Jack Ellis

Taiwan Semiconductor (TSMC), the world’s leading microchip foundry company, will invest $65 million in California-based start-up Tela Innovations through its venture capital arm TSMC Partners.

Founded in 2005, the US company is seen as one of the brightest prospects in electronic design automation (EDA) technology for the semiconductor industry, having already gained investment from key chip players Intel, Qualcomm, Cadence and KLA-Tencor.

What makes TSMC’s move particularly interesting is the IP position it is investing in. According to USPTO records, Tela owns 173 US patents. In addition to those filed by the company’s in-house inventors, these include assets that originally belonged to design-for-manufacturing firm Blaze DFM, which Tela acquired in early 2009.

Moreover, for a small company Tela has been especially tenacious in enforcing its IP rights and maximising their value. In March 2013, it filed a complaint with the US International Trade Commission and litigation in the Delaware district court, alleging that several of its patents were being infringed by products being sold in the United States by HTC, LG Electronics, Motorola Mobility (at the time, a subsidiary of Google), Nokia and embattled Korean handset maker Pantech. In June 2014, Tela announced that the disputes with Moto and Pantech had been settled and that it had signed a “mutual license agreement” with Google as a result. The company’s president and CEO Scott Becker stated that the agreements “are confirmation of the strength of our patent portfolio”.

In a further statement of intent, Tela hired former Intellectual Ventures executive Ken Dyer as vice president of licensing in January 2014. While at IV, Dyer had handled the monetisation of patent portfolios covering semiconductor and consumer electronics technologies, with a particular focus on licensing to Asia-Pacific and US-based companies.

TSMC and Tela already work closely together, having entered into a strategic partnership in 2009. The injection of capital from the Taiwanese company will serve to deepen that relationship. For Tela, the benefits of the association are fairly clear. The Taiwanese company is absolutely dominant in the global semiconductor foundry sector; in 2014, it saw its year-on-year revenues grow by over 25%, with a market share of well over 50%.

For TSMC, the pros of investing in Tela are perhaps less obvious. However, it is plain to see that the technology and IP assets on offer – as well as the team the start-up has put in place to manage and exploit them – could be what has piqued the interest of the foundry giant.

As with many of Taiwan’s technology companies, TSMC is a major patent owner. According to research from MDB Capital Group published in issue 71 of IAM magazine, the firm owned the 41st largest portfolio of in-force US patent assets last year, with 9,751 issued patents and 2,586 applications (among Taiwanese entities, it comes in second place behind Hon Hai/Foxconn, which is 21st overall).

These vast patent holdings are the result of many years of prolific, volume-based filing activity. However, as economic pressures intensify and with competition – particularly from mainland China – on the rise, Taiwan’s largest companies are at a tipping point in IP terms. Their existing portfolios need to be harvested for whatever value they can muster; while new technologies need to be developed or acquired to ensure longer term competitiveness.

Strategic investments – like TSMC’s in Tela – may prove to be a much more attractive option than pure patent transactions. They can give the investing entity greater access to the technologies they need.

More to the point, the expert team that developed those technologies in the first place, and knows the ins and outs of how they work, remains in place. In the case of Tela, there is also an experienced licensing executive on board. At a time when the largest and longest established Asia-Pacific companies are trying to refresh their IP portfolios and set themselves on a path to future survival and success, it is the know-how they obtain in such investments, just as much as the patents, that really matters.