Patent News

Aug. 15, 2021

The Hill: How to Fix the Semiconductor Chip Shortage (It’s More Than Manufacturing) by Judge Michel and Matt Dowd

The summer auto-sales season is usually robust, so it is shocking to see auto plants that are idle because necessary semiconductor chips are unavailable. Ford Motor Co., for example, reported a 26.9 percent drop in its June 2021 U.S. sales, compared with its June 2020 sales, reflecting the automaker’s dependence on semiconductor chips. Automakers are not alone. Many industries are trying to ramp up production now that the pandemic is beginning to ease, but the semiconductor chip shortage comes at the worst possible time.

The chip shortage is not just an economic problem. Commerce Secretary Gina Raimondo recently testified before Congress, stating, “Not that long ago, America led the world in making leading-edge semiconductor chips. Today we produce 0 percent of those chips in America — 0 percent. That’s a national security risk and an economic security risk.”

Raimondo is correct. Virtually no advanced semiconductor chip manufacturing occurs in the United States. Almost all of it has been outsourced to Asia. As a recent Wall Street Journal report detailed, Taiwan Semiconductor Manufacturing Co. makes “92 percent of the world’s most sophisticated chips.” With supply lines unreliable, even for chips needed by our defense establishment, a new path is needed.

What few know is that the proportion of venture capital investment in chip manufacturing has fallen to a small fraction of what it was a decade ago. Advanced chip design and production are extremely expensive. A state-of-the-art semiconductor fabrication facility (a “fab” or “foundry”) costs approximately $10 billion to build. The capital investment is, quite simply, enormous. With decreasing investment over the past decade, fewer advances in chip manufacturing have come from U.S.-based companies — as well as fewer advances in the newest technologies, because prime chips are needed for the products of the 21st century.

While the cause for decreasing investment is certainly multifaceted, one important reason is the decreasing reliability of U.S. patent protection. Investing in chip fabs and chip manufacturing technologies requires some assurance of an adequate return on investment. No rational business would build a $10 billion chip fab if it could not obtain a reasonable return on that investment.  In earlier years, reliable patent protection provided the economic incentive. Now the protection is weak because of harmful Supreme Court decisions disrupting settled legal rules and well-intentioned reforms by Congress that turned out to be overcorrections with many unintended and deleterious consequences, including making patents too easy to kill.