At war over chips
Infineon, Rambus fight continues
BY GREG EDWARDS
TIMES-DISPATCH STAFF WRITER Aug 30, 2004
Coming soon to a courtroom near you: Rambus versus Infineon, Part II.
A legal extravaganza that could last three weeks, it will star Rambus Inc., a Los Altos, Calif., semiconductor design company, and Infineon Technologies AG, a German computer-chip manufacturer, whose only U.S. plant employs 1,750 people in Henrico County.
The pair will face off Oct. 4 in a Richmond federal courtroom for a second trial of Rambus' patent infringement claims against Infineon and Infineon's counterclaims of fraud and unfair competition against Rambus.
The case was first tried in 2001. Infineon won that one, but last year a federal appeals court set the outcome aside and ordered a new trial. That was despite a courtroom appearance by former Whitewater special counsel Kenneth Starr on Infineon's behalf.
Rambus supporters, who have been encouraged by recent developments in other legal arenas, are hoping for a victory the second go-round.
"The American people and consumers worldwide have benefited far more from our innovations than the cost of the royalties we are asking for," said John Danforth, Rambus' general counsel and senior vice president. Consumers would have to spend much more to get similar performance from their personal computers without Rambus' inventions, he said.
Cristoph Liedtke, an Infineon spokesman, said his company has not commented publicly about what it might owe Rambus if it loses. But a court order to pay royalties or to discontinue production of certain memory chips would hurt the company financially and drive up the cost of production, he said.
Infineon, by some estimates, could owe more than $100 million a year in back royalties to Rambus for the past four years if it loses the case. It also faces the possibility that figure could be tripled as punishment.
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Rambus' patents, for the most part, relate to the microelectronics that link memory chips, one of the primary components of personal computers, with other computer parts. It filed its first patent in 1990.
After Rambus charged Infineon and other chip manufacturers with infringing on its patents, some chip makers agreed to pay royalties; but a few, including Infineon, refused.
Rambus filed suit against Infineon in federal court in Richmond on Aug. 8, 2000. Before and during a two-week trial in late April and early May 2001, U.S. District Judge Robert Payne reduced 57 Rambus patent claims to three and then dismissed those before the case went to the jury.
Payne, however, let the jury consider Infineon's counterclaim of fraud against Rambus but dismissed an antitrust claim. The jury also considered a claim against Rambus under RICO, the Racketeer Influenced and Corrupt Organizations Act, but rejected it.
Infineon alleged that Rambus had committed fraud (based on the Virginia legal standard) by not disclosing to the Joint Electron Devices Engineering Council, an industry group developing standards for computer memory, that the company held patents and patent applications related to memory standards.
Rambus appealed the jury's eventual fraud verdict and Payne's rulings against its patent claims to the U.S. Court of Appeals for the Federal Circuit in Washington, which hears appeals of patent cases.
The appeals court decided that Payne had wrongly interpreted disputed terms in Rambus' infringement claims and sent the case back for retrial.
The appeals court also decided that the evidence did not support the jury's fraud verdict against Rambus. It concluded the evidence did not show that Rambus had a duty to disclose patents or patent applications to the industry group. However, the appeals court did question the business ethics of Rambus pursuing patents while taking part in an industry open-standards group.
The U.S. Supreme Court declined to reconsider the appeals court's ruling.
. . .
Rambus began the legal wrangling leading up to the retrial when it filed a memorandum with Payne's court on Nov. 14. The document outlined the issues and claims that it felt were appropriate for a retrial.
Since then, Payne has again reduced dozens of Rambus claims to three. In line with the ruling of the appeals court, however, the definitions of patent terms in those remaining claims are broader than the first time around, which should make it easier for Rambus to attempt to prove its case.
During preliminaries to the second trial, Payne has issued a series of rulings against Rambus that have sent the company's lawyers back to the appeals court in Washington.
In one instance, Payne ruled that Rambus must turn over to Infineon private communications between the company and its lawyers. The communications involve company policy for saving business records and the policy's relationship to Rambus patent-licensing strategy. The judge's ruling was based on an exception to the law governing attorney-client privilege and dealt with documents Rambus had destroyed on its lawyers' advice after Rambus became a publicly traded company.
In June, Rambus asked the federal appeals court to overturn Payne's ruling, saying the ruling is part of a pattern in which the Richmond judge had "severely criticized Rambus for bringing its patent claims at all."
On Aug. 18, however, a three-judge panel of the appeals court sided with Payne on attorney-client privilege. Rambus indicated it would seek review of that decision by the full court of appeals.
On Aug. 19, Rambus filed a second request with the appeals court seeking to overturn other Payne rulings. Those rulings involve counterclaims that Payne said Infineon would be allowed to make against Rambus during the second trial:
that Rambus had engaged in unfair competition as defined by California law,
that Rambus had tried to monopolize the memory chip market, and
that Infineon had been harmed when it relied on Rambus' word during the standards-setting process for computer memory.
Rambus argued that similar allegations based on the same evidence had been disposed of during the first trial or the appeals process after that trial. Payne "has entered a series of rulings that broadly allow Infineon simply to try again," Rambus complained.
Payne's orders giving Infineon multiple chances to litigate its claims against Rambus show an unwillingness to accept the judgment of the appeals court, Rambus said.
