original absolute leader in the market. The situation is stronger than people, and VEECO's quotation from Chinese customers is already lower than the initial quotation of AMEC. It can be said that VEECO can no longer directly compete with AMEC in terms of technology or price. With such a background, such a market, and such a timing, VEECO chose the opportunity to attack, and the timing and strategy were so well grasped. There is a deep meaning behind it - VEECO cannot win by means of commercial competition, but instead uses legal and intellectual property means to plot, and even does not hesitate to sue AMEC's ​​suppliers.

This lawsuit also sounded another alarm for us in the industry. In past lawsuits, our domestic industries in China often followed, borrowed or copied. Overseas companies tried to "strangle us in the cradle" because the Chinese industry showed "sprouts". They either used lawsuits to drag down domestic companies or frightened customers to make Chinese companies face "order famine". Now the world has changed. After years of development, China has changed its low-price and low-end image in certain specific directions. China is no longer lagging behind but leading. International companies use lawsuits to suppress because they cannot compete. This is a new "game" and a new "tactic". It is said that in addition to suing SGL, VEECO has also issued a warning to other pallet suppliers, threatening them with legal proceedings and not allowing them to provide the key consumables to AMEC and AMEC's ​​customers, otherwise they will also file the same lawsuit against them. This is not just an issue of intellectual property disputes, but a set of combined punches, which is a trick used by VEECO to save its market defeat.

Xiang Zhuang dances with a sword, aiming at Pei Gong, but VEECO's move is purely for ulterior motives.

The choice of the subject of the lawsuit is very meaningful: SGL itself is a German company, but VEECO chose to sue SGL's American subsidiary in the United States. Moreover, suing suppliers is a new means. Since the targeted patent reserves may not be as sufficient as those of professional MOCVD companies such as AMEC, SGL's ability to fight back against VEECO may be far less than that of AMEC.

The choice of litigation battlefield is also quite meaningful: China is a society ruled by law, and China's respect for intellectual property rights is increasing day by day. In this environment, VEECO does not come to China for litigation, hoping to use the advantage of fighting at home to fight a roundabout battle in the United States, which has a profound meaning.

In a battlefield suitable for VEECO, they chose an opponent that they could attack easily, ensured that the patent stick could kill with one blow, and accurately selected core components to ensure that sanctions could be transmitted to the final customers through the industrial chain of "components factory-equipment factory-end customer", directly damaging the reputation and supply capacity of AMEC. The overall layout was really a long and painstaking effort.

Preliminary injunctions are rare in patent cases because there are very strict legal requirements for issuing a sales ban before a jury verdicts on patent infringement. Temporary bans are also relatively rare in the United States and are often used as commercial and political bargaining chips.

The time from the start of the lawsuit to the conclusion of the case was very short. From the start of the lawsuit on April 12, 2017 to the ruling on the embargo on November 2, 2017, it took only 6 months to make the verdict. There was no repeated argument on whether the VEECO patent was valid, whether the AMEC tray design was truly infringing, and the defendant was not given enough time to collect evidence and file a counterclaim. Such a high-tech professional dispute, such a hasty trial, and such a severe punishment are rare in the US judicial system.

In fact, the lawsuit is far from being resolved. AMEC has appealed to the Supreme Circuit Court. According to US law, when the defendant is really unaware of the infringement and does not infringe intentionally, an embargo cannot be imposed. If the Supreme Circuit Court objectively reviews, the preliminary embargo should be shelved and cancelled. However, the current situation is very serious for AMEC and domestic LED manufacturers. Although the ruling can be appealed, the injunction must still be enforced during the appeal period. This means that before the matter is settled, the company must bear the loss equivalent to losing the case in advance. It is indeed unfair! But the rules are set by the United States, and Chinese companies must also deal with it within this framework.

For ordinary semiconductor companies, facing such a lawsuit embargo like a bolt from the blue, they may collapse or never recover. However, AMEC has been very international since its inception, with an international team, international customers, and an international legal team. In fact, AMEC has fought international lawsuits for many years, and has never failed in many lawsuits with Applied and LAM in the United States. AMEC has strong experience and technical preparation for international litigation. The enemy has come to the door, and AMEC should actively respond and deal with it strategically.

The first battlefield is the US judicial community. Since the target of the lawsuit is SGL rather than AMEC, we suggest that AMEC should be more vigilant, hire a professional team of lawyers, and work with SGL to prepare for the lawsuit, in order to win back this battle in the US judicial battlefield. After this battle, AMEC will fight Applied, LAM, and VEECO in succession, and the subsequent productization and market path will be much smoother.

Another battlefield will be the Chinese judicial system. AMEC attached great importance to intellectual property rights when it entered this field, and it has enough strength to fight back against such attacks. As early as 2013, under the guidance of the Intellectual Property Office, it launched the "High-end MOCVD Equipment Research and Industrialization" intellectual property review project, carefully analyzed, classified and risk-assessed all VEECO patents, and made preparations for high-risk patents. At the same time, a series of strategic "anti-layout" patent applications were made in the key patent layout (including the patents involved in the VEECO lawsuit against SGL). One of the "anti-layout" patent applications was successfully used by AMEC to sue VEECO for patent infringement: VEECO used AMEC's ​​patented technology for locking and synchronizing graphite turntables and shafts on its EPIK 700 products sold in large quantities in China, infringing AMEC's ​​patent rights. As a countermeasure, AMEC has filed a patent infringement lawsuit against VEECO with the Fujian High Court. In early December, the Fujian High Court prohibited VEECO Shanghai from importing, manufacturing and selling equipment and trays that infringed AMEC's ​​patents, achieving phased countermeasure results! Congratulations to AMEC!

