OEMs Get Patent Wake-Up Call
Date: 09/05 17:45 EST
OEMs Get Patent Wake-Up Call
Sep 05, 2000 (Tech Web - CMP via COMTEX) -- Rambus Inc.'s royalty campaign
should be placing PC makers and other OEMs on alert, according to observers, who
urge companies to protect themselves by insisting on airtight clauses in their
supply contracts.
Such indemnity clauses are routine in most purchase agreements, and come in the
form of broad, catchall phrasing, or boilerplate. But while such language
typically serves as a legal firewall, OEMs would be advised to cover themselves
in the event their vendor is charged with intellectual-property violations.
"[My] advice, which is unfortunately retroactive, is the first thing you do when
you buy anything from a supplier is to have a warranty and indemnity clause,"
said James M. Burger, an attorney at Dow, Lohnes & Albertson PLLC, Washington,
D.C.
Rambus (stock: RMBS), Mountain View, Calif., has caused a stir with its
licensing crusade, in which it laid claim to the synchronous interface used to
connect a huge number of memory devices, microprocessors, and core-logic
chipsets.
While a variety of components could fall under the company's legal scrutiny, it
has chosen so far to focus on vendors making SDRAM and double-data-rate SDRAM.
By forcing suppliers into licensing contracts, Rambus would reap a royalty
windfall from the billions of SDRAM chips sold each year. More to the point, by
padding SDRAM tags, the company could offset the price of its proprietary, but
costly, Direct Rambus RDRAM interface, according to Danny Lam, an analyst at
Fisher-Holstein Inc., Wilmington, Del.
Adding teeth to its licensing plan, Rambus is suing Infineon Technologies AG
(stock: IFX) over the Munich, Germany, chip maker's refusal to negotiate terms.
Put on the defensive, the DRAM industry responded last week with separate
complaints filed by Micron Technology Inc. (stock: MU), Boise, Idaho, and
Hyundai Electronics Industries Co. Ltd.
But why should OEMs concern themselves with a squabble between suppliers and a
lone IP design house? The answer rests both with an earlier lawsuit initiated by
Rambus and with the potential turmoil a series of protracted legal battles could
introduce to the DRAM market.
In January, Rambus charged Hitachi Ltd. (stock: HIT) with unauthorized use of
its synchronous interface in SDRAM, DDR SDRAM, and the Super-H family of
microprocessors.
In a surprise, Rambus also named Sega Enterprises Ltd. as a defendant, because
it uses the SH processors in its Dreamcast game console.
Though all charges were dropped after Hitachi agreed to an out-of-court
settlement, Rambus' willingness to involve a leading Hitachi customer in the
complaint sent shockwaves through the industry.
"It's one thing to pay royalties, but another to receive an injunction where you
have a warehouse of chips you can't use," said Gene Tabachnick, a
Pittsburgh-based attorney who specializes in intellectual-property law.
And until Rambus' patents are either invalidated or honored by every DRAM maker,
OEMs face a dilemma: risk legal incrimination by buying SDRAM-based chips, or
pay a premium for Direct RDRAM.
"Quite often the customers are left out of the fray while the big boys duke it
out," Tabachnick said. "But maybe the last thing Rambus wants to do is sue
customers and lose them as potential customers, which is not uncommon in patent
litigation."
PC OEMs face an additional issue unfolding around a decision by Intel Corp.
(stock: INTC), Santa Clara, Calif., to widen its patent suit against Via
Technologies Inc. over Via's use of Intel technology in chipsets that support
Athlon processors.
The Athlon, made by Advanced Micro Devices Inc. (stock: AMD), Harrisburg, Pa.,
is expected to be a big driver of DDR SDRAM sales next year.
Of course, the issue is not so stark, and the likelihood that Rambus or Intel
would begin issuing subpoenas and risk alienating customers is remote. But OEMs
looking to guard themselves would do well to examine their supply contracts.
Burger suggested contracts meet three criteria: that an indemnification clause
be present; that the clause be distinct and not part of the contract's
limitation of liability or exclusion of damages clause; and that it include
provisions to cover legal costs, travel, and related expenses.
"We use boilerplate because there's no need to reinvent the wheel," Burger said.
"The standard stuff we use works. But every company is in a unique position and
they should make sure they look at their indemnity agreements."
Suppliers may be less than eager to take on any added liability, Burger noted,
and OEMs already locked into contracts may have little negotiating room.
However, where possible, Tabachnick suggested OEMs buying SDRAM include an
indemnification clause that expressively identifies the patent litigation.
As the DRAM supply base decides its next move, OEMs may still encounter an
unsettled market if a large-scale legal battle erupts.
Bob Merritt, an analyst at Semico Research Corp. in Redwood City, Calif., said
OEMs who are already trying to keep up with rapid technology changes are loathe
to confront new uncertainty surrounding the legal state of their memory chips.
"OEMs already were facing confusing decisions over an array of memory choices in
designing PCs for next year," he said. "The escalating legal battle over Rambus
synchronous DRAM patents only makes their memory decisions more complex."