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Infineon, formerly Siemens Semi-conductor Group, became a separate entity in 1999 and a publicly traded company in 2000. The company employs roughly 33,000 people worldwide. In Henrico, it makes computer memory chips for companies such as Dell, Hewlett-Packard and IBM.
Infineon's local plant began as White Oak Semiconductor, a joint venture between Siemens and Motorola, in 1996. Infineon bought out Motorola's share in 2000.
Earlier this year, Infineon announced a $1 billion plant expansion that will eventually create an additional 800 jobs.
Some Rambus supporters suggest that the expansion announcement was an attempt to influence the Richmond jury pool in Infineon's favor. But Infineon's Liedtke said favorable market conditions and the reshuffling of work at some Infineon plants in Europe prompted the expansion plans.
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Rambus was founded in 1990 by Mark Horowitz, an electrical engineering professor at Stanford University, and Mike Farmwald, an entrepreneur and former professor at the University of Illinois. It began selling stock to the public in 1997.
The company's 200 employees develop, patent and license technologies used by companies that manufacture semiconductor memory chips but Rambus makes no chips on its own.
Last year, Rambus had revenue from contracts and royalties of roughly $118 million and profits of $23.2 million.
Mike Crawford, a stock analyst with B. Riley & Co., a Los Angeles stock brokerage, noted some memory manufacturers have accepted Rambus' royalty claims. For example, Samsung, which holds about a 30 percent market share in the $18 billion chip industry, has agreed to pay a 3.5 percent royalty to Rambus, pending the outcome of Rambus' lawsuits against Infineon and other chip-makers, Micron Technology Inc. and Hynix Semiconductor.
Rambus shareholders can be very outspoken in their support of the company in its battles with Infineon and other chip manufacturers.
"The [investors] feel strongly that Rambus invented modern, high-speed computer memory, and that [its] patented inventions are being stolen from Rambus by the collusive and illegal acts of several multibillion-dollar, multinational corporations (Infineon being one)," Rambus investor Barry Watzman said.
The infringement by the chip makers has hurt shareholders, he said.
On June 26, 2000, a few days after Rambus' stock had split four-for-one (and before the first Rambus-Infineon trial), Rambus shares closed at a record high of $117.38 per share. Exactly two years later, the stock closed at a record low of $3.33 per share. It now trades under $20 per share.
Judge Payne has been a particular target of Rambus shareholder anger.
Payne's former association with the Richmond-based law firm McGuireWoods has fueled a suspicion among some Rambus supporters that Payne is partial toward Infineon. Payne was a lawyer with McGuireWoods before being appointed to the federal bench in 1992. A McGuireWoods attorney is part of Infineon's legal team in the Rambus lawsuit.
"To be very blunt about it," Watzman said, "the [Rambus investors] feel that Judge Payne is totally biased and is going to do everything he can to cause Rambus to lose this case."
Payne's secretary said that it would be against the federal court's ethics rules for the judge to discuss the shareholders' criticisms.
But James Roberts, a lawyer with TroutmanSanders and arguably the dean of the Richmond legal community, said that anyone who thinks Payne would approach a case with bias is "absolutely dead wrong."
Roberts supported Payne's appointment to the federal bench but does not socialize with him and has no cases pending before the judge. The lawyer said Payne is "as honest as the day is long."
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The issues before the federal court in Richmond are being aired in other legal venues around the country, both state and federal.
The fraud allegations against Rambus stemming from its participation in the memory-chip industry's standards organization have come before the Federal Trade Commission.
The FTC issued its complaint against Rambus in June 2002, charging the company had violated federal antitrust laws by deliberately engaging in anticompetitive activity, deceiving the chip industry's standards-setting organization and causing harm to competition and consumers.
What followed, beginning in April 2003, was a 54-day hearing that included 44 witnesses, 1,770 admitted exhibits and nearly 12,000 pages of trial transcript in addition to hundreds of pages of deposition testimony. FTC Judge Stephen J. McGuire issued a 334-page decision on Feb. 24, finding that the FTC staff had failed to prove its allegations against Rambus and dismissing the case. The case has been appealed to the full commission.
Infineon, too, faces other litigation.
In May, based in part on revelations in the FTC case, Rambus filed a civil antitrust lawsuit against chip makers Infineon, Siemens, Micron and Hynix in California state court in San Francisco, alleging anticompetitive behavior and unfair competition. In addition to that case, a separate class-action lawsuit is under way in California, filed by people who allege price-fixing in the chip industry.
The U.S. Department of Justice launched an investigation of possible antitrust violations in the memory-chip business two years ago in San Francisco. Federal prosecutors have asked the California courts to go slow with the lawsuits until their investigation of chip manufacturers is complete.
The federal investigation followed public comments in 2002 by computer mogul Michael Dell that were critical of memory-chip makers. "I think we saw cartel-like behavior by a couple of DRAM suppliers," Dell told attendees at an investment conference.
So far, Infineon has set aside $297 million, including $262 million in the last quarter, to cover its potential liability in the Justice Department investigation and civil litigation.
There is some indication that indictments from the federal investigation are coming soon.
Any ideas? Staff writer Greg Edwards can be reached at (804) 649-6390 or gedwards@timesdispatch.com |
