America’s continued economic success relies, in part, on a strong market-based structural and legal regime that protects and rewards creativity and innovation. Intellectual property (IP) is the special sauce that is central to the creation of software, smartphones, and a wealth of new products that reach the market nearly every day: a recent government report estimated that IP-intensive industries accounted for 44% of all U.S. employment.
Royalties from the licensing of IP are the way many firms receive compensation for research and investment. IP is especially important in the creation of semiconductor chips and related products, which are embedded in nearly every electronic product produced these days. Given this significance, the federal government must ensure that the IP in the semiconductor industry is safeguarded and duly compensated.
As a result, returns to the intellectual property contained in semiconductors is big business; licensing IP in the semiconductor market exceeded $6 billion in 2022, and it is central to the continued development of the entire semiconductor industry, which is over $500 billion.
The importance of the global semiconductor industry should not be lost on anyone who followed the formation, debate, and passage of the CHIPS and Science Act of 2022, which provides for large financial subsidies and a favorable regulatory environment to accelerate and enhance the repatriation of semiconductor manufacturing onto U.S. soil.
The purpose of reestablishing domestic chip production for critical industries and encouraging longer-term research is to lessen the U.S. economy’s reliance on the production of chips in China and alleviate supply chain problems. The law’s implementation and other actions by the administration, like an anticipated executive order on U.S. company investment in China, will also weaken China’s ability to acquire advanced technological information that is militarily significant.
It would also greatly improve U.S. military capability if we can reduce dependence on chips produced in Asia, helping to prevent the theft of military intellectual property. Last week it was reported that China had illegally obtained US military technology to build an advanced high-tech jet fighter, which is their modus operandi across the economy. Sourcing chips domestically would dramatically lessen threats to our national security.
But these efforts are not sufficient to counter the constant assault on semiconductors’ IP rights. The U.S. court system plays an important role in protecting IP for the domestic semiconductor chip industry. If courts fail to honor existing licensing agreements, U.S. semiconductor manufacturers will be disadvantaged in the market, no matter how many chip-related bills Congress enacts.
For instance, a current U.S. District Court for the District of Delaware case involving IP and technology provider Arm, which is suing Qualcomm and its acquired subsidiary, Nuvia, for a knowing breach of its license agreement governing the use of designs based on the Arm architecture. Arm alleges that a negotiation period to extend the licenses ended unsuccessfully. Arm subsequently canceled the licenses, but claims Qualcomm kept using Arm’s IP to develop key Qualcomm processors.
While I will not opine on the particulars in this case, I do want to point out that the court must determine if a violation occurred and that if the allegations are proven accurate, then the court has the responsibility to take action to enforce Arm’s IP rights. To do less than the full extent of the law and contractual obligations would substantially reduce the value of the underlying work and investment by Arm that allowed it to be in a position for licensing its technology.
In turn, this would discourage future investment as well. Such an outcome would reduce the ability of the U.S. economy to continue to grow and to return production to the country, undermining the recent work by Congress and the administration on semiconductors.
Fully transforming the domestic semiconductor industry to end the cycle of relying on foreign chip producers – especially by sensitive U.S. industries like defense production – requires all facets of the federal government to do their jobs and respect the rule of law. On this issue, Congress and the administration have done precisely that.
It is equally important that the court system continues to enforce the relevant laws to ensure that there is a vibrant, competitive domestic market for semiconductor chip designers and manufacturers.
Michael O’Rielly Michael O’Rielly served as a Commissioner on the Federal Communications Commission from 2013 to 2020.
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