Additional reporting by Bruce Gain.
techweb.com
Copyright (C) 2000 CMP Media Inc.
-0-
Sep 05, 2000 (Tech Web - CMP via COMTEX) -- Rambus Inc.'s royalty campaign
should be placing PC makers and other OEMs on alert, according to observers, who
urge companies to protect themselves by insisting on airtight clauses in their
supply contracts.
Such indemnity clauses are routine in most purchase agreements, and come in the
form of broad, catchall phrasing, or boilerplate. But while such language
typically serves as a legal firewall, OEMs would be advised to cover themselves
in the event their vendor is charged with intellectual-property violations.
"[My] advice, which is unfortunately retroactive, is the first thing you do when
you buy anything from a supplier is to have a warranty and indemnity clause,"
said James M. Burger, an attorney at Dow, Lohnes & Albertson PLLC, Washington,
D.C.
Rambus (stock: RMBS), Mountain View, Calif., has caused a stir with its
licensing crusade, in which it laid claim to the synchronous interface used to
connect a huge number of memory devices, microprocessors, and core-logic
chipsets.
While a variety of components could fall under the company's legal scrutiny, it
has chosen so far to focus on vendors making SDRAM and double-data-rate SDRAM.
By forcing suppliers into licensing contracts, Rambus would reap a royalty
windfall from the billions of SDRAM chips sold each year. More to the point, by
padding SDRAM tags, the company could offset the price of its proprietary, but
costly, Direct Rambus RDRAM interface, according to Danny Lam, an analyst at
Fisher-Holstein Inc., Wilmington, Del.
Adding teeth to its licensing plan, Rambus is suing Infineon Technologies AG
(stock: IFX) over the Munich, Germany, chip maker's refusal to negotiate terms.
Put on the defensive, the DRAM industry responded last week with separate
complaints filed by Micron Technology Inc. (stock: MU), Boise, Idaho, and
Hyundai Electronics Industries Co. Ltd.
But why should OEMs concern themselves with a squabble between suppliers and a
lone IP design house? The answer rests both with an earlier lawsuit initiated by
Rambus and with the potential turmoil a series of protracted legal battles could
introduce to the DRAM market.
In January, Rambus charged Hitachi Ltd. (stock: HIT) with unauthorized use of
its synchronous interface in SDRAM, DDR SDRAM, and the Super-H family of
microprocessors.
In a surprise, Rambus also named Sega Enterprises Ltd. as a defendant, because
it uses the SH processors in its Dreamcast game console.
Though all charges were dropped after Hitachi agreed to an out-of-court
settlement, Rambus' willingness to involve a leading Hitachi customer in the
complaint sent shockwaves through the industry.
"It's one thing to pay royalties, but another to receive an injunction where you
have a warehouse of chips you can't use," said Gene Tabachnick, a
Pittsburgh-based attorney who specializes in intellectual-property law.
And until Rambus' patents are either invalidated or honored by every DRAM maker,
OEMs face a dilemma: risk legal incrimination by buying SDRAM-based chips, or
pay a premium for Direct RDRAM.
"Quite often the customers are left out of the fray while the big boys duke it
out," Tabachnick said. "But maybe the last thing Rambus wants to do is sue
customers and lose them as potential customers, which is not uncommon in patent
litigation."
PC OEMs face an additional issue unfolding around a decision by Intel Corp.
(stock: INTC), Santa Clara, Calif., to widen its patent suit against Via
Technologies Inc. over Via's use of Intel technology in chipsets that support
Athlon processors.
The Athlon, made by Advanced Micro Devices Inc. (stock: AMD), Harrisburg, Pa.,
is expected to be a big driver of DDR SDRAM sales next year.
Of course, the issue is not so stark, and the likelihood that Rambus or Intel
would begin issuing subpoenas and risk alienating customers is remote. But OEMs
looking to guard themselves would do well to examine their supply contracts.
Burger suggested contracts meet three criteria: that an indemnification clause
be present; that the clause be distinct and not part of the contract's
limitation of liability or exclusion of damages clause; and that it include
provisions to cover legal costs, travel, and related expenses.
"We use boilerplate because there's no need to reinvent the wheel," Burger said.
"The standard stuff we use works. But every company is in a unique position and
they should make sure they look at their indemnity agreements."
Suppliers may be less than eager to take on any added liability, Burger noted,
and OEMs already locked into contracts may have little negotiating room.
However, where possible, Tabachnick suggested OEMs buying SDRAM include an
indemnification clause that expressively identifies the patent litigation.
As the DRAM supply base decides its next move, OEMs may still encounter an
unsettled market if a large-scale legal battle erupts.
Bob Merritt, an analyst at Semico Research Corp. in Redwood City, Calif., said
OEMs who are already trying to keep up with rapid technology changes are loathe
to confront new uncertainty surrounding the legal state of their memory chips.
"OEMs already were facing confusing decisions over an array of memory choices in
designing PCs for next year," he said. "The escalating legal battle over Rambus
synchronous DRAM patents only makes their memory decisions more complex."
Additional reporting by Bruce Gain.
techweb.com
Copyright (C) 2000 CMP Media Inc. |
