RAM Boss or Just Rambo?
Apr 24, 2001, 07:15 PM ET
By Alexander Vantchev
Think Global, Act Legal
Not every computer in the world runs Windows. Not every computer in the world runs Napster, but every single computer in the world has memory and almost everyone can always use more of it.
Knowing this simple fact is enough to grasp the importance of the Rambus (RMBS) legal battles on both sides of the Atlantic. The stakes are high and, just like sexual harassment suits are not about sex, they are not about intellectual property. They are about power. And maybe about the ultimate control of the computer memory market.
To some this may seem outlandish. How can the small guy Rambus, which has some $80 million in annual income, fight for control of the $28 billion Dynamic Random Access Memory (DRAM) market? Rambus does not manufacture – it only sells licenses. And judging by its legal depositions, Rambus just wants to be left to do its own "small" business.
In its trial against German giant Infineon (IFX), the company really looks like the small guy versus the big bully. Infineon, a spin–off of the legendary Siemens (SMAWY), has income of more than $1 billion from $6.5 billion in revenues.
Docket or Docked?
The obvious Rambus case is probably better presented not by Rambus lawyers, but by Kenji Tokuyama, president of Elpida – a DRAM joint venture between NEC (NIPNY) and Hitachi (HIT). "Rambus said the lawsuits would be settled quickly. But the litigation now appears that it could drag on for some time. Meanwhile, Hyundai, Infineon and Micron (MU) are not paying royalties to Rambus that we are having to pay. If this continues, we are disadvantaged," Tokuyama told EBN.
Rambus is suing Hyndai in England and Micron in Germany. Both companies filed counterclaims against Rambus in the United States. The Micron case is split into two future trials – the first scheduled to start May 31 in a Wilmington, Del., U.S. District Court.
Tokuyama also suggested that every contract has an expiration date and after that, the terms may need to be renegotiated. If Rambus loses or even loses pace, a domino effect among the big licensees may soon force the goose that lays the golden egg to migrate from the Rambus yard in Los Altos, Calif.
For Rambus operation, legalities are the business. Contracts and lawsuits are the name of the game. No wonder Rambus spent $11.6 million in litigation costs in the last two quarters.
Not Necessarily a Clear–Cut Case
An obvious question is – why not settle? Major players like Toshiba (TOSBF), Samsung (SSNHY), Matsushita (MC), Elpida and others are paying royalties and expanding their Rambus DRAM (RDRAM) production.
All those companies signed licenses with Rambus, even for the non–Rambus Double–Data Rate Synchronous DRAM (DDR SDRAM) used in their controllers, where the royalties are even higher than those for the RDRAM interfaces.
RDRAM chips are widely used in video accelerators and game consoles. Intel (INTC) adopted RDRAM as the memory standard for its Pentium 4 processor line, while AMD (AMD) favors the DDR for its Athlons. Intel invested $100 million in Samsung to boost RDRAM production last year, invested again this year, and keeps pouring money into it to make RDRAM both popular and cheap enough to compete with traditional SDRAM and DDR SDRAM.
It is conceivable that for Hyundai, Micron and Infineon (in which Intel also invested $750 million for the same purpose) it will be easier to pay up and jump on the bandwagon with the nice guys, rather than shed millions in lawyers' fees.
Not Necessarily a Case
Judge Robert Payne asked if it will be "a great embarrassment" for Rambus if it has almost no case to present in the trial against Infineon, reported EBN. Last November, the U.S. International Trade Commission (ITC) reprimanded Rambus in an official ruling for "blatant judge shopping", when the company suddenly withdrew its patent violation case against Hyundai.
ITC administrative law Judge Sidney Harris, has a reputation for frequently ruling against firms filing patent complaints and when the case was assigned to him, Rambus withdrew, citing "confidential strategic factors". The strict judge then ruled that if Rambus ever filed a new SDRAM patent infringement case against Hyundai or any other firm, in the future, any such petition must be assigned to his court if he is able to hear it.
Judges read between the lines to learn what the industry has known and talked about for many months – once more, the case is not about technology. It's about power.
The current Rambus legal opponents are former Rambus partners in the Joint Electron Device Engineering Council (JEDEC) – an industry body that drafts SDRAM standards. Their counter–case is that Rambus used what is known as "submarine tactics" – quietly securing patents on technology that others consider to be open. When other companies' products hit the market, the U–boat surfaces, exercises its patent rights and makes them pay royalties.
