Taiwan’s TSMC – A Trade Secret Cult(ure)

Taiwan’s TSMC – A Trade Secret Cult(ure)

Trade secrets are emerging as an asset class of growing importance. Some of the quintessential trade secret examples are the Coca-Cola recipe, the WD-40 formulation, and my personal favorite, the Colonel’s secret recipe (KFC). Beyond these easily recognizable examples lie millions of trade secrets that drive innovation, competitive advantage, and ultimately, profitability for companies both large and small.

In the new world order of trade secrets, there is no better thought leader than Taiwan Semiconductor Manufacturing Company, better known as TSMC. Founded in 1987 by the legendary semiconductor pioneer Morris Chang, TSMC ushered in the era of the fabless semiconductor business model and is now the largest foundry in the world with a market cap of $550B. Chang’s story reads like a brochure of the American immigration dream: educated at Harvard and MIT, an illustrious 25-year career at Texas Instruments, prior to moving to Taiwan and changing the world.

The products of many of today’s most successful semiconductor companies including Nvidia, Qualcomm and Broadcom, are made by TSMC. Their proprietary manufacturing technologies, initially inspired by Caltech professor Carver Mead’s Very Large Scale Integration (VLSI) methodology, are by and large protected as trade secrets. In their own words, “trade secrets are inextricably linked with TSMC’s competitive advantage.”

Protecting semiconductor processing technologies as trade secrets is a common practice, as the alternative of filing a patent puts the innovation in the public domain. Processing technologies, by their nature, occur behind closed doors and are not open for public scrutiny. As a result, it is difficult if not impossible to know whether your processing patents are being infringed.

What sets TSMC apart is how well they manage their trade secrets. It’s part of their culture. The Golden Trade Secret Awards Ceremony is an annual event where employees are celebrated for their contributions to the company’s trade secret portfolio. The Chairman of the Board, Mr. Mark Liu, turns up to present awards, demonstrating the company’s commitment to these important assets. Moreover, they publicize it, ensuring both internal and external parties understand TSMC’s ongoing commitment to and the value it places on trade secrets.

Perhaps the most critical hurdle when it comes to litigating a trade secret misappropriation is showing that you have put forth best efforts to maintain confidentiality. As famed IP litigator and former Deputy Director General of the World Intellectual Property Organization Jim Pooley outlines in this 2020 review, the courts can have a widely varying view on what that means. However, a good rule of thumb is that proactive behavior is generally rewarded while apathy is like rolling the dice.

I’ve had the privilege of visiting TSMC’s headquarters to pitch a product some years ago, so have some first-hand knowledge of how seriously they take confidentiality. Phones are confiscated upon entering. Tape is put over the camera on your laptop. There’s no guest Wi-Fi network, which is unfortunate if you are planning to do a web-based demo like I was. There are no windows in the guest conference rooms, preventing any prying eyes from the outside.

TSMC takes proactive trade secret management to a new level and continues to lead the foundry market with firsts. Most recently, they were first to commercialize a 5nm manufacturing process helping drive chip performance up while reducing power consumption. Apple’s A14 Bionic chip is built on this platform.

Unlike TSMC, most companies, big and small, have yet to make trade secrets a cornerstone of their corporate IP culture. We believe that the tides are turning in favor of a trade secret economy, especially for technology companies. We are seeing more and more IP attorneys looking for solutions to manage company or client trade secrets. That’s what we’re building at Tangibly.

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