SigmaTel (Nasdaq:SGTL) had its sights set on the China for a number of years as a vast market for its MP3 multimedia chips was growing in the region. The company opened a large office in Shenzhen in mid-2005 as a base for its China operations.  The market was also being targeted by one of China's successful fabless IC companies, Actions Semiconductor.

Actions  Semiconductor was founded in 2001 by a cross-border team of technologists hailing from China, Honk Kong, Taiwan and Silicon Valley.  Its biggest product hits are MP3 chips and energy metering ICs.  The company went public late in 2005 (Nasdaq:ACTS).  The company is headquartered in Zhuhai, China, with offices in Beijing and Shenzhen.

One of the unusual comments highlighted on the Actions website reads:

"Actions not only emphasizes on the intellectual property of itself, but also respects intellectual property of others. During the process of technology and product development, Actions carefully handles patent information indexing and market investigation as well as information collection, to avoid violating the intellectual property of others. In order to bring in and apply advanced technologies, Actions has signed technology permission agreement with many world-class well-known companies and integrated them in products."

To us, it signifies the company is very sensitive to the widely held notion that Chinese companies are not well known for respecting IP and patent protections of international companies.

The legal brouhaha started in January 2005 when SigmaTel filed suit in Austin, Texas against Actions asserting that Actions infringed multiple SigmaTel patents in the design of SoC controllers for the portable digital music market.  The suit also sought to stop shipment of ICs into the U.S. that use Actions chips.  SigmaTel also brought action in the U.S. courts by asking the International Trade Commission (ITC) to look into the matter. Further, SigmaTel asked the ITC to issue a cease-and-desist order requiring retailers and distributors to remove from their shelves and destroy all MP3 players containing Actions infringing MP3 ICs.  The ITC final ruling is expected to be in the next two months. 

SigmaTel introduced its first highly integrated MP3 IC more than four years ago. It is currently on its fourth generation versions of the MP3 chips. The company owns 41 issued U.S. patents and has more than 60 patent applications pending at the U.S. Patent Office.

Recently, Actions crossed swords with SigmaTel by filing its own lawsuit in Shenzhen Intermediate Peoples' Court.  Actions alleges that SigmaTel's products, including STMP 3502, 3503, 3505, 3506, 3510, 3520, infringe a key digital audio processing technology patent owned by Actions.  The company seeks to halt the infringement of the patent in China by prohibiting the design, manufacture, sale and use of the  ICs, as well as the devices containing SigmaTel's disputed ICs.  Actions seeks remedies to prohibit the continued misappropriation of its IP by SigmaTel and recover damages resulting from SigmaTel's actions. Actions is requesting that SigmaTel pay damages in the amount of approximately US$12.5 million.

Further, Actions is considering asking the court and other relevant authorities to grant and execute a series of injunction or border detention orders, enforced by China customs, prohibiting the importation and the exportation of the infringing products and the devices that contain SigmaTel's infringing chips.

At press time, SigmaTel has not received the complaint mentioned in Actions' press release nor has it received correspondence from Actions regarding any alleged patent infringement.  SigmaTel's CEO stated that "We believe this press release and associated lawsuit are simply a reaction against the success of our global licensing program and our recent successes in the marketplace. Of course SigmaTel respects others' intellectual property, including Actions'. We will review the complaint when we receive it and respond appropriately."

Editor's note:  we can only speculate that since SigmaTel opened their China business development office in Action's backyard in Shenzhen, there might have been some cross fertilization of personnel which may have resulted in the Actions legal action.  Stay tuned for the rest of the sue me-sue you saga as the two companies battle it out in the courts.