Loss of patents will likely lead to the collapse of suits against HP and NVIDIA

Rambus, Inc. (RMBS) has been in dire straits in federal court.  Now its situation has became a whole lot worse as the U.S. Patent and Trademark Office has invalidated three of the company's most critical patents.

I. The End?

From 2004 onwards Rambus had been enjoying fat royalties [1][2][3] from a host of top chipmakers.  But since Nov. 2011 the company has suffered several key setbacks as companies like Micron Technology, Inc. (MU) and Hynix Semiconductor Inc. (KS:000660) have challenged the legality of Rambus's patents and licensing demands.  The biggest -- a $4B USD loss in its suit against Micron and Hynix -- sent Rambus shares plummeting.

An appeals board at the U.S. Patent and Trademark Office ruled two key Rambus patents invalid in September.  A third patent was ruled invalid in a new ruling that landed on Jan. 24.  Reuters was the first to discover it, reporting on the issue this week.  

The trio of patents were invalidated known as the "Barth patents", after their author, Rambus employee Richard Barth.  The patents -- U.S. Patents 6,470,4056,591,353; and 7,287,109 -- dealt with methods for sending data to memory on a personal computer device.

Rambus traditionally used the three patents among its six core patents in its litigious efforts.

The options for Rambus in terms of overturning the invalidation are scant.  An appeal would go back to the original reviewer, who would be unlikely to wish to overturn the ruling of the higher board, according to Scott Daniels, a partner in the law firm Westerman, Hattori, Daniels and Adrian, LLP.

The decision is a victory for NVIDIA Corp. (NVDA) who initially requested the review.  Rambus has been filing both federal court civil suits against NVIDIA alleging billions in infringement losses, and filing complaints with the U.S. International Trade Commission looking to block the import of NVIDIA chips into the U.S. on copyright infringement grounds.

NVIDIA chips
The ruling is a victory for NVIDIA (CEO Jen-Hsun Huang pictured) who requested the review. [Image Source: WebOS Nation]

Hewlett-Packard Comp. (HPQ), the world's largest personal computer manufacturer (excluding tablets) is also among Rambus's victims.

II. A Cautionary Tale

The decision, should it stand, calls into question a whole slew of Rambus victories both in court and in licensing agreements.  With Rambus down to three important patents in hand, its leverage is severely reduced.  Rambus shares are down 15 percent since the ruling landed, and are likely to fall further as the fallout in terms of settlements begins.

Rambus still holds 1,000 patents, but it's increasingly looking more like an acquisitions target than a viable firm.

The Rambus case is an unfortunate one, in which Rambus did once have some legitimately good ideas and produce useful products.  This outcome serves as a reminder to litigious companies like Microsoft Corp. (MSFT) [1][2][3][4], Apple, Inc. (AAPL) [1][2][3][4], and Samsung Electronics Comp., Ltd. (KS:005930) [1][2][3] of the dangers of pushing the patent system and litigation too far.  Ultimately Rambus didn't have the rich commercial history of any of the aforementioned firms in terms of putting out useful consumer and business products.

Rambus sign
Rambus was once a proud innovator, but turned to litigation amid market failure.
[Image Source: Hector Mata/Bloomberg]

It's easy to write off Rambus as just another "patent troll", but unlike ex-Microsoft CEO Nathan Myhrvold's Intellectual Ventures , Rambus was once a legitimate technology producer.  In that regards it is similar to NTP -- another former innovator turned mass-litigator.

Regardless, history aside, it appears that the curtain has fallen on Rambus's days of success in federal court.  And experts are cheering that as a victory for the consumer and for shareholders in chipmaking firms.

Source: Reuters

“So far we have not seen a single Android device that does not infringe on our patents." -- Microsoft General Counsel Brad Smith

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