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Recs: 25 Rambus’ Victory Last Friday – Rambus’ Hynix SDRAM/DDR Win in California and Its Implications Going Forward
Dear Fellow Long Term Rambus Shareholders,
I wanted to comment on (and put in context) last Friday’s Rambus victory in the long-standing (and now all-but-complete) Hynix patent case in California.
In my view (which, as with all my posts, is simply my opinion as an individual), not nearly enough has been made of Friday’s victory. Nor has enough attention been paid to the remarkable opinion accompanying it. The opinion can be found here:
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1. Background: Rambus’ Multiple Pending Patent Cases. First, some background and context: RMBS is, of course, engaged in a number of high stakes and important patent cases. The most critical one now is certainly the DDR2/DDR3 patent case (filed in 2005) now set to begin trial in San Jose, California on February 17. That patent case covers most of the current memory manufacturers (Samsung, Hynix, Micron and Nanya) and most of the current memory types (DDR2, DDDR3, etc.).
Two older Rambus patent cases are a Micron case in Delaware (filed by Micron in 2000), which generated a troubling mid-day spoliation ruling a week ago Friday (and immediately sent the Rambus stock price down sharply) and a Hynix case in California (filed by Hynix in 2000), which generated last Friday’s order (addressed here) after the market close.
Those two older cases address—in the main – old products, SDRAM and DDR. A chart prepared by the FTC shows the relative market shares of these products compared to the overall market: www.scribd.com/share/upload/7077923/1hmv8med4sictld95ihc
a. Prior Positing Here. I have written at some length over the past ten days about these various patent cases. In particular I have written about the weaknesses of the January 9 Delaware spoliation ruling and about how closely Delaware tied its January 9 spoliation analysis, such as it was, to facts specific to the older SDRAM and DDR products. I have also discussed my views as to why (in any event) those weaknesses ought not to matter – either in the long or short terms. You can find links to my prior postings here:
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Others have done good work here discussing the market over-reaction to Delaware and showing further flaws in the January 9 opinion, including in the weak evidence Delaware amassed of what documents were supposedly spoliated (and why they should, in any event, supposedly matter). See e.g.
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b. Tea Leaves About the Key DDR2/DDR3 Case in California. I have also written previously about how several “tea leaves” from a California hearing last Wednesday suggest that there should be no further delay (past February 17) in the DDR2/DDR3 case resulting from the Delaware case. That post is here:
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One tea leaf from last week’s hearing is particularly important for today’s discussion. At that hearing (according to reports here), the judge in California indicated regret that several key rulings in the Hynix and DDR2/DDR3 cases had not yet issued. He indicated, apparently, that those rulings would now be forthcoming. Last Friday’s ruling is the first of these. (Rulings on an injunction, compulsory licenses, evidentiary issues related to the DDR2/DDR3 case, Samsung license issues and claims of spoliation are, to my understanding, still outstanding, and some or all of these can – apparently -- now be expected shortly.)
2. What Rambus Won Last Friday and Why It Matters. So what did Rambus win on Friday? On one level it is simple. On Friday, Rambus defeated Hynix’s final effort to seek a retrial from the trial judge of Hynix’s SDRAM and DDR patent trial loss. The case has been pending in California for almost 9 years. It is now almost over at the trial level.
Why is that important? It is important for at least three reasons, any one of which (in my view) dwarfs in importance the January 9 Delaware ruling.
a. The Strength of Judge Whyte’s Work. First, the quality of the Hynix judge’s work is remarkable. Friday’s ruling shows this. He grapples with the fine details of the technology and with subtle legal arguments, acknowledging factors pointing in opposing directions, criticizing arguments made by both sides and their experts, and missing (as far as I can tell) little or nothing of importance. Even those not at ease with these technologies or these points of law can easily detect how thorough and balanced the analysis here is. And Friday’s ruling is of a piece with past work in the case. It has been painstaking, selfless and precise -- and this judge has not hesitated to revisit past decisions to avoid error. All and all, it is no wonder that this judge is a called the best patent trial judge in the country. From all of this, one gains significant confidence that, in the main and on the most important issues, this judge’s work is very likely to be sustained on appeal.
