Samsung, SanDisk sign pact to cross-license flash patents

Electronic News, August 18, 1997 by Will Wade

Sunnyvale, Calif.--Resolving an ongoing legal and trade dispute, Samsung and SanDisk have signed a cross-licensing agreement which allows them to use each other's flash memory patents. The deal gives Samsung access to the American market for the first time since an International Trade Commission ruling earlier this year prohibited Samsung from marketing flash memory devices in the U.S.

"Obviously this is welcome news for us, as we were banned from selling all our flash products in this country," said Zareh Samurkashian, associate director of SRAM and non-volatile memory for Samsung Semiconductor, the North American arm of Samsung Electronics. In February, Samsung was found to be violating SanDisk patents, and in June, they were enjoined from selling flash devices in the U.S.

One of the provisions of the licensing agreement is that all unresolved legal and trade disputes will be dropped immediately, which includes two pending civil suits.

"There was a lot of tension between the two companies," said Cindy Burgdorf, CFO for SanDisk. "This agreement has certainly smoothed some of the ruffled feathers, but they will still be a competitor. We don't expect them to grant us any leeway, and we won't give them any."

Under the agreement, each company will cross-license all of the competitor's flash memory design and manufacturing patents, and both companies will have worldwide marketing rights. SanDisk claims to be the world's largest supplier of flash data products, and currently holds 38 flash-related patents and more than 20 other patent-pending designs.

"This (agreement) is a very strong endorsement of our patent position, so obviously we are quite pleased," said Ms. Burgdorf. She indicated that some of the funds generated from licensing fees and royalties would be reinvested into research and development, and said the deal is likely to strengthen both firms' product lines.

South Korea-based Samsung is a world leader in the memory device field and in electronics in general, but is a relative newcomer to the flash segment. According to Mr. Samurkashian, flash currently represents less than 1 percent of the company's worldwide revenues. He said the American flash market is expected to reach at least $1 billion this year, and some estimates show annual sales growing to more than $3 billion by 2001. The American market may represent about a third of the worldwide totals.

Although Samsung is not currently a flash powerhouse, Mr. Samurkashian said the company hopes to aggressively grow its market share. "Our goal is to become one of the top five suppliers within three to five years, and obviously that was impossible with the ban," he said. "Flash is one of the memory market segments which is growing very fast, and I think we are seeing only the tip of the iceberg."

The dispute between the two companies dates to 1995. In October of that year, only one week before SanDisk's initial public stock offering, Samsung filed a civil suit against the competing company, accusing them of violating two of Samsung's patents. SanDisk responded with a countersuit later that year, and in January, 1996, filed a complaint with the U.S. International Trade Commission, claiming Samsung was violating SanDisk patents.

Both civil cases were unresolved at the time of the cross-licensing agreement. However, in February, a judge ruled on the ITC complaint, finding Samsung in violation of two SanDisk patents. This decision was affirmed in April, and in June, Samsung was ordered to cease all importation and sales of flash products using the infringing flash technology. "We came to the conclusion that (this decision) could not be the final chapter," said Mr. Samurkashian. "We realized the market was bigger than the dispute, and both parties, with their mature management, sat down and worked out a reasonable conclusion. It's nice to have this behind us and to look forward to doing business in the U.S. again."