Intellectual Property Strategy: Analysis of the Flash Memory Industry by Tomoko H. Ogura B.S., Massachusetts Institute of Technology, 1995 Submitted to the Alfred P. Sloan School of Management in Partial Fulfillment of the Requirements for the Degree of Master of Science in the Management of Technology at the Massachusetts Institute of Technology February 2006 ( Tomoko H. Ogura. All Rights Reserved. 2006 The author hereby grants to MIT permission to reproduce and distribute copies of this thesis document in whole or in part. Signature of author ----------------------------------------------------~Y.~. ------- Sloan School_lc-^rur-O f Management /7 , , Jan 1, 2006 Certified by JosvfG Adzima, Jr. Senior Lectur/,4Sloan School of Management A •,IThesis SupRrvisor Accepted by David Weber Director, MOT Program Sloan School of Management OF TECHNOLOGy AUG 3 1 2006 S ARCHIVES LIBRARIES ii Intellectual Property Strategy: Analysis of Flash Memory Industry by Tomoko Ogura Iwasaki Submitted to the Alfred P. Sloan School of Management on Jan 12, 2006 in Partial Fulfillment of the Requirements for the Degree of Masters of Science in the Management of Technology ABSTRACT This thesis studies the intellectual property strategy of companies in the flash memory industry, with special emphasis on technology and the development of nitride-based flash, a new and emerging type of memory technology. First, general perspectives and frameworks for licensing of patents and know-how are explored. Then, the participants in the flash memory industry are mapped to a product value chain, which is in turn mapped to an intellectual property value chain. We use a patent database analysis software IPVision in order to examine the patent portfolios of some of the memory chip companies. Analysis of the patent positions allows us to draw conclusions about the direction of technology development. Thesis Supervisor: Joseph G Hadzima, Jr. Title: Senior Lecturer of Sloan School of Management ACKNOWLEDGEMENTS In every phase of this study, many people supported me with many suggestions and words of encouragement. I would never be able to accomplish this task without these people. I would like to express sincere gratitude to my thesis supervisor, Joseph Hadzima, to whom I owe valuable new perspectives and analysis skills. I am indebted to my colleagues at Halo LSI, for their patience and support throughout my study at the Management of Technology Program of MIT. Last but not least, I would like to thank my husband, Satoru, and family, Seiki, Ichie, Seiko and Nori for all of their encouragement and support. Table of Contents 1. In trod uctio n ................................................................................................................................. 8 2. Literature Review of Intellectual Property Strategy ............................ ....................... 10 2.1. About the Patent System...................................... ............. 10 2.1.1. Patents, Copyrights and Trademarks................................................. 10 2.1.2. Patent Criteria ............................ ............ .................... 11 2.1.3. A Typical Legal Patent Dispute................................... ...................... 13 2.2. The Basis of Intellectual Property Strategy ................................... .................... 15 2.3. Perspectives about Licensing of Intellectual Property ......................................... 16 2.3.1. M ini-M onopolies and Anti-trust ..................................... ............. 17 2.3.2. Innovations in Universities ..................... .................................... 18 2.3.3. M easuring Effectiveness of Patents by Surveys .................................................... 21 2.3.4. L icensing .................................................................. 23 2.3.5. Licensing as a Component of Globalization Strategy ....................................... 24 2.3.6. As a Function of Product, Industry, Resources...........................24 2.3.7. Licensing Pre-empts Imitation ........................ .....................................26 2.3.8. Licensing vs. In-house R&D............................. ................... 29 2.3.9. Licensing Arrangement Fees..........................................................30 2.3.10. How Licensing Affects Other Firms .............................. ....... 30 2.4. Value Hierarchy Framework...................................................... 31 2.5. Valuation of Intangibles .......................................................... 37 2 .6 . C on clu sio n .................................................................................................................. 3 8 3. Flash memory industry .......................................... ............. 39 3.1. Introduction....................................................39..........39 3 .2. B ackgro und ................................................................................................................. 39 5 3.2.1. History of Science......................................................39 3.2.2. Flash Market - Product Value Chain ................................ 42 3.2.3. Memory Chip Manufacturing Market............................... .. ................... 45 3.2.4. IP Value Chain for Flash Chips ............................ .......... 47 3.2.5. NOR Flash Market........................................... .............. 51 3.2.6. NAND Flash Market.......................................... 54 3.2.7. Embedded Flash Market ........................................ ................ 57 3.2.8. New M emory Cell Technology ................................................... ....................... 57 3.2.9. Nitride Storage Memory Devices ........................................................... 58 3.2.10. Other flash memory device alternatives........................ ... .......... 60 3.3. Sum m ary..................................................................................................................... 61 4. Licensing in the Flash Memory Industry .......................... ................. 62 4.1. Licensing Strategies of Chip Manufacturers........................... ................. 62 4.2. Flash Memory Licensing Activities ........................... ................. 65 4.2.1. Licensing Agreements.......................................... ........... 65 4.2.2. L itigation.................................................................67 4 .3. C o n clu sio n .................................................................................................................. 7 1 5. Patent A nalysis..................................... .............. .......... 71 5.1. Flash Memory Patents.................................. ... ............. 71 5.2. Using IPVisionsM on the US PTO database .............................. ... ..................... 72 5.3. Flash memory patents as an aggregate........................ ..... ................... 75 5.3.1. Identifying all flash-related patents.............................. .. .. ..................... 75 5.3.2. General Trends .......................... .............. ....................81 5.4. Mapping Class-Pairs to the Flash IP Value Chain................................... ....... 85 5.5. Analysis of Major Companies ...................................... .................. 90 5.5.1. Intel ........................ .......... ......................... ............ 91 6 5.5.2. Toshiba................................................................................................................ 94 5.5.3. SanDisk.... .................................................................... .................................... 98 5.6. Key patents from lawsuits...................................... ............. 103 5.7. Nitride Activity .................................................................................... ..................... 108 5.8. Examining Published Applications to Detect New Trends ........................................ 115 5.9. Conclusion ............................................................................................ .................... 117 6. Direction of Nitride Flash ........ ........................................ 117 7. Conclusion ............................................................ 119 References.................................................................... ............................... .................... 120 Appendix B1 .......................................................................... ............ 122 Appendix B2 ........................................................ ............. 126 Appendix B3 ............................................................. 127 Appendix B4 ............................................................................................................. ...................... 131 Appendix B5 ........................................... ........... ............ 140 Appendix B6 .......................................................... ........... ............ 144 Appendix C1 ......................................................................................................................... 145 7 1. Introduction Intellectual property is an essential component of business strategy for technology companies in the flash memory industry. Due to the explosive growth of portable consumer electronics applications and an ever-increasing market demand for larger amounts of memory in smaller chips, there has been constant pressure to innovate the product