Lawtitude

Why Semiconductors Matter?
Semiconductors are the driving force behind modern technology. Their applications span a wide range of industries including:

• Consumer Electronics: Semiconductors power smartphones, laptops, and smart home devices, enabling connectivity, data processing, and efficient energy use.
• Automotive: From electric vehicles to driver-assistance systems, the automotive industry relies on advanced chips for safety, energy optimization, and performance. The critical importance of semiconductors became evident during the COVID-19 lockdowns which disrupted supply chains and affected numerous industries, most notably automotive manufacturing. For instance, at Ford plants in the United States, tens of thousands of new SUVs, each valued at $100,000, sat idle without the chips needed to operate. In 2021 alone, an estimated 9.5 million light vehicles worldwide were not produced due to semiconductor shortages.
• Defence: Semiconductors are integral to precision weapons, drones, and communication networks, underlining their strategic value in military applications.

As the backbone of the digital age, semiconductors have cemented their status as an indispensable resource in the 21st century.

What is Chip Piracy? 
A person who unlawfully replicates an integrated circuit (IC) layout design and sells it for illicit profit is referred to as a “chip pirate”. In the digital era, chip piracy has become a relatively simple and widespread practice. The United States, for instance, faced significant challenges from Japan in the replication of semiconductor layout designs, a phenomenon widely referred to as the “Japanese threat”. To address such concerns, the Semiconductor Chip Protection Act of 1984 (SCPA) was introduced in the United States. The primary focus of the SCPA was to protect the “mask work,” which refers to the specific pattern used in the creation of ICs. For mask work to qualify for protection under the Act, it had to meet the criterion of originality.

A key feature of the SCPA was its reliance on the principle of reciprocity. Under this act, foreign producers’ topographies and mask works would be protected in the U.S. only if their home countries adopted equivalent protective measures aligning with the main elements of the SCPA. This reciprocity requirement was designed to encourage international harmonization of laws protecting semiconductor designs. 

Limitations and Challenges in the Protection of Semiconductors in US
The protection of mask works is subject to several important limitations, with the reverse engineering exception being one of the most significant. Section 906(a) of the Semiconductor Chip Protection Act (SCPA) allows individuals to reproduce a mask work solely for the purposes of teaching, analyzing or evaluating the concepts, techniques, circuitry, logic flow, or organization of components used in the mask work. Additionally, this section permits the incorporation of these analyses into the creation of a new, original mask work intended for distribution.

Since the enactment of the SCPA, the technology and cost of reverse engineering have evolved significantly. Companies specializing in chip analysis can now “peel” or “strip” away a chip’s layers, providing detailed cross sections, topological layouts and material analyses, often at a cost ranging from $10,000 to $30,000. These companies can also generate the necessary “paper trail” for a reverse engineering defense under the SCPA. Using computer programs, they can derive the logic diagram of a chip, which can then be utilized in computer-aided chip design tools. This process allows competitors to produce a “new” chip with only minimal variation from the original design at a fraction of the cost of the initial development.

While Section 906 of the SCPA seemingly permits this practice, it creates a situation where free riders can easily capitalize on the success of others. Innovators who invest heavily in research and development (R&D) and take on the risks of bringing new products to market may find themselves undermined by competitors who can replicate their designs at a much lower cost.

On one hand, this practice may be seen as beneficial because it encourages constructive improvements to the original design and makes products more affordable. However, the intent behind intellectual property laws is to promote innovation by protecting the original creators. The framers of the U.S. Constitution granted Congress the power to establish intellectual property protections to “promote the progress of science and useful arts.” It is this innovation that has driven the U.S. to become a leader in high technology and without intellectual property protections, innovation could be stifled as the incentive to create groundbreaking products would diminish.

In the semiconductor industry, the reverse engineering provisions of the SCPA are often cited as a primary reason why chip developers rarely file lawsuits under the act against those who copy their designs. Section 906(a) is viewed by many in the industry as an exception that undermines the overall protection for mask works. Although proving a case under the SCPA may be challenging, the widespread perception is that the Act does not offer meaningful protection for those seeking to safeguard their chip designs from reverse engineering and imitation.