The reason why AMEC has been in an active position and has maintained an undefeated record in many years of intellectual property legal disputes is mainly related to the company's strict intellectual property management system. AMEC has established a complete set of strict intellectual property management systems since its establishment. Every employee who comes to work in the company, especially those who have worked in competitors, must sign a strict confidentiality agreement and promise not to bring any technical information and business secrets of the previous company. The company has conducted extensive and in-depth analysis and research on thousands of patents of competitors to ensure that its own designs do not violate any prior patents. If there are places that are easy to distinguish between true and false, they must be strictly demonstrated and indisputable evidence to ensure that the other party's patents are invalid. Make full preparations in advance for the patent litigation points that competitors may take, and do not fight a battle without confidence. At the same time, when inventing and designing new products, apply for patents and patent series in a timely manner to protect independent innovation technologies. In just over a decade, AMEC has applied for more than a thousand patents, and most of them have been certified by various countries. If AMEC does not have a strict intellectual property management system, it will be difficult to develop in the fierce international business competition, and the exit it faces in this lawsuit is also embarrassing and worrying.

For many years, because Chinese companies were still weak, international companies could easily sanction Chinese companies through legal means. However, AMEC has become stronger and stronger in this patent lawsuit, and the Chinese courts dared to uphold justice. For the first time, they dared to embargo high-end equipment that was urgently needed to be imported. This incident marked a turning point in the development of my country's high-end equipment industry. In the past, international companies could easily defeat Chinese companies through market competition. At that time, business wars were very simple. Now China has stood up in some aspects and has surpassed its overseas counterparts in terms of capabilities, so overseas opponents have stepped up their use of various means to attack. China's industry is also facing an increasingly complex and challenging situation, and there may be many such conflicts in the future. But it can be expected that Chinese companies will become stronger and stronger in this adversity.

Recently, there is a voice in the industry that believes that if the company is in China and the market is in China, it will not be subject to the risk of overseas lawsuits. But in fact, the risk still exists and is unavoidable. The lawsuit may not attack you directly, but attack your customers, your suppliers or even your agents, destroying the reputation and brand of the company. This "embargo storm" also reminds us that everything is prepared, and if not, it will be abandoned. Chinese semiconductor companies should attach importance to patents, intellectual property rights, and the accumulation of intangible assets, and prepare in advance for any possible lawsuits and patent sticks. Only by thinking of danger in times of peace can we seek long-term stability, and only by learning from past experiences can we prevent problems before they happen. At the same time, when possible, Chinese companies should not only passively defend, but also take the initiative.

VEECO and AMEC are both leading companies in the MOCVD industry. Both parties have their own original IP, original patents, and their own product moats. In the current situation of entanglement and litigation, it is not good for both parties. After fighting and fighting, not only the business of both parties is damaged, but most importantly, customers and suppliers are harmed, which is a waste of money for lawyers. The best and only way to solve the problem is to take a step back and settle, and avoid damage to both companies due to temporary disputes over certain specific products. We hope that both parties will focus on continuously developing new products, continuously improving existing products, and continuously providing better services to customers. As Dr. Zhiyao Yin, Chairman and CEO of AMEC, said in AMEC's ​​press release: "We prefer to focus on the research and development of innovative products and providing quality services to customers, rather than wasting time and resources on legal proceedings. Therefore, we are fully willing to reach a solution that is beneficial to both parties with Veeco and work hard to achieve this goal."

We wish SMIC all the best and hope to see SMIC eventually use its own strength to fight for its own market and rights. We also hope that both parties will judge the situation and, at the appropriate time, choose the way that causes the least harm to customers and the company itself to resolve the current dispute.

About Strategy Analytics

ICwise is a leading high-tech research company in China. ICwise takes "Intelligent China, Strategies for the World" as its mission and "Strategies for the World" as its mission, and is committed to becoming a world-class authoritative research institution in the semiconductor and electronics industry rooted in China. The company has three major businesses, including industry research, investment consulting, and strategic planning. It closely tracks the development of the international and domestic semiconductor and electronics industries, and provides customers with objective, independent and accurate industry data and professional and authoritative analysis reports. At the same time, relying on a deep understanding and insight into the industrial laws of China's semiconductor industry, relying on objective and accurate industry data accumulation, as well as extensive connections and resources, it provides comprehensive and objective consulting services for semiconductor industry investment and financing, mergers and acquisitions, and provides scientific, forward-looking and operational strategic planning for enterprises and governments.

Since its establishment in early 2015, Strategy Analytics has been working hard in the semiconductor industry and has flourished. At present, Strategy Analytics has a research team of nine analysts, including one chief analyst, three research directors, two senior analysts, two analysts, and one assistant analyst. The team has accumulated more than 80 years of experience in internationally renowned semiconductor industry analysis institutions. In terms of the number of analysts and research experience, Strategy Analytics is already the world's number one semiconductor research institution focusing on China!

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