“LCD is one opportunity for Taiwan in a hundred years. It is a sunrise industry, and it’s really important we make the best of it at the end of the day.” as commented Wen-long Shi, the former Chairman of Chi Mei Corporation. He went on to say, “For the 3C industry (computers, communication and consumer electronics), the LCD can be widely used on any electronic product, from refrigerators, air-conditioners, washing machines, to computers, notebooks or mobile phones, and even cars, traffic signs or wrist watches in the future. It’s not difficult to imagine why the industry is so competitive, as LCD is applied so widely.” In this gigantic industrial chain connected by LCD technology, tons of billion dollars change hands from upstream to downstream, and LCD global production value in 2011 alone exceeded one hundred billion dollars. In this completely open market, the frequent patent infringement disputes and licensing problems have become a patent game which every LCD player has to face.

This author has collected and compiled publicly available LCD patent cases published before July 2012, of which the patent infringement cases were from Westlaw database, while licensing information, due to confidentiality reasons, was obtained mainly from news media. LCD patent disputes came into public view in 2000 when the Japanese company Sharp sued Chunghwa Picture Tubes for LCD-related infringement in Taiwan. In 2002 it again sued Chunghwa in Japan for infringing three of its patented techniques in LCD driver programs and LSI setup, for an injunction against latter from importing, and against any sale, offer for sale, display, advertisement or promotion of LCDs using such technologies. Again in 2000, Plasma Physics and Solar Physics, an American NPE (non-practicing entity), sued 9 parties including Sharp and NEC in various courts for patent infringement.

Patent infringement cases surged after 2003, and particularly after 2008, the parties stepped up their efforts with U.S. International Trade Commission (ITC) Section 337 investigations, bringing the patent game to a climax. The patent game in the recent decade demonstrates the following characteristics.

Close-knit relationship of patent games

First, there is a criss-cross multilayer game in the production chain. Generally speaking, direct competing relationship exists among business competitors, and players on the same level are more likely to be competitors, among whom patent suits take place. That is not the case in the LCD industry, however, where patent disputes among players on different levels are very constant. The LCD industry can be roughly divided into three levels, namely, the upstream suppliers, including suppliers of equipment, materials, glass strata, driver ICs, optical membranes, and backlight sources, such as Corning and Anvik; the midstream panel manufacturers, representative companies including Samsung, LG, Innolux, AUO and BOE; and the downstream OEM manufacturers, mostly those that mount LCD panels to display equipment, such as Sony, Vizio, as well as Samsung, LG and Sharp. On September 17th 2003, Sharp filed a lawsuit in Californian district court, alleging patent infringement of its LCD technology against BenQ and Viewsonic, which were downstream compani e s t h a t used pane l s from AUO. In 2005, the U.S. glass manufacturer, Guardian, sued AUO, Chi Mei Corporation, Chunghwa Picture Tubes, Dell, Acer and AOC in the U.S., which were all downstream LCD manufacturers. On January 24th 2011, Sharp took simultaneous actions both in the ITC and in federal district court in Delaware against BenQ, Haier, LG, Sanyo, TCL, TTE and Vizio, for using allegedly infringing panels from AUO. On June 6th 2011, a German backlight source manufacturer, OSRAM, filed complaints both at ITC and district court in Delaware against Samsung and LG for infringement of its LED patents. On April 7th 2011, Seiko Epson sued toymakers Leapfrog and Mattel for using LCD modules from Taiwanese Giantplus Technology.

Second, new aspects are added to the game. Generally the patent game can be either patent lawsuits or patent licensing. The LCD industry has fully expounded in these two aspects. In recent years, more is added to the game, including filing patent litigation, responding and counter claiming, as well as a Section 337 investigations and customs recording. For example, during a three-year patent duel, Samsung first requested a Section 337 investigation with ITC against Sharp on December 21st 2007. After a year and a half, Samsung prevailed at ITC which found Sharp infringing two of Samsung’s patents (US6937311 and US6771344). Patent licensing comes in a variety of forms. There are primarily three cooperative modes in the panel industry: 1. Technical licensing, which is the most commonly applied form of technical cooperation. Examples include AUO’s announcement of 170 IBM TFT-LCD licenses in the US on June 30th 2005, and Samsung’s cross-licensing with Sharp after the extended patent war. 2. Joint ventures. Examples are AUO and AOC that entered into a joint venture agreement to establish companies in Poland and Brazil for manufacturing and selling LCD modules; and Samsung and Sony that joint established the panel joint venture S-LCD (however, Sony announced its total withdrawal in December 2001 for the failure of the joint venture). 3. Strategic cooperation. Examples are Hon Hai Precision Industry and Vizio that formed a strategic alliance to jointly enter the TV market in the North America; and Sharp formed a strategic alliance with Hon Hai Corporation by selling to the latter 46.5% of the shares of its Sakai Display Products (SDP).

Third, friends or foes, it depends. In the business world, there are no permanent friends, nor permanent enemies. Participants in the LCD industry may be partners today, but start to sue each other tomorrow. In January 2006, Samsung entered into an extensive cross-licensing agreement with AUO with respects to TFT-LCD and OLED-related patents. But, just before the end of the agreement, it sued AUO, together with AUO’s downstream clients, for patents infringement, at the ITC and district courts in Delaware and North California. Through the actions, as it can be said, Samsung intended to urge AUO to enter into a new crosslicensing as soon as possible. Finally on January 6th 2012, AUO announced its settlement with Samsung, whereby the parties agreed to continue to grant licenses to each other and withdraw their actions against each other, to end their LCD patent controversy.

