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Rambus Falls as Micron, Hynix Cases Sent Back to Lower Court

Rambus Inc. fell the most since 2009 after a U.S. appeals court agreed that the company destroyed documents relevant to patent infringement trials with Micron Technology Inc. and Hynix Semiconductor Inc. and sent the cases back to a lower court to determine appropriate sanctions.

A five-judge panel of the U.S. Court of Appeals for the Federal Circuit in Washington today vacated lower court rulings in the two cases, which centered on whether Sunnyvale, California-based Rambus should be allowed to enforce patents on computer-memory chips since it destroyed potential evidence.

The decision prolongs legal disputes that date back to 2000 for Rambus, a chip designer that has been suing companies that refuse to license its technology. The appeals court decision forces the judge in the Micron trial to reconsider the degree to which Rambus acted in bad faith and it throws out a $397 million judgment against Hynix so the court in that case can also revisit the document-destruction issue.

“Vacating awards or being convicted of spoliation is not anything anyone wants put out in the financial press,” said Jeff Schreiner, a Capstone Investments Inc. analyst in San Diego. “In the end, though, nothing has taken Rambus off the patent train express, nothing has derailed Rambus’s ability to collect on these patents.”

Rambus fell $3.44, or 18 percent, to $15.83 at 4:05 p.m. New York time in Nasdaq Stock Market trading, the biggest percentage drop at the close since January 2009. Schreiner has a $45 target and a “buy” rating on the shares and doesn’t own them. Micron fell 2.4 percent to $10.40.

‘Bad Faith’

“We are very disappointed with the decisions in these cases,” Thomas Lavelle, Rambus’s general counsel, said in an e-mailed statement. “We are hopeful when the district courts reconsider these decisions, they will find, as we believe, there was no bad faith and no prejudice.”

If the district court were to conclude again that there was “bad faith and prejudice,” a sanction against Rambus may be justified, the appeals court wrote in the Micron order. It didn’t say what the sanction would be, and said the judge has to consider whether lesser sanctions would be appropriate.

“Our view is that the district court truly believed that Rambus acted in bad faith and with sufficient prejudice,” Matt Powers, a lawyer at Weil, Gotshal & Manges LLP who represents Boise, Idaho-based Micron, said in a telephone interview. “That is the result that should happen and will happen.”

Representatives from Ichon, South Korea-based Hynix declined to immediately comment on the ruling.

Nvidia Case

Hynix is the world’s second-largest maker of computer-memory chips, trailing Samsung Electronics Co. Micron is the largest in the U.S.

Samsung, based in Suwon, South Korea, in January 2010 agreed to pay $900 million to settle all legal claims with Rambus, including a separate antitrust lawsuit.

The Micron and Hynix disputes are over the companies’ use of interfaces that are part of dynamic random access memory that acts as the main memory in computers. DRAM is built to industry standards and is interchangeable by product. Hynix and Micron claimed Rambus got rid of papers that would have proved Rambus misled the board that sets that standard.

Questions about the Rambus document-retention policy have dogged the company for years, and today’s ruling may help graphics-chips maker Nvidia Corp. in its appeal of a finding by the U.S. International Trade Commission that its products infringe Rambus patents. That case is on appeal before the Federal Circuit and involves different patents.

Micron Case

The cases ruled on today marked the first time the issue of document destruction has been put squarely before the appeals court in Washington, which specializes in patent law. The panel was trying to reconcile the two cases in which federal judges looked at the Rambus policy and came up with different results.

A judge in the Micron case ruled 12 Rambus patents unenforceable as punishment for document destruction, saying Rambus should have protected documents beginning in 1998, when litigation could be “reasonably foreseen.”

Trial Judge Sue Robinson in Wilmington, Delaware, didn’t explain why she felt Rambus acted in bad faith, the panel wrote in today’s decision to vacate the ruling.

“A district court must do more than state the conclusion of spoliation and note that the document destruction was intentional,” the panel wrote. “This court is unable to determine whether the district court applied the applicable exacting standard in making its factual determination that Rambus acted in bad faith.”

Needle in Haystack

The lower court will now need to determine whether the absence of the documents hurt Micron’s case. Taking into account motives and the degree of bad faith, the judge would need to explain the reasons for any sanctions.

Circuit Judge Arthur Gajarsa disagreed with the four-member majority. In the Micron case, Gajarsa said he would have upheld the sanctions of finding the patents unenforceable because Rambus “abused the privilege of owning a patent monopoly.”

“Instead of recognizing this abuse by Rambus, the majority searches to find a needle in the haystack because, in its collective superior judgment, Rambus’ conduct does not require taking away that privilege,” the judge said. “In vacating the sanctions award, the majority has called the firing squad to the ready, the squad cocking their guns and taking aim, but instead of shooting the appropriate and culpable party, the squad aimed at the district court’s proper determinations of fact.”

Hynix Case

In the Hynix case, the appeals court upheld U.S. Judge Ronald Whyte’s denial of a bid to throw out the verdict altogether or grant a new trial. It vacated the financial damages judgment because of the document spoliation.

Hynix had appealed after Whyte rejected arguments that the document destruction voided Rambus’s right to enforce the patents. The judge’s decision had allowed the trial to proceed, which resulted in the $397 million judgment.

Claims that Rambus has against Hynix and Micron over newer patents had been put on hold, awaiting today’s decision.

Rambus also has an antitrust lawsuit pending against the companies in a San Francisco court claiming $4.3 billion in damages, which is scheduled to go to trial June 7. Rambus alleges that Micron and Hynix artificially inflated the price of Rambus-designed DRAM chips to drive Rambus technology out of the computer-memory market.

The appeals are Micron Technology v. Rambus, 2009-1263, and Hynix Semiconductor v. Rambus, 2009-1299, U.S. Court of Appeals for the Federal Circuit (Washington). The lower-court cases are Micron Technology Inc. v. Rambus Inc., 00-cv-00792, U.S. District Court, District of Delaware (Wilmington) and Hynix Semiconductor Inc. v. Rambus Inc., 00-cv-20905, U.S. District Court, Northern District of California (San Jose).

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