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With loss and plummeting stock prices, Rambus's 1,000 patents could make it an attractive acquisition target

In a critical ruling, a San Francisco court jury rejected claims made by Rambus, Inc. (RMBS) against Micron Technology, Inc. (MU) and Hynix Semiconductor Inc. (KS:000660).  The loss sent Rambus share prices plummeting and called into question the future of the hardware maker, which many claim is a so-called "patent-troll".

I. How Did We Get This Far?

Rambus Inc. began as promising startup hoping to market a proprietary memory interface.  

But it gained notoriety when it attended 1995 JEDEC standards meetings, only to then abruptly quit JEDEC and patented many of the SDRAM standards that were being discussed.   Rambus claimed it was already working on the technology and merely did not realize JEDEC's strict standards with regards to open licensing of IP.  It said it quit when it realized them and pointed out that the JEDEC meetings were not private (they were widely reported on in detail in industry journals, etc. at the time).

Around 1999 it deployed its RDRAM product, but saw poor sales as the result of relatively high latencies and high production costs (owing to the complexity of the design).  

Faced with a commercial failure it adopted a “license or be sued” approach.  Many people mistakenly believe Rambus abandoned production, but for some time it continued fruitlessly to push RDRAM even as it turned to litigation.  The approach echoes that of Microsoft Corp. (MSFT), who after seeing its smartphone market share plummet has resorted to intellectual property threats to force licensing from OEMs using the industry's top operating system -- Android OS.

II. Rambus was on a Roll of Late

Initially, Rambus' broad claims to memory ownership were challenged by the U.S. Federal Trade Commission in 2002.  But in 2004 Stephen J. McGuire, the FTC’s chief administrative-law judge, dismissed claims that Rambus violated the 1890 Sherman Antitrust Act.

After that decision companies quietly complied with licensing, but some fought Rambus's licensing demands.  Most notable was Infineon, who won dismissal of Rambus' lawsuit against it, but was forced to negotiate a license by the court.  The dismissal came in part thanks to the revelation that Rambus was shredding key documents prior to the case.

In 2006 the U.S. Federal Trade Commission reversed Judge McGuire's ruling, finding that Rambus did violate the Sherman Antitrust Act.  In 2007 the fallout of that ruling was finally revealed: Rambus would receive indefinite licensing small payments on SDRAM sales, but would only receive small licensing payments on DRAM sales for 3 years.

However, in 2008 Rambus had the good fortune of seeing that decision overturned, when the U.S. Court of Appeals for the D.C. Circuit ruled Rambus had not harmed the competition, and thus was not eligible for antitrust punishments.  The U.S. Supreme Court in 2009 also ruled in favor of Rambus, blocking further FTC antitrust action.

In November 2009 Rambus scored a partial victory, convincing the U.S. International Trade Commission that NVIDIA Corp. (NVDAinfringed upon its memory patents.  The move allowed Rambus to ban imports of certain NVIDIA chips into the U.S.  The move came at the cost of the U.S. Patent and Trademark Office (USPTO) completely rejecting three of its five patents (17 claims total).

The string of victories helped propel Rambus stock prices upwards as it raked in RAM royalties.

III. The Beginning of the End?

The most recent case saw Rambus lawyer Bart Williams accuse Hynix and Micron of "a secret and unlawful conspiracy to kill a revolutionary technology, make billions of dollars and hang onto power."

The case originated when Hynix and Micron collaborated together to develop new memory technology and IP, which may have been in part an effort to avoid Rambus's licensing grasp.

Hynix memory
Hynix and Micron defied Rambus's licensing.  Rambus sued them, essentially for refusing to use its product, which it claimed was an antitrust violation. [Images Source: Hynix]

Accusing others of antitrust seemed a pretty bold move for Rambus, who had just recently been let off the hook in terms of antitrust accusations in the U.S. and still faced antitrust accusations in the European Union.

