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Technology Stocks : Rambus (RMBS) - Eagle or Penguin -- Ignore unavailable to you. Want to Upgrade?

To: pompsander who wrote (72582)	5/11/2001 4:22:37 PM
From: Don Green	Respond to of 93625

Dismal week leaves Rambus' royalty strategy in peril By Jack Robertson, EBN May 11, 2001 (11:59 AM) URL: ebnews.com This week's $3.5 million jury award against Rambus Inc. blew a dark cloud over the IP design firm's ability to continue exacting payment from the DRAM industry for use of its synchronous memory technology. Punitive damages aside, the fact that the company not only failed to prove its charges of patent infringement against Infineon Technologies AG, but wound up on the losing end of Infineon's counterclaim could undermine Rambus' efforts to seek royalties for the SDRAM interface technology it claims to own. The jury decision, handed down in a U.S. District Court here, found Rambus committed fraud while a member of a JEDEC panel from 1992-96, during which a standard to define SDRAM was drafted. By failing to disclose that it had filed its own SDRAM patents independent of JEDEC, Rambus knowingly withheld information that it later tried to use to its advantage, the jury found. Following the verdict, Infineon asked federal judge Robert Payne to declare Rambus' SDRAM patents unenforceable. Judge Payne will consider the motion next week. Rambus this week said it plans an immediate appeal of the fraud verdict. The company already has appealed an earlier ruling dismissing its infringement claims against Infineon. If the patents are deemed unenforceable, the decision will apply only to Infineon, according to the company's attorneys. But legal sources agreed that such a decision would establish a precedent that other companies could follow to avoid royalty payments. The first memory-IC suppliers likely to exploit the jury's findings are Hynix Semiconductor Inc. (formerly Hyundai Electronics Industries Co. Ltd.) and Micron Technology Inc., both SDRAM licensing holdouts engaged in a series of upcoming legal contests with Rambus. Dan Scovel, an analyst at Needham & Co. Inc., New York, said the three holdouts -- Hynix, Infineon, and Micron -- account for half the global DRAM market, thus ensuring a major share of SDRAM and DDR SDRAM will not be subject to royalties for the time being. “Rambus is in trouble,” Scovel said. “Rambus' strategy -- to collect SDRAM and DDR royalties while it waits for [Direct Rambus DRAM] royalties to jump -- is now called into question.” Indeed, the verdict could trigger a move by Rambus' existing synchronous licensees to stop paying royalties on their SDRAM and DDR sales, Scovel said, which would represent a severe blow to Rambus' royalty revenue stream. Scovel estimated that SDRAM and DDR in the most recent quarter accounted for as much as two-thirds of the company's $24 million total royalty payments. Various contractual details revealed during the trial showed that Rambus' SDRAM agreement with Samsung Electronics Co. Ltd. included a clause that allows Samsung to stop paying royalties on sales in the United States if Rambus is unable to prove that all suppliers are infringing its patents. Neither Rambus nor Samsung would comment on the details of the contract, and court records did not reveal whether other Rambus SDRAM licensees have similar escape clauses in their contracts. Paul Lerner, senior vice president and general counsel of General Patent Corp., Suffern, N.Y., said the clause is uncommon in licensing agreements. Other patent experts interviewed by EBN said licensees traditionally seek relief by renegotiating agreements or take legal action to free them from royalties once a non-infringement decision has been made. “As a final recourse, licensees can simply stop paying royalties, believing the patent holder has a weak case because the patents in question have been set aside elsewhere,” Lerner said. Previously, testimony offered at the trial showed that all SDRAM licensees, including Samsung, pay a 3.5% royalty rate on sales of DDR chips and 0.75% for SDRAM sales. Jan du Preez, president of Infineon Technologies Inc., the company's San Jose-based subsidiary, said the cost advantage of paying no SDRAM royalties is significant, particularly given that a rate of 3.5% is nearly half of the 8% per-chip R&D expense associated with any given DRAM generation. However, sources close to Samsung said the company's SDRAM royalty payments are much less than 3.5%. One source said that, like most licensing agreements, Samsung's royalties have a sliding scale that allows rates to be reduced as chip production increases. The final payment is also adjusted to offset factors such as engineering work Samsung may have performed for Rambus. When Judge Payne resumes the trial next week, he is expected to consider briefs regarding the enforceability of the SDRAM patents. The judge will also consider reducing the $3.5 million in damages assessed against Rambus to $350,000, depending on how a Virginia state law that sets a cap on punitive damages is interpreted.