Things heat up on the Rambus litigation front

INFINEON AG and Rambus' week will kick off with a spark on Monday, as the Supreme Court will issue its official roster of cases the Justices will hear in the new term. A preliminary list from the court, reportedly released on Tuesday, did not include Infineon on it, but official word will come next week. The decision involves a case Infineon has appealed to the high court in an effort to overturn the U.S. Court of Appeals' ruling issued in January.

On Wednesday, October 8th, just around the corner, attorneys from Rambus and the United States Federal Trade Commission's Complaint Counsel will reunite in Washington for the closing arguments in the antitrust case brought against Rambus by the U.S. agency. The Judge's opinion in the case is expected towards the end of this year, after which the FTC Commission will issue a ruling sometime in the following year. The FTC is seeking to prevent Rambus from collecting royalties for patents the company had pending and did not disclose while a member of the JEDEC standards setting body.

In the Infineon Supreme Court appeal, statistically the odds serve Rambus well, as only about 100 cases are heard of approximately 7,000 submitted each term. But, in the off chance the recent reports were rumors, and the Justices do hear the case, onlookers can expect the litigation waiting game to extend into overtime, and likely not be resolved in the Supreme Court until late 2004, or 2005.

If the decision does go Rambus' way, it will be a major step forward for the company, and the caravan of lawyers will either head back to Richmond, Virginia, for an infringement trial, or perhaps to the bargaining table to attempt to strike a deal.

For Rambus, the company is seeking upwards of a 3.5% royalty on what Michael Cohen, Director of Research at Pacific American Securities, estimates to be a $15 billion DDR-SDRAM industry in 2003. Industry estimates point to DDR occupying 80% of the DRAM market by year-end. Rambus is seeking a .75% royalty on SDRAM chips that use their technology. Cohen, who personally owns shares of Rambus, but whose firm is not involved in any investment banking relationships with the company, believes that legally, "Justice is on Rambus' side."

With issues put to rest in the Supreme Court, and infringement analysis pending, the FTC's Administrative Law Judge's opinion of that case will become a focus of interest. Additionally, it may mark the beginning of Rambus' efforts to pursue the DRAM industry for an antitrust case of their own.

Shortly following the Supreme Court's decision, a status conference in the District Court of Richmond, with presumably Judge Payne, who presided over the original case, will likely be held to determine scheduling. If the Supreme Court ruling goes Rambus' way, and Richmond moves as swiftly as they did in the first case, a trial could be heard by mid-2004. That is, unless Infineon can manage to stay the case until the FTC's issues are resolved.

Considering the desire to delay, it's possible that Infineon will attempt to stay the case in Richmond, where it would be up to the Judge there to determine if it's worth it to spend the Court's time on the infringement analysis while the FTC's decision is still outstanding.

Such a decision would be a victory for Infineon, and the DRAM industry, as it would mean more time to prevent a finding of fact of infringement. Whether or not Infineon can pull off such a delay is another question. Rambus, for their own part, could try to move in newer patents aimed at DDR2, developed and issued long after their JEDEC involvement.

Regardless of the legal delays, some believe that Rambus technology will ultimately prevail. According to Steve Allen, an Analyst for Sierra Tech Research, "Rambus' IP is likely to remain ahead of the memory industry for two reasons. First of all, Rambus is not sitting still. They continue to innovate and invent. Secondly, the laws of physics limit the options available to the DRAM manufacturers. As to the legal issues, the newer technology has been developed completely outside any standards committee." Sierra Tech Research and Steve Allen own no shares of Rambus and have no banking relationship with Rambus.

In similar cases to Infineon's, with Micron and Hynix, the decision from the Supreme Court will determine if the two companies will have to confront the Rambus conundrum more seriously sooner rather than later. At present, Micron's case is not currently scheduled, and Hynix is expected to meet Rambus in the District Court of San Jose, California, in November of 2004.

Indeed, next week will mark yet another beginning of the end, or end of the beginning (depending on how you look at it) in the Rambus vs. the world patent and antitrust struggles. µ

Bill Teel is an analyst with Hedge Fund Confidential, and a former Editor of Fredhager.com. He owns shares in Rambus