The move backfired.  Going before a jury, the company saw its claims rejected on a factual basis after 8 weeks of deliberation.  The decision cost it $4B USD in estimated royalties.  A poll found three quarters of the jurors sided against Rambus.

This follows a partial victory for Rambus in May in which a separate ruling by U.S. Court of Appeals for the Federal Circuit sent a case back to U.S. District Court in Delaware.  The Delaware court had dismissed Rambus' claims against Micron when it found Rambus had shredded important documents.  The Court of Appeals ruled that the document shredding was important, but did not necessarily warrant dismissal, encouraging the lower courts to evaluate the case.

The majority ruling stated, "It is undisputed that Rambus destroyed between 9,000 and 18,000 pounds of documents in 300 boxes."

The new loss calls into question Rambus's ability to win future trials, even if the state case does not set a precedent for other lawsuits outside the State of California.  Rambus supporters, such as John Danforth -- a former general counsel for the company -- argue the company is merely a "David" battling the chipmaker "Goliaths".  They argue that the judge in the San Francisco case denied the company's strongest evidence, which would have allowed it to emerge victorious.

But most investors saw the loss as the beginning of the end.  Stock plunged 61 percent settling at $4 USD/share, a market loss of $1.2B USD for a company that was worth $2B USD the day before.

Capstone Investments' Jeff Schreiner a key institutional investor in Rambus was among those that quickly pulled out.  He comments, "I've followed it for 10 years now and we've really seen nothing in terms of capturing the value that's been lost. That was the whole reason for owning the stock.  We don't believe there's a lot to appeal, and we're not going to stick around."

Micron attorney William Price gloated, "You can't count on winning in litigation what you can't win in the marketplace."

Rambus is considering an appeal, but its prospects look bleak.  Legal expert Robert Lande, an antitrust professor at the University of Baltimore School of Law, told Reuters, "This kind of factual determination is very rarely overturned."

Rambus is continuing to develop technology, albeit at a pace far removed from its golden age in the 1990s.

IV. Acquisition Target?

Rambus is owed $900M USD by Samsung, but has $300M USD in legal debt -- equivalent to approximately $1M USD per person it currently employs.  Though it is close to forcing NVIDIA into a licensing agreement, it's unclear how long it can carry on, particular amid ongoing antitrust scrutiny in the EU.

The company has posted profits of late, but that trend seems unlikely to continue if it continues to lose.

With stock prices plummeting, the company -- which owns over 1,000 patents -- may become an attractive acquisition target.  While its IP has been weakened by the USPTO in the recent NVIDIA case, it still has a lot of IP might.  That might make it attractive to a company like Samsung, who could use the IP to countersue Apple, Inc. (AAPL) in the pair's international court battle [1][2][3][4] [5][6][7][8].

Google, Inc. (GOOG) also might be interested in an acquisition to strength its own patent portfolio, and offer greater defense of Android allies like Samsung and NVIDIA.

Rambus's ~1,000 patents could prove a valuable defensive -- or offensive -- weapon.
[Source: U.S. Patents Blog]

On the flip side of the coin parties like Apple and Microsoft could acquire the IP and used it to force licensings or bans on their more successful Android competitors.

Source: Reuters

Comments     Threshold

This article is over a month old, voting and posting comments is disabled

Journalism Joke
By Maximalist on 11/17/2011 4:37:22 PM , Rating: -1
Well, we have here another masterpiece from an online blogger and journalist wannabe Jason Mick. Before posting writeups, it is generally a good idea to understand what/who the story is about. Since when Rambus is a hardware maker?

The loss sent Rambus share prices plummeting and called into question the future of the hardware maker...

Also a suggestion to tone down your obviously immature industry analyses and speculations before people realize the drivel-ridden fanboi content has little informatinal value.

On the flip side of the coin parties like Apple and Microsoft could acquire the IP and used it to force licensings or bans on their more successful Android competitors.

Yes, here Jason Mick is taking a parting shot at Microsoft and Apple for bullying the free-for-all good samaritan Android, and, of course, continuing on their evil track laid by Rambus. What a joke!

