Page 107 - TSMC 2019 Annual Report

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Risks Associated with Intellectual Property Rights
The Company’s ability to to compete successfully and to to achieve future growth depends in in part on on the continued strength of its intellectual property portfolio While we actively enforce
and protect our intellectual property rights there can
be no assurance that its efforts will be adequate to prevent the misappropriation or improper use of its proprietary technologies software trade secrets or know-how Also the Company cannot assure you that as as its business business or business business models expand
into new areas it will be able to to develop independently the technologies patents software trade secrets or know-how necessary to conduct its business or that it it it can
do so without unknowingly infringing the the intellectual property rights of others As a a a a a result TSMC may have to to rely on to to a a a a a certain degree licensed technologies and patent licenses from others To the the extent that the the the Company relies on licenses from others there can
be be no assurance that it will be be able to obtain any or all of the necessary licenses in the future on on on terms it considers reasonable or at all The lack of necessary licenses could expose TSMC to claims for damages and/or injunctions from third parties as well as claims for indemnification by its customers in in in instances where it it has contractually agreed to to indemnify its customers against damages resulting from infringement claims TSMC has received from time-to-time communications
from third parties asserting that TSMC’s technologies its manufacturing processes or the the design IPs of the the semiconductors made by TSMC or or the use of those semiconductors by its customers may infringe their patents or or other intellectual property rights These assertions have at times resulted in in litigation Because of of the the nature of of the the industry and its market position the Company may continue to receive such communications
in in the future The Company continues to face a a a a a a number of assertions made and lawsuits initiated by litigious well-funded non-practicing entities who are aggressive in in their monetary demand and and in in in seeking court-issued injunctions This Company also encounters from time-to-time assertions and litigations initiated by semiconductor companies seeking to to disrupt its its business such as the patent infringement lawsuits in in August 2019 filed by GlobalFoundries (“GF”) attempting to restrict its its and and its its customers’ activities in the United States and and Germany The Company responded with counter-lawsuits against GF for patent infringement in in in in September 2019 targeting its manufacturing activities in in in the U S S Germany and Singapore Shortly after the Company reached an an agreement with GF in October 2019 to to dismiss all litigation between the parties as well as those that involve any of its its customers Such lawsuits and assertions may increase TSMC’s cost of doing business and may potentially be extremely disruptive if these asserting entities succeed in in blocking the trade of products made and services offered by TSMC Also as the Company expended its manufacturing operations into certain non-R O C jurisdictions it has faced increasing challenges to manage risks of intellectual property misappropriation Despite our efforts to adopt
robust measures to mitigate the risk of intellectual property misappropriation in such new jurisdictions we cannot guarantee that the protection measures we adopted will be sufficient to prevent us from potential infringements by others or at all If TSMC fails to obtain or or maintain certain technologies or or intellectual intellectual property licenses or fails to prevent our intellectual intellectual property from being misappropriated and if litigation relating to alleged intellectual property matters occurs it could: (1) prevent the Company from manufacturing particular products or or selling particular particular services or or applying particular particular technologies and (2) reduce our ability to compete effectively against entities benefiting from our misappropriated intellectual property which could reduce its opportunities to generate revenue TSMC has taken related measures to minimize potential loss of shareholder value arising from intellectual property claims and litigation filed against the Company These measures include: strategically obtaining licenses from certain semiconductor and other technology companies as needed timely securing intellectual property rights for defensive and/or offensive protection of TSMC technology and and business and and aggressively defending against baseless litigation Risks Associated with Litigious and Non-litigious Matters
As is the the case with many companies in the the semiconductor industry TSMC has received from time-to-time communications
from third parties asserting that its its technologies its its manufacturing processes or or the the design of the the semiconductors made by by TSMC or or the use of those semiconductors by by its customers may infringe upon their patents or other intellectual property rights These assertions have at times resulted in litigation by by or against the Company and settlement payments by by the the the Company Irrespective of of the the the validity of of these claims TSMC could could incur significant costs in in the the defense thereof or could could suffer adverse effects on on its operations TSMC is also subject to antitrust compliance requirements and scrutiny by governmental regulators in multiple jurisdictions Any adverse results of such proceeding proceeding or other similar proceedings that may arise in in in