One major flaw of the Semiconductor Chip Protection Act (SCPA) is its lack of effective international protection. If mask work protection had been included in existing intellectual property laws, like copyright, it could have been globally recognized through existing treaties. However, the SCPA’s unique approach has made it difficult to apply internationally. A specific treaty was needed for this protection and the primary attempt was the Washington Treaty, created under the World Intellectual Property Organization (WIPO). However, the treaty faced strong opposition, especially from developing countries and failed to gain support from major chip-producing nations like the U.S. and Japan. Key issues with the treaty included short protection terms, lack of protection for mask works in finished products and overly lenient treatment of “innocent infringers”.

Another attempt to internationalize protection came through the TRIPS agreement in the General Agreement on Tariffs and Trade (GATT). However, this effort is uncertain due to the ongoing struggles in GATT negotiations.

The SCPA has limited international reach and relies on reciprocal arrangements with other countries. It allows the U.S. President to extend protection to foreign nationals from countries that provide similar protections to U.S. mask works. So far, no such proclamations have been made. Additionally, Section 914 allows temporary protection to countries making progress toward adopting laws similar to the SCPA. Nineteen countries, including Japan, Germany and Canada, have received temporary protection through this provision.

While these measures have helped spread protection, they are far from ideal. Countries are reluctant to be forced into changing their laws which hinders broader international cooperation on chip protection. Additionally, temporary measures can’t last forever and it’s unlikely that countries will continue to comply indefinitely without permanent agreements. The SCPA is a narrow law that addresses only specific concerns related to chip technology as it existed at the time of its passage. The law’s protection is weak, especially given advances in reverse engineering, which have made it easier to bypass protections.

Indian regime
By the late 1990s, India’s legal framework including the Copyright Act, 1957, the Patents Act, 1970 and the Designs Act, 2000, proved inadequate for protecting the layout designs of semiconductor chips. These legislations failed to address the specific challenges posed by integrated circuit (IC) layout designs which required a more tailored approach.

Recognizing these gaps, the need for a sui generis law specific to IC layout designs became evident. This led to the enactment of the Semi-Conductor Integrated Circuits Layout-Design Act, 2000. The Act protects original and inherently distinctive layout designs which have not been previously ‘commercially exploited’ and the ‘registration of such layout designs is a pre-requisite for protection’. According to Section 2 (h) of the Act, layout design is original if it is ‘not merely a copy of all or a substantial part of another layout design and is the result of a creator’s own intellectual effort’

Recently in 2023, India and the US signed a Memorandum of Understanding (MoU) during the 5th Commercial Dialogue to establish a semiconductor supply chain marking a significant step toward India’s goal of becoming a hub for electronic goods. The MoU aims to create a collaborative framework between the two governments to enhance semiconductor supply chain resiliency and diversification, aligning with the US’s CHIPS and Science Act and India’s Semiconductor Mission. As India continues to strengthen its position in the global semiconductor industry, effective legal protection is essential for maintaining competitive advantage in this rapidly evolving sector.

Conclusion
In conclusion, semiconductors are essential to the modern world, powering everything from smartphones to defense technologies. As our reliance on these chips grows, protecting the designs behind them has become increasingly important. With the rising manufacturers, the government needs to be more vigilant and active in the sphere of IP protection for the layout designs. Additionally, the world government and its arm on trade law (U.N.C.I.T.R.AL.) shall form a global agency to maintain the global supply chain of semiconductors without compromising on the patents of layout designs. The same can be formed by deriving an inspiration from the global agencies for oil supply like OPEC (Organization of the Petroleum Exporting Countries). This will not only help in maintaining the semiconductor supply chain in post pandemic era but at the same time can act as a research agency for the protection of layout design and provide new Regulation/frameworks for the same.