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ZyXEL Communications, Inc. v. Skyworks Solutions, Inc.

United States District Court, D. Massachusetts

December 11, 2019

ZYXEL COMMUNICATIONS, INC., Individually and as Assignee of MitraStar Technology Corp.
v.
SKYWORKS SOLUTIONS, INC.

          MEMORANDUM AND ORDER ON DEFENDANT'S MOTION TO DISMISS

          RICHARD G. STEARNS UNITED STATES DISTRICT JUDGE.

         In this product liability dispute, ZyXEL Communications, Inc. (ZyXEL Inc.), a seller of defective wireless routers, seeks to hold Skyworks Solutions, Inc., the designer and manufacturer of a microwave monolithic integrated circuit (MMIC) power amplifier component, responsible for the “[e]ndemic [f]ailure” of its routers. Compl. ¶ 35. ZyXEL Inc. asserts claims under the Racketeer Influence and Corrupt Organization Act (RICO), 18 U.S.C. § 1962(c) (Count I); fraud and intentional misrepresentation (Count II); and breach of the implied warranty of fitness for a particular purpose (Count III). Skyworks moves to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state claims upon which relief can be granted.

         BACKGROUND

         To set the stage, first the players: Massachusetts-based defendant Skyworks designs and manufactures semiconductor components for use in the fabrication of wireless routers. Asian Information Technology, Inc. (AIT), a Taiwanese company, is a Skyworks distributor. MitraStar Technology Corporation, also based in Taiwan, manufactures, among other products, wireless networking routers. Plaintiff ZyXEL Inc., based in California, is a wholly owned subsidiary of ZyXEL Communication Corp. (ZyXEL Corp.), another Taiwanese company. ZyXEL Inc. imports products from ZyXEL Corp. and sells them in the United States.

         Now the plot: Through mid-2016, Skyworks manufactured an MMIC power amplifier designated as model SE2605L-R. Sometime in 2016, Skyworks learned from a customer of a latent defect in the SE2605L-R. Compl. ¶ 18. As explained in an “8D Problem Solving Report” authored by Skyworks in June of 2018, “the problem was that the Rfin reference grounding level of the [] ¶ 2605L-R was being impeded where epoxy, known as the die attach layer, was used to connect two key components of the device.” Id. ¶ 13.

[W]hen functioning normally, the die attach layer effectively connects the die to the lead frame (ground) by way of the conducting properties of the die attach layer, such as the flakes of silver suspended in the epoxy used in the []SE2605L-R. However, in the [] ¶ 2605L-R, the flakes of silver in the epoxy used for the die attach layer shifted over time away from the copper lead frame toward the backside of the die.

Id. ¶ 14. The shifting of the silver flakes in the epoxy “developed as a result of the difference in electrode potential of silver and copper, ” id. ¶ 16, and produced “less conductivity between the silver flakes in the epoxy and the copper lead frame, and thereby impeding the RFin reference grounding level and causing high ‘RFin to Ground resistance, '” id. ¶ 14. High RFin to ground resistances causes instability, and “produce[s] a radio signal outside of the parameters of its specification.” Id. ¶ 15. In other words, the SE2605L-N was doomed to fail over time.

         In response, in July of 2016, Skyworks made two principal changes to the design of the SE2605L-R - “(i) conversion of the lead frame finish from copper to NiPdAu; and (ii) conversion of the epoxy used for the die attach layer from 2815A to 1290WB.” Compl. ¶ 18. The redesigned MMIC power amplifier was designated as model SE2605L-RN. Skyworks issued a Product Change Notification (PCN) on August 16, 2016, which was distributed to its customers worldwide. According to the PCN,

a. The reason for the product changes [was] “[t]o be consistent with the material set of other Skyworks Product”;
b. “[T]here is no change to fit, function, reliability, quality or safety”; and
c. “No customer impact is anticipated with this change.”

Id. ¶ 21. Skyworks began shipping the new SE2605L-RN on September 15, 2016, but also continued to sell off its remaining inventory of SE2605L-R.

         Between August 28 and November 9 of 2016, MitraStar placed 11 purchase orders for SE2605L-R, totaling approximately 1 million units, see id. ¶ 31, [1] the fulfillment of which MitraStar received through May of 2017. During that period, MitraStar received a copy of the PCN in September of 2016. In October of 2016, MitraStar received samples of the new SE2605L-RN from AIT. MitraStar inquired of AIT the differences between the SE2605L-R and the new SE2605L-RN (other than those described in the PCN). AIT identified only the marking information, such as the model number, shown on the surface of the Skyworks SE2605L-RN. In February of 2017, MitraStar repeated the request. AIT responded by pointing to the material composition identified in the PCN. AIT also provided test reports purporting to demonstrate immaterial performance differences between the two models.

         Finally, the denouement: MitraStar built the SE2605L-R into its model C1100Z wireless routers. ZyXEL Corp. purchased the routers from MitraStar. ZyXEL Inc. imported and sold them in the United States. In May of 2018, Century Link, Inc., ZyXEL Inc.'s most important U.S. customer, reported widespread reliability and performance failures involving the C1100Z routers. MitraStar engineers determined that the problems originated with the SE2605L-R component. When the results were reported to Skyworks, it generated the 8D Report described supra, disclosing the defect in the SE2605L-R. Ultimately, ZyXEL Inc. established a 13% failure rate in the C1100Z routers, compared to an industry standard of less than 1%. CenturyLink invoked an “Endemic Failure” section of its ...


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