Published: Tuesday, 3 Nov 2009 | 8:37 PM ET

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A California jury ruled on Tuesday that Semiconductor Manufacturing International stole and used trade secrets from rival Taiwan Semiconductor Manufacturing, possibly putting SMIC on the hook for more than $1 billion in damages for TSMC, a lawyer for TSMC said on Tuesday.

The jury also found that SMIC breached the terms of a 2005 settlement over similar claims, for which it had agreed to pay $175 million and to surrender all TSMC documents and stop using TSMC technology and processes, lawyers for the companies said.

TSMC is asking the Alameda County Superior Court panel to award it more than $1 billion in lost profits and damages, and the judge to permanently bar SMIC from selling the contested products in the United States, according to TSMC's lawyer Jeffrey Chanin of Keker & Van Nest.

In 2003, TSMC sued SMIC for theft of trade secrets and patent infringement stemming from chip sales in California.

The companies settled the case two years later after SMIC agreed to pay $175 million, turn over misappropriated documents, stop using the information to make its chips and not disclose the trade secrets, Chanin said.

TSMC also granted SMIC a six-year patent license so long as no breach of the 2005 settlement occurred, Chanin said.

But SMIC did not return the documents in question and disclosed some of the trade secrets in a patent application that used TSMC information, prompting the filing of the current lawsuit in 2006, Chanin said.

TSMC accused SMIC of hiring away about 180 TSMC's employees to staff SMIC's Shanghai operations in 2000, and of telling new hires to bring documents showing how to set up a foundry, make chips and other design rules from TSMC.

The jury is expected to consider damages next week, Chanin said. Superior Court Judge Steven Brick will rule on the request for a permanent injunction after the jury decides on damages, he said.

SMIC attorney David Steuer said the result was "disappointing" but added that SMIC has pending claims against TSMC for misappropriation of trade secrets that will be tried in a separate case.

"There were a lot of pretrial rulings that affected the presentation of evidence that we had to work around and ultimately we weren't successful with the jury in doing that," Steuer, of Wilson Sonsini Goodrich & Rosati, said. "We are disappointed but the case goes on."

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