The strength and quality of this work is important because of this predictive value and because (with all due respect to other jurists) it contrasts sharply with some other work in other Rambus cases. The parties must see that this is a body of work that will be hard to overturn. They will need to take that into account when they consider the upside of appeals and more delays. Those delays are likely no longer their friend. Delay for delay’s sake is an old game in the patent litigation business. But it gets more dicey in the face of willfulness damages, other potential equitable relief and – in the Rambus situation – a quickly looming, very dangerous antitrust case in San Francisco in March.
b. Impact on the Upcoming DDR2/DDR3 Trial. Second, the Hynix judge who wrote Friday’s decision (Judge Ronald Whyte of the NDCA) is the same judge presiding over the DDR2/DDR3 case and Friday’s decision has many important clues for how the DDR2/DDR3 case will move forward. I will focus on just one.
As (I think) most trial judges naturally would, this judge looks for reasonable ways to promote judicial economy, including ways to simplify (and/or render moot) the jury trials he is to conduct. One way to do this is to give the parties early signs of the risks they face going forward to trial. Friday’s decision does this in spades. For one party -- Hynix -- Friday’s order means, in effect, that the upcoming DDR2/DDR3 trial is likely already lost before it begins.
To be sure, all of the DRAM manufacturers have already lost much before that DDR2/DDR3 trial begins. For example, none (I suspect) got anything like the claim constructions (patent interpretations) they wanted, and all suffered summary judgment of infringement as to one patent claim, claim 16 of the ‘285 patent. But Hynix is now in an even worse spot. This is because Hynix carries over into its newer DDR2 and DDR3 memory products the same infringing features it used in earlier SDRAM and DDR products.
So, after Friday’s ruling, Hynix will – I think – be unable to contest infringement and validity in the DDR2/DDR3 case with respect to four patent claims found valid and infringed in the older Hynix case. The four are claim 3 of the ‘120 patent, claim ’36 of the 020 patent, claim 28 of the ‘916 patent, and claim 16 of the ‘863 patent. In my view, product data sheets, product schematics and past admissions by the parties (e.g. their assertions regarding the “evolutionary” development of DRAM products) mean no reasonable jury could decide otherwise. Simply put, I believe the court will soon find, as a matter of law, that patents found valid and infringed as to Hynix’s SDRAM and DDR products are also valid and infringed as to Hynix’s newer DDR2/DDR3 products.
c. Remedies Now Likely. Third, all of this then takes us to money and other remedies.
i. Injunctive and Other Equitable Relief. The “other remedies” part is, I think, fairly straightforward at this point. At some point soon, I believe, the court will issue a permanent injunction and/or compulsory license against Hynix– in large part (as Rambus has argued), because Rambus should be able to control its own IP and not suffer design losses to memory designs that seek to use that IP for free. I think that, absent a compulsory license (and perhaps even with one) any injunction should be un-stayed – certainly as to DDR2 and DDR3 (which now compete directly with Rambus designs and as to which no spoliation ruling could reasonably reach) and even as to SDRAM and DDR (where, with respect, I do not think the Delaware court’s reasoning is sufficiently thorough to create a reasonably likely avenue for a successful Hynix appeal.)
ii. Compensatory Damages. Monetary damages are more complex because we are looking at different periods of time and different parties and different products. But even in just the Hynix case, and even just for just past damages related to just SDR and DDR products, they are significant.
The money part does have one relatively easy aspect: the jury verdict against Hynix’s SDRAM and DRR products. That verdict was rendered April 24, 2006. It was for about $306 million (essentially reflecting a 10-11% royalty rate on US sales of DDR) and was reduced to $113 million by the trial court (to reflect, in essence, a court-approved 4.25% royalty rate on US sales of DDR).