This tactic landed Dell Computer (DELL) in hot water in 1996, when the Federal Trade Commission (FTC) forced Dell to sign a consent decree not to exercise its patent rights on the video bus it failed to disclose as a member of the industry body drafting the relevant standards.
This is where the case gets sticky for Rambus – it retired from JEDEC only a month after Dell was docked. Its opponents made a very strong case that the company didn't disclose its patents while serving as a member of JEDEC and had both access and voting rights in the industry–standard deliberations. Yet, in spite of the time proximity, the issue of whether Rambus merely got cold feet when the Dell case became a hot issue, is open to debate.
Rambus claims that its 1997 SDRAM patent filings are just amendments to the original 1990 patent application and thus predate the JEDEC standard.
But then the question is – what exactly was Rambus doing on the panel, if in 1990, it had already secured the patent on the fundamental chip–interface technology that every DRAM manufacturer uses today? And why was it discussing a standard it knew could sink it later?
Not Necessarily
Well, maybe not sink. If Infineon proves its case, Rambus actually needed the SDRAM to be widely adopted, because its patents allow it to dibs the entire SDRAM technology. SDRAM, already a standard, is the global memory market.
Infineon's case seemed strong enough to Judge Payne, who waived the client–attorney privilege and granted access to Rambus' internal documents citing a possible fraud. The Court of Appeals later ruled against Rambus and opened the way for Infineon, Micron and Hyundai lawyers to use Rambus' own weapons against it.
Rambus' declassified confidential 1992 five–year business plan includes the following: "... Sync DRAMs infringing on some claims in our filed patents; and there are additional claims we can file for our patents that cover features of Sync DRAMs. Then we will be in position to request patent licensing (fees and royalties) from any manufacturer of Sync DRAMs. Our action plan is to determine the exact claims and file the additional claims by the end of Q3/92. Then to advise Sync DRAM manufacturers in Q4 '92."
This is not necessarily a bad strategy, if it is carried out without too many legal waves. Rambus managed to place itself high in the licensing food chain and to use the funds to develop its next–generation high–speed technology. In February, the company announced that it had developed the fastest memory bus in the world – 2.2 Gigabytes per second.
But Infineon, Micron and Hyundai seem reluctant to fund Rambus as a high–tech mega–laboratory and be reduced to mere conveyor belts for Rambus inventions.
Infineon is pursuing its own reduced–latency SDRAM (RL–SDRAM) technology, targeting network equipment vendors – an emerging market for faster memory chips. Meanwhile, Cisco (CSCO) is close to adopting Fujitsu's (FJTSY) fast–cycle RAM (FCRAM) for its next–generation products, according to industry sources.
FCRAM has been around for almost six years – relatively safe from legal disputes. It may have something to do with the specific customer–tailored nature of the process, setting it apart from the commodity memory market.
What's at Stake?
This year looks awfully iffy for the DRAM market. On top of the Rambus trials and tribulations, analysts are split in their projections.
According to Semico Research, the DRAM market is expected to grow 18.5% to $33.8 billion in 2001. However, IDC paints a radically different picture – it says the market is to shrink 18% to $23.8 billion, due to plummeting prices.
Tell It to Me Straight
Rambus had a relatively easy time convincing the chip heavyweights that it can deliver the goods and bring them up to speed. In the U.S. District Court in Richmond, Va., it has to convince the jury not that its product is legit, but that the others' products aren't.
Some sources note that in such convoluted tech cases, the jury is inclined to think that since the patent office issued a patent, it is valid. However, the patent office decides entirely on the data provided by the applicant and Rambus opponents seek to prove that it cheated there, too. Not to mention that patents are issued for such bizarre inventions like the Motorized Ice Cream Cone (US05971829), or even the Method for transmitting a signal faster than light (US6025810).
A One–Man War
Richmond's Times Dispatch reported that in opening arguments, Infineon attorney John Desmarais was quite stiff – Rambus embarked on a long and fraudulent scheme designed to ultimately control the global computer memory market. And remember, Infineon is the defendant in this trial, not Rambus.
Rambus lawyer David Monahan tried to bring the case back down to the company's legal strategy (a.k.a. business plan) – a small company, building legitimate business on intellectual property, while Infineon (then a division of Siemens) was stealing its designs.
Jurors must ultimately agree on who Rambus appears to be – Mad Scientist trying to take over the world, or Rambo fighting the just fight against everyone.
The outcome? Mad Scientist gets whipped by Superman, while Rambo wins and gets a sequel. |