RE: Journalism Joke
By jnemesh on 11/17/2011 5:40:46 PM , Rating: 4
You have some issues, bro! If you dont like the journalism here, go elsewhere! Gizmodo may be more up your alley, as they take every opportunity to kiss up to Apple and disparage Android and Google.

RE: Journalism Joke
By retrospooty on 11/17/2011 7:23:09 PM , Rating: 1
"If you dont like the journalism here, go elsewhere"

Exactly... Its like all those people that complain about the content of TV shows... Turn the channel or turn it off if you dont like it FFS!

RE: Journalism Joke
By adiposity on 11/18/2011 2:20:21 AM , Rating: 2
If you dont like the journalism here, go elsewhere!

Hey, if you don't like his comments, rate them down! Oh wait, someone already did that.

RE: Journalism Joke
By Maximalist on 11/18/11, Rating: 0
RE: Journalism Joke
By tng on 11/18/2011 10:40:14 AM , Rating: 2
The writer(s) using this name has serious issues...
You are a journalism expert how?

RE: Journalism Joke
By drycrust3 on 11/18/2011 2:38:53 PM , Rating: 2
I will be open to admit that I do not like Jason Mick-style journalism.

You miss an important point: Jason's employed to get people to read and then comment on what he writes about. If he wrote a perfectly impartial article in an unemotional totally factual style then he wouldn't get people to read his articles and then comment on them. Who cares about some squabble over RAM patents? Maybe I'm wrong, but I think a lot of people wouldn't have bothered reading it. Sure, some people in the industry might be interested, but most of us couldn't care two hoots.
Much like a good talkback radio host, his job is to get people interested in the subject. His style invokes emotional response from the readers and suddenly some boring subject like a petty RAM patent squabble becomes a comment magnet.
The fact is some of those patents just rack up the cost of computers without contributing any technological advantage to the end user, but we probably wouldn't know about it unless someone tells us. The way this is written is intended to make this boring patent squabble becomes a subject worth commenting on.
In the wider context, articles like Jason's raise an important issue: by giving patents to a company that just attended an industry standards meeting, for more or less logical inventions, or for just playing with words and then using that as an excuse to ban competitors products, there is a double cost to us: 1) it means the cost to manufacture in places like America and Europe is more compared doing it in countries where patent holders aren't interested in collecting a patent fee, meaning American or European locally made products cost more in comparison to if the same product was imported, meaning lost jobs in America and Europe and furthering there debt and employment problems; and 2) it discourages industry standards (meaning component or software manufacturers have increased costs which are passed on to us, and retailers have to carry multiple items that do the same job but spend more time on the shelf), it wastes research and design budgets because the budget is mostly spent on lawyers and not on scientists and engineers, and it encourages patents and copyrighting of trivia (and the legal arguments that are the consequence of this), all of which just add to the cost to the end user who sees little or no improvement in the product they buy because of those patents.

RE: Journalism Joke
By Maximalist on 11/18/11, Rating: -1
RE: Journalism Joke
By kake on 11/19/2011 12:31:00 PM , Rating: 2
I read news blogs from all over the web, and I have to say that DailyTech is not the least biased, but they are perhaps the least unnecessarily biased. The occasional spelling/missing word/wrong word/etc is mildly annoying, but that can happen to anyone, and for the most part the writing is of acceptable quality. I have not seen any excessive (or undeserved) bashing of Microsoft, Google, Apple or others, let alone any smearing.

Because this is the internet and not a direct thought injection, you have the option to not come back. With the vitriol you seem to possess for this site, it surprises me you would even take the time to post a comment.

RE: Journalism Joke
By Maximalist on 11/19/2011 2:34:33 PM , Rating: 1
The focal point of my post continues to be Jason Mick, not DT as a whole.

RE: Journalism Joke
By gladiatorua on 11/17/2011 9:45:11 PM , Rating: 2
Oh but he didn't say about the trick Rambus pulled to get such a patent portfolio. Small loophole in the patent law.

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