Obvious commonalities of infringement suits

Settlement is the preferred option. This author notices upon study that there are 300,000 LCD patent applications globally, some of which carry multiple national applications. Any given LCD panel may incorporate up to 1,000 patents, which means no one manufacturer can keep walking within the territory of its own patents, without stepping on the domain of the competitors. The best way for the LCD players to navigate through these patent entanglements as fast as possible, is to get your own patents first, then bargain the litigation through negotiation for a balancing point so as to settle for a solution. From the Samsung and Sharp controversy, to the numerous lawsuits between Sharp and AUO, and to the dispute between Innolux and Sony, statistics show that nearly 55% of such cases were settled either in or out of court, regardless of the duration and the process involved.

Concentration is in U.S. forums. Because the U.S. market is most attractive to manufacturers for its revenue-generating ability on the global scale, its judicial system being well established, and its robust protection of intellectual property, all LCD manufacturers would like to get their cases in US courts. Sharp, LG, 02Micro, Anvik, Semiconductor Energy Lab of Japan and Atomic Energy Lab of France favor filing lawsuits in US district courts, while Samsung, Sharp, Innolux, AUO and BenQ are the mostly sued, 10 times on average, in the country.

Request for Section 337 investigations increased proportionately after 2008. Before 2008, litigation in court was the main way to deal with patent infringement, Section 337 investigations were far and between. This author is aware of only one case in 2006 where Thomson Licensing (an NPE) requested a Section 337 investigation against BenQ. After 2008, however, the use of Section 337 by Samsung in its war against Sharp led to a surge of Section 337 investigations, including the counterattack of Sharp against Samsung, Innolux vs. Sony, Thomason Licensing vs. Innolux, Thomason Licensing vs. AUO, Sharp vs. AUO, and Samsung vs. AUO.

NPEs are the more troublesome. The party that raises an action for patent infringement is mostly a midstream panel maker, an upstream supplier, an R&D institution or an NPE. NPEs (or patent trolls) are often deemed as patent licensing companies. They never produce or sell any product, but obtain patents independently or through acquisition. They aim to profit by collecting royalties or compensations from manufacturers, mostly by means of licensing negotiation or patent litigation. They are the most dangerous to manufacturers for two reasons. First, it is generally easy for a company to know the patent portfolio of its competitors, so that it can formulate a strategy to avoid those patents in advance. But, it is almost impossible to know how many cards an NPE has in hand, as it often registers a number of subsidiaries. Second, if sued by a competitor, a company may settle it through cross-licensing. But, an NPE, having no actual products but patents, is not interested in cross-licensing. It goes after monetary damages only.

The recent NPE stories include a few cases of Modis Technology Ltd. from Britain against Innolux in the US from 2007 to 2012, Thomson Licensing in France against Innolux or AUO under Section 337 in 2010, Advanced Display Technologies of Texas in the US against 13 top global manufacturers of panels, computers and mobile phones, including AUO, Sharp, Vizio, Viewsonic, Haier, ASUS and Apple in 2011, where ADT alleged that the 13 manufacturers infringed its display patents; Technology Licensing Corporation in the US vs. ASUS and Westinghouse Electric on account of 3 of its patents being infringed; Yield Boost Tech, a Californian technical consultation and solution provider, vs. Applied Materials, the world’s largest semiconductor equipment supplier, on account of one of its patents being infringed, at the Eastern Californian court.

Analysis of domestic businesses

In 2011, the top five LCD panel makers in the world, according to their market shares, were LG, Samsung, Innolux (the new Chi Mei), AUO and Sharp. As shown, they attack and are attacked the most often with respect to the patent game of the LCD industry. As this patent game cannot be avoided even by the industrial leaders, then how about the situation of enterprises in the Mainland China? It is a surprise to find that among representative Chinese LCD manufacturers, such as BOE, CSOT, Tianma, Panda and IVO, only BOE’s subsidiary in South Korea, BOEHYDIS, was ever sued by the glassmaker Guardian in the U.S. in 2005. No other Chinese enterprises are found in the patent game. Do they own all the intellectual property rights? Is their technical leadership so powerful as to keep themselves out of the patent wrestle? Both answers are absolutely “no.” This author considers a few possible reasons. Some of them purchase whole production lines, new or used, directly from foreign manufacturers, so that they pay the royalty up front. The others reach a technical licensing agreement with foreign manufacturers in private, so that they pay the royalty but do not publish the information due to confidentiality reasons. Moreover, as most Chinese enterprises have limited market shares and their products are at the lower end, they do not create a real threat to foreign competitors in overseas markets.

The market status determines whether a company is worth being sued by other companies for patent infringement. In other words, if a company has never encountered any patent lawsuit, it does not mean it’s litigation proof, but that its status is not high enough. After all, with respect to the 300,000 patent applications globally in the LCD industry every year, no one manufacturer could work within its own sphere of patents without stepping on the area of domain of the other competitors.

With the support in policy and finance from the government, Chinese LCD manufacturers have been growing up. As international panel makers, particularly Samsung and LG, begin to shift their attention to OLED panels, this will very likely leave an opportunity for Chinese enterprises to acquire the global LCD market. For their greater market shares and better profiting situation, Chinese LCD manufacturers will face more criticism in intellectual property from international competitors. They must get themselves ready for coming challenges.

The LCD industry is intensive in both finance and technology and its growth cannot be without government support. When arranging the industry from upstream to downstream or causing the industry to integrate, the government should focus on promoting technical consolidation among enterprises. For technical consolidation, the government should act early to collect relevant information and intelligence with respect to patenting strategies in the LCD area, and study and analyze patent-related litigations. It can be said that a core step of consolidation is to consolidate patent assets. To understand the industrial patent game in an overall way helps enhance Chinese enterprises’ ability to use and protect their patents.

(Translated by Ren Qingtao)