['Patent Judgment Emergency' K-Semiconductor] ① "Patent Rights Apply to Resale" Supreme Court Ruling Unusual... Small Materials Companies Lost Half Their Sales

Supreme Court SMT·Lam Research Patent Lawsuit Ruling
'Indirect Infringement' Recognized...Legal Circles Call It "Unprecedented"
Precedent Unfavorable to SoBuJang Companies
Concerns Over Overseas 'Patent Invasion' Against Korean Firms

Editor's NoteSMT, a Korean small and medium-sized enterprise (SME) that had been actively engaged in the semiconductor materials sector, recently suffered a final defeat in a patent dispute with the renowned overseas semiconductor equipment company Lam Research. More bitter than the defeat after a fierce legal battle was the compensation amount. The Supreme Court's First Division (Presiding Justice No Tae-ak), which recognized SMT's patent infringement, ordered damages of approximately 3.4 billion KRW. The compensation amount ruled by the court is equivalent to about half of the company's annual sales. Including litigation costs and delayed damages, the total amount to be borne approaches 5 billion KRW. Considering that the relevant products must also be discarded, the losses become even greater. It is reported that SMT is now at a crossroads regarding its survival due to this compensation ruling. Industry and legal circles point to the recognition of indirect patent infringement as the core of this ruling. It is widely analyzed that this decision will have a significant impact on similar lawsuits in the future.

SMT's loss is noteworthy as it clearly exposed the vulnerabilities of Korean small and medium semiconductor companies. Since this ruling recognized liability even for indirect patent infringement, it may encourage 'patent invasions' by large overseas semiconductor materials and equipment companies.

The SMT stud-socket assembly product that was the issue in the patent dispute between Lam Research and SMT. Photo by Lam Research-SMT judgment document excerpt

The 'Cam Fixed Clamp' product that Lam Research claimed patent infringement in the patent dispute with SMT. Photo by Lam Research-SMT judgment document excerpt

According to industry and legal sources on the 11th, the Korean court unusually recognized significant liability for indirect patent infringement in this ruling. Patent infringement is divided into 'direct' and 'indirect,' and until now, courts have only held parties liable for direct infringement. Indirect infringement was often unclear in degree and usually lacked intent. The industry's demand to narrowly interpret infringement to foster the development of the semiconductor industry was also somewhat reflected.

However, this case may mark a new phase. The product in question is the 'stud/socket assembly' manufactured by SMT. It is a kind of 'screw' that fixes important parts of semiconductor equipment. SMT's product was used only in Lam Research's patented 'cam locking clamp' product, which no other company used. The 'cam locking clamp' is a component used in the 'backing plate' of process equipment to attach electrodes or other materials. In other words, it can be said that SMT was manufacturing the 'signature' part of Lam Research's invention. Then, in February 2017, SMT separately produced the 'stud/socket assembly' and sold it to semiconductor manufacturers who supplied Lam Research's 'cam locking clamp.' SMT also promoted on its company website that the product was used in Lam Research's product line. In response, Lam Research filed a patent infringement lawsuit, claiming that SMT's separate sales of the 'stud/socket assembly' indirectly infringed on its patented 'cam locking clamp' product.

SMT argued that its sales were merely at the level of replacing parts and thus did not constitute infringement. Their logic was that if there is a unique car and a wheel made only for that car, producing and separately selling wheels for customers who buy and use that car does not indirectly infringe the car's patent. The first trial accepted SMT's argument, but the Patent Court in the second trial and the Supreme Court in the final appeal ruled the opposite.

Recognition of ‘Indirect Infringement’... Heightened Sensitivity to Its Impact

Until this ruling, 'indirect infringement' was not recognized in disputes. This was due to the 'patent exhaustion doctrine,' which holds that once a patented product is sold, the patent rights are exhausted, and no further rights can be asserted even if the product is resold or used in other ways. For small and medium enterprises (SMEs) in the materials, parts, and equipment (SoBuJang) sector, which often depend on products from other companies, this doctrine served as a 'shield' in infringement disputes.

However, the Supreme Court excluded the patent exhaustion doctrine and recognized indirect infringement this time. This ruling will remain as precedent and is expected to have a profound influence on future court decisions. In similar disputes, the position of overseas equipment companies may strengthen while the voices of Korean SoBuJang companies may weaken. Many Korean companies, like SMT, have 'value chains' with famous overseas equipment companies such as Lam Research. The concern arises from this value chain. Overseas equipment companies may now closely scrutinize indirect infringement within this value chain and initiate patent disputes, making it difficult for Korean companies. Most SoBuJang SMEs inherently lack substantial capital and resilience. Losing similar disputes could push them to the brink. Therefore, there are calls within the industry to prepare measures to support SMEs in crisis.

Already Intense Patent Offensives from Overseas Companies

Recently, the wave of disputes initiated by overseas semiconductor companies targeting Korean SoBuJang companies has been intensifying, leading to more cynical views on this ruling. It appears that the ruling has provided a foothold for the dispute wave. As the technological competitiveness of Korean SoBuJang companies has increased, there have been more points of conflict with overseas companies' technologies. Overseas companies have targeted SoBuJang SMEs, noting their weaker response capabilities compared to large corporations.

According to data from the Korea Intellectual Property Protection Agency's Patent Dispute Response Office on the 'Number of patent dispute support cases and support amounts for domestic companies over the past five years (2018?2023),' the number of patent dispute support cases in the manufacturing sector, where semiconductor SoBuJang companies operate, showed a lull at 238 cases in 2020, rebounded to 241 cases in 2021, then sharply increased to 278 cases in 2022 and 345 cases last year. The support amount exceeded 6 billion KRW for the first time in 2022 and approached 7 billion KRW (6.92919 billion KRW) last year.

Hwang Cheol-ju, Chairman of the Korea Invention Promotion Association and CEO of Juseong Engineering, said, "The fact that foreign companies file many patent lawsuits against our SMEs is also proof that our technology has reached a world-class level." He added, "To compete in the global market, we have no choice but to rely on technology, and disputes are inevitable. For now, we must thoroughly prepare and protect our technology."

It is reported that some overseas equipment companies apply for patent utility certifications only in Korea, seemingly targeting Korean SoBuJang companies. According to the patent information search site 'KIPRIS,' Lam Research has 469 patent utility models applied for and certified in Korea (including those that have expired after certification). It has no patent applications in the U.S. or Europe and only 9 in Japan, far fewer than in Korea. Currently, based on these patents, Lam Research is conducting six patent infringement lawsuits against four Korean SoBuJang companies, including SMT. According to the Korean companies sued by Lam Research, the number of lawsuits is expected to continue increasing.