Rambus' Patent Victory

Shares in chip technology designer Rambus went for a rocket ride on Apr. 24, after investors learned that the company had won a $307 million judgment against South Korean chipmaker Hynix Semiconductor. This ended a six-year legal fight and brought at least a temporary close to one part of a multi-front legal war Rambus has been fighting with various chip companies for nearly a decade. Rambus (RMBS) shares rose more than 15%, to $44.50 on the news.

The jury of the U.S. District Court in San Jose, Calif., decided that 10 claims contained within six Rambus-owned patents on computer memory chip designs were enforceable, and that Hynix had been infringing on them for than five years, starting in June, 2000 and ending in 2005.

Some $30 million of the award covered sales of an older type of memory chip known as Synchronous Dynamic Random Access Memory or SDRAM. The remaining amount -- nearly $277 million -- covered a newer type of memory known as Double Data Rate DRAM, generally referred to as DDR.


  But the legal payout wasn't the big news, Rambus CEO Harold Hughes told analysts on a conference call. "We want to sign companies that are using our patented technology to long-term license agreements," Hughes said. "Litigation is always a last resort. However, as we have demonstrated in the Hynix trial, we will litigate if needed to obtain fair compensation for our patented inventions." (See BW Online, 4/19/06, "The Downs (and Ups) of the DRAM Market".)

Hynix attorneys didn't immediately return calls from BusinessWeek Online seeking comment, but the company's lead attorney, Dan Furniss, told Reuters that Hynix isn't done fighting and said the company would file a lawsuit to invalidate the patents in question, claiming they are "anti-competitive."

The court win seems to vindicate a strategy under which Rambus, which reported $157 million in sales in 2005, sought up to put a vigorous legal fight against much larger companies. Litigation expenses at Rambus have grown by nearly 88% since 2003. They accounted for nearly 25% of sales in 2005, vs. 17% of sales in 2003.


  Rambus, based in Los Altos, Calif., designs technologies that allow different chips inside a computer to exchange data faster. In the mid-'90s it teamed up with Intel (INTC) to entice computer manufacturers and companies such as Hynix, Infineon (IFX), Samsung, Micron Technology (MU), and others to embrace what was then a new memory technology known as Direct Rambus DRAM. The hitch was that building RDRAM involved paying royalties and licensing fees that other companies considered unacceptable.

Instead, the memory companies promoted DDR technology as an alternative that initially appeared to be royalty-free. RDRAM, meanwhile, withered on the vine. Rambus later asserted patents on both DDR and SDRAM, and unleashed its lawyers to enforce them. This resulted in several lawsuits, including the one that just concluded.

Meanwhile, Rambus still has nine different lawsuits pending. The biggest is an antitrust complaint before a state court in California, which alleges that several memory chip companies, including Hynix and Micron, conspired to fix prices on memory chips in an attempt to cause Rambus's RDRAM technology to fail in the marketplace.


  All of the memory chipmakers have denied Rambus' allegations. But the time period covered by Rambus' accusation coincides almost exactly with the time period specified in an ongoing investigation by the U.S. Justice Dept. into price-fixing in the memory chip industry. The investigation has landed as many as a dozen people in jail and resulted in more than $700 million in antitrust fines against Hynix, Infineon, and Samsung.

So far all three have admitted they colluded to fix prices on memory chips during a period starting in 1999 and ending in 2002 (see BW Online, 10/31/05, "Rambus and a Price-Fixing Tale").

However, the admissions in the Justice Dept. investigations place the memory companies in the awkward position of arguing in the Rambus case that no price fixing took place, since they have already admitted to the federal government that they fixed prices.


  Rambus Vice-President and General Counsel John Danforth promised to press ahead to try and link the federal price-fixing investigation to the company's antitrust case against Micron, Hynix, and Samsung. "The fact that there is a criminal conspiracy that has been admitted to, and we think we can link that criminal conspiracy up very precisely to the efforts to push us from the market," Danforth said.

"This means that anyone who wants to stay at the table and keep playing this patent game has to be aware that the time is running out for their antitrust game. And that game, in which there is a $10-billion-plus exposure, is even more serious than what they saw today."

Rambus, meanwhile, is still fending off a fraud investigation by the Federal Trade Commission due to its actions on that standards-setting consortium in the 1990s. Other cases still pending include two separate patent-infringement cases against Micron and Samsung before a federal court in California.


  Rambus is also a defendant in a Delaware lawsuit. Samsung alleges that during a seven-month period in 1998, Rambus improperly employed a Samsung in-house lawyer to work on its behalf. Rambus has denied any improper actions in that case.

Rambus hasn't always won in court. In 2001, a federal jury in Richmond, Va., ruled that Rambus had acted improperly by failing to disclose it had filed for certain relevant patents while a member of an industry consortium -- even as members of that very consortium were discussing setting certain standards that would in time apply to all memory chips. That jury awarded Infineon $3.5 million. But a federal appeals court later overturned that judgment.

In 2005, Rambus and Infineon settled all their outstanding legal disputes and inked a deal under which Infineon has a two-year license on all Rambus patents in exchange for quarterly payments of $5.85 million. Rambus is undoubtedly finding this money useful for its ongoing litigation.

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