Dispute Endangers Cell Phones

Electronic News, May 8, 2000 by Bernard Levine

A technical patent dispute between Tessera, Texas Instruments, and Sharp over chip-scale packages (CSPs) may threaten the importation of millions of cell phones and other products into the United States.

It may not seem likely, but who would have thought a battle between Time Warner and Disney over broadcast fees would knock the American Broadcasting Co. off millions of cable TV homes?

Similar brinkmanship may be underway in the CSP dispute, observers note, with tens of millions of dollars in potential royalty payments to Tessera at stake. In dispute is whether certain TI DSPs and Sharp flash memories and ASICs infringe Tessera patents. Many of these chip-scale packaged circuits wind up in cell phones and other hot-selling handheld consumer products. Legal proceedings now underway could result in those products being banned from the country. While it's possible that the parties could reach an agreement to prevent that, no settlement talks are going on at present.

CSP pioneer Tessera, San Jose, recently began legal proceedings before the U.S. International Trade Commission (USITC) and the Federal District Court against TI and Sharp (EN, April 3), claiming some TI and Sharp products infringed Tessera patents. Last week Los Angeles District Court Judge David O. Carter ruled against TI's motion for an injunction against the USITC investigation. If the USITC finds in Tessera's favor, that body could bar from importation into the United States all infringing packaged chips and the OEM products containing them, including cell phones from many manufacturers.

"We would like to get this behind us," said Chris Pickett, vice president and general counsel for Tessera. "The fastest way is the best way, which is why we wanted to move first in the USITC, which tends to be faster." USITC investigations typically last 12 to 15 months, while District Court proceedings could go on for three to five years, he said, but the USITC's sole remedy is an exclusion order. "If that leads the parties to discuss settlement, than that's probably a good thing," Pickett said.

The situation could actually lead to the USITC barring these products, according to Pickett. "That's a real possibility," Pickett replied. "That's why we tried to negotiate with TI for 10 months. We wanted to deal with this on a business level. When we realized the negotiations weren't going anywhere, we filed the action. Our preference would be for them to acknowledge they are using Tessera's IP (intellectual property) and be willing to pay fair compensation for it." Royalties for TI's affected DSPs could come to 2 cents to 5 cents per chip, he said, while Sharp might owe about 1.5 cents per flash memory.

At TI a spokeswoman termed the matter "a commercial dispute between two companies over a patent about the MicroStar BGA package, which was developed internally by TI and used in our analog and DSP chips." The court has not begun to examine the merits of the case, but is deciding the location where it will be tried, the spokeswoman said. "We believe TI will receive a favorable outcome, wherever it is resolved," she added. "We don't believe this will impact any of our customers. We believe the response will be favorable to TI. We are confident of our product and technology position so we are not concerned."

"They are putting their customers in a precarious position," Tessera's Pickett said, by exposing customers and themselves to "a certain amount of risk."

A Sharp spokesman declined comment.

Asked if Tessera might press patent claims against other companies if the USITC rules in its favor, Pickett said TI and Sharp are the only companies it has infringement evidence against right now. Asked about the Time Warner-Disney analogy, Pickett replied, "Those are two very large companies doing battle with each other. In this case, it is a small company versus very large companies. Tessera is a 100-person company. The only thing that prevents us from getting squashed by the larger companies is the patent."

The Tessera patents at issue are U.S. Patent numbers 5,679,977 and 5,852,326. TI had sought a preliminary injunction in U.S. District Court for the Central District of California to stop the ITC investigation. In his ruling, Judge Carter said, "If this court were to issue an injunction, the court would be interfering with the USITC's statutory mandate to investigate complaints." Both TI and Sharp have until May 17 to respond to Tessera's USITC complaint.

"Tessera pioneered and patented the concept of allowing the elements of a chip-scale package to move relative to one another, enabling small package dimensions with high reliability," said Pickett. "We have an obligation to our stakeholders to protect our IP when necessary and expect to receive fair compensation for its use."