Rambus has legal momentum in memory patents

Efforts by Rambus Inc. to extract royalties from memory chip makers got a boost Monday by the U.S. Supreme Court, increasing chances that the company will beat vendors in court.

For almost four years, Rambus has been on a crusade to collect royalties from makers of memory chips that the company says use patented Rambus high-speed memory interface technology in their SDRAM (synchronous dynamic random access memory) and DDR SDRAM (double data-rate SDRAM) products. DDR SDRAM chips are by far the most popular memory chips in PCs today.

Rambus, in Los Altos, California, succeeded in securing licensing agreements with big players such as Hitachi Ltd., Toshiba Corp. and Samsung Electronics Co. Ltd. But it has had to fight in the courts with Infineon Technologies AG, Micron Technologies Inc. and Hynix Semiconductor Inc.

Rambus royalties increase the cost of manufacturing a PC by a small amount. But makers of memory chips, chipsets and related products that have been fighting patent infringements lawsuits from Rambus will feel a much sharper sting.

“The typical settlement is going to involve paying fees for every product you manufactured while infringing, so you might owe royalties for a number of years’ worth of production, and that could be a significant amount of money,” said Dean McCarron, principal analyst at Mercury Research Inc. in Cave Creek, Arizona.

The Infineon litigation has proven the most thorny for Rambus. In 2001, it looked like Infineon might prevail. But an appellate court’s decision earlier this year went Rambus’ way. And on Monday the Supreme Court denied Infineon’s request that it review the appellate court ruling. This sends the case back to the original lower court for a new trial over Rambus’ patent infringement claims against Infineon. That court — the U.S. District Court for the Eastern District of Virginia, in Richmond — ruled in favor of Infineon back in mid-2001.

Rambus is also in court fighting fraud charges filed by the U.S. Federal Trade Commission (FTC) that Rambus deceived the standards group JEDEC (Joint Electron Device Engineering Council) for obtaining patents on chip design standards the JEDEC was developing while Rambus was a member of the group. That case, being heard by an FTC administrative law judge, has its oral closing arguments scheduled for Wednesday.

But the Infineon case is largely viewed as the one that will set the precedent for Rambus litigations in the U.S. For example, in November 2001, a U.S. District Court postponed a lawsuit by Hynix pending the resolution of the Rambus appeal against Infineon. “A lot of people were waiting to see how this came out before settling with Rambus or trying a different argument,” said Nathan Brookwood, principal analyst at market researcher and consultancy Insight 64, in Saratoga, California.

In a note published last week after preliminary reports emerged that the nation’s highest court wouldn’t review the Infineon case, Erach Desai, an analyst at American Technology Research, upgraded Rambus’ stock “to reflect our conviction that the legal risk-reward balance is tilting in (Rambus’) favor. We believe that there will be a ripple effect of legal rulings, beginning with the FTC case which we believe is likely to favor Rambus. There is an increased likelihood that the Richmond, Virginia, Federal District Court will also provide a summary judgment in RMBS’ favor, clearing the path for royalties.”

Now Rambus’ chances to either win the Infineon case or secure a favorable settlement have greatly increased, because the U.S. Court of Appeals for the Federal Circuit confirmed the breadth of Rambus’ patent claims, which the lower court had narrowed. Desai wrote in his note he believes there is an 80 percent chance Infineon will be found guilty of infringing on Rambus’ basic patents for SDRAM and DDR SDRAM. This would in turn pave the way for Rambus to secure royalties throughout the industry. “Any decision/settlement in that case would lay the groundwork for the follow-on cases against Micron and Hynix,” he wrote.

Although the effect on vendors sued by Rambus could be significant, analysts say that the overall result should not be sharp increases in PC prices.

DRAM might comprise about $50 out of the total cost of a PC, and typical royalty agreements in this area rarely climb above 10 percent, meaning the increase would be between $5 and $10, said Insight 64’s Brookwood.

McCarron shares that view. “The impact at the end-user level to my understanding would be at most a few dollars,” he said.