That was almost three years ago. I welcome input here as to accrued interest and accrued royalties on subsequent shipments and manufacture of Hynix SDRAM and DDR products in the US. I think I have seen the number $300 million here as an estimate of the current Hynix SDRAM and DDR US total (with, as far as I recall, no increase for willfulness and no royalties from later memory types like DDR2 and DDR3). That number seems like it is in the right ballpark, perhaps on the low side given (a) that it needs to account for the Hynix DRAM plant that has (or had) been operating in Oregon, and (b) that Rambus has improved its expert reports to better support the 10-11% royalty rate originally found by the Hynix jury.
As to monetary damages, there are two further complexities (and, frankly, two significant further revenue opportunities for Rambus).
iii. Willfulness Damages. The first is willfulness damages. These were, in 2005-6, waived by Rambus as to SDRAM and DDR shipments made prior to some specified date. (I think the specified date was the April 24, 2006 jury verdict date, but it may have been earlier.) At some point in time, however, willfulness again became (and is) a potential factor. Friday’s ruling gives us a strong clue as to why and when. It suggests that the issues that Hynix unsuccessfully asserted to seek a new trial (e.g., (i) an issue that Hynix actually waived in the jury verdict form and (ii) an issue concerning allegedly incorrect jury instructions that turned out to have been essentially misquoted by Hynix) were weak – certainly far too weak to defeat a claim of willfulness after the jury had already spoken. This would argue for up to treble damages against Hynix (for willfulness) for all SDRAM and DDR products shipped, used or made in the US after April 24, 2006.
(JEDEC-related issues ought to provide no shelter from willfulness after this date. Those issues depend on assertions by the DRAM manufacturers themselves about what level of IP disclosure they expected at JEDEC, about their own “surprise” at Rambus’ assertion of its patents, and about possible workarounds. I do not think self-serving, self-generated, later-disproved factual assertions of this type can be bootstrapped into a willfulness defense.)
iv. Friday’s Impact on the Collection from Hynix of Damages Caused by DDR2, DDR3 and Later Memory Types. The second complexity (and revenue opportunity for Rambus) involves the much higher volumes of Hynix DDR2 and DDR3 products now shipping and being made in the US. If I am correct (as discussed above) about the implications of the Friday ruling for these Hynix products, then the amount Hynix will, as a mater of law, soon owe Rambus is much higher. I welcome input on this point. DDR2 products did have some role in the Hynix cases but my recollection of exactly what that role was is hazy at this point. (DDR2 may have been included in certain damage calculations, for example.) In any event, I think the incremental additional exposure that Hynix faces from DDR2, DDR3 and later memory types is several times the SDRAM and DDR exposure.
d. Friday’s Impact on Breaking the Settlement Logjam. This leads to a final consideration, which goes to the other parties and to timing. Until now, the judge overseeing California cases has, in effect, kept the various manufacturers reasonably close to one another in terms of how close they are to seeing large dollar judgments and equitable relief. This strategy has, from all appearances, simply made the manufacturers comfortable to ”stay in the pack,” i.e. to each resolve the prisoner’s dilemma between them by inaction.
But Friday’s ruling is a major step forward toward changing that status quo and breaking the logjam. Hynix is now out in front and alone again. The other parties have to worry that it will settle first, and that may prompt others to come to the table. There is good reason for them to be concerned. The first manufacturer (or two) to be hit with a major patent verdict may face an appellate bond it cannot afford – benefiting the other manufactures if this serves to reduce worldwide DRAM over-supply.
On the other hand, there is another reason why the settlement logjam, once weakened as happened last Friday, may soon burst. The last manufacturers to get out of the Rambus antitrust case now set for March face a potentially even worse problem than being hit with DRAM patent damages. The first to settle will, presumably, testify against the last ones in to (making even more concrete the remarkable emails and criminal confessions that Rambus already has to work with). And that antitrust case involves joint and several liability for treble damages that may dwarf the patent royalties Rambus seeks – certainly from any one party. To be the last party in that joint and several liability antitrust case means facing not only 3X Rambus’ lost profits from all DRAM that Rambus would have licensed (worldwide and from all manufactures – not US only and not simply from the one defendant) but also 3X Rambus lost profits on all controllers it would have licensed.
I welcome comments on the above – and corrections if I have erred in any of my recollections or assumptions.
Best wishes
John Danforth
(Written solely on my own behalf) |
