IP Liability Changes Ahead?

Patent lawyers are keeping close tabs on a biotech patent infringement case that went before the Supreme Court this week because it could have a significant impact on IP content in other markets, including semiconductors.

On Tuesday, attorneys for Life Technologies Corp. and Promega Corp., presented arguments before the U.S. Supreme Court involving an enzyme for amplifying DNA analysis. For both parties involved, this case is about who owns the IP. But patent lawyers are tuned into a different development in this case. At stake for them is what constitutes a “substantial portion” of a product, including one made outside the United States.

According to Morrison & Foerster, a giant law firm whose client list includes Apple, Intel, Oracle and Toshiba, the real issue is whether a single component constitutes a substantial portion, or whether that can include combinations assembled outside the United States.

This language has enormous implications. For starters, a component banned for shipment to certain countries can affect shipment of an entire system.

“With semiconductors, one problem is that the ITC (International Trade Commission) can exclude an entire product if a component is considered substantial and they can’t separate it out,” said Mark Whitaker, a partner in Morrison & Foerster’s IP group. “So if you have a component in a laptop, the entire laptop is excluded.”

But the ruling potentially can reach much farther than that. Think about an autonomous vehicle, for example. If something goes wrong and the car is involved in a crash, then any IP that is deemed “substantial” can be liable. And it can be liable even if it makes its way into parts in other countries, where liability laws are different.

“There has to be some qualitative analysis about what is in a chip and what is substantial,” said Whitaker. “That’s daunting. It makes it difficult to advise clients on what to do because the tests for concepts are amorphous. This allows for a lot of contrary arguments, and there is not a lot of certainty about how they will be decided—and that includes the semiconductor industry.”

Whitaker noted that the chip market has a “number of actors who import goods from Asia and elsewhere.”

Much of this kind of debate has been a sideshow for semiconductor IP vendors in the past. It’s difficult to separate out an IP block, and most IP is sold into SoCs with no concern about liability. No IP vendor will sign that kind of agreement, leaving the system vendor to shoulder any liability, whether it’s a battery that bursts into flames or a subsystem that doesn’t turn off. It’s generally up to the system vendor to pick the right IP, and if they mess up it’s their fault.

This case—a ruling is expected sometime next spring—could cast a different shadow on that relationship, at a time when an increasing amount of IP is finding its way into safety-critical vehicles and industrial applications. In those markets, liability is associated with quantifiable damage. It’s not as simple as replacing a phone or a smart watch, and the arguments that revolve around substantial content are likely to set legal precedents for years to come.

How exactly this impacts the semiconductor industry, and when, isn’t clear at this point. But it does bear watching because it can have a resounding effect on what IP development gets funded, which IP is chosen, and how much IP is developed internally or externally.

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