Micron, Hyundai Sue Rambus

Memory makers in fight for life

By Steven Fyffe and Paul Kallender -- Electronic News, 9/4/2000

The battle for control of the DRAM market has come down to kill or be killed, as Micron Technology Inc. and Hyundai Electronic Industries Co. Ltd. both launched separate legal attacks against Rambus Inc. last week.

Micron fired first, shooting off an antitrust action against the Mountain View, Calif.-based intellectual property (IP) company in U.S. District Court in Delaware, Md., late on Monday. The action accuses Rambus of charging exorbitant royalties for patents on SDRAM and double data rate (DDR) memory that the suit alleges it cheated to get in the first place.

"There are a lot of benefits of being the first one to sue," said Chaz De La Garza, a partner with the law firm of Fulbright & Jaworski in Austin. "The first and most important (thing) is that you get to pick the forum. Micron has picked a good venue with good judges. They are not scared of patent disputes and they are not afraid of making difficult decisions."

Hyundai went on the warpath next, lodging a lawsuit with a U.S. District Court in San Jose on Tuesday. The South Korean company's complaint is not an antitrust action like Micron's. The lawsuit claims Rambus' patents covering SDRAM and DDR are invalid, unenforceable and not infringed by any Hyundai products. But the status of the suit could change. "We did not file an antitrust action, but we can amend our complaint at any time," said Jerry Olson, director of corporate affairs at Hyundai.

Both Hyundai and Micron blame Rambus for starting the fight. Days after filing a suit against Infineon, Rambus sent an e-mail to Steven Appleton, Micron's chief executive officer, asking to set up a meeting in September to discuss patents.

"They've made public comments . they've threatened suits," said Grant Jones, a spokesman for Boise, Idaho-based Micron. "In the interests of our shareholders, customers and the industry in general, this is the best course of action."

Despite its track record of courtroom confrontation, Rambus maintains that it prefers to negotiate. "In contrast to Rambus' preference to negotiate and settle amicably, Hyundai abruptly cut off further discussion with the commencement of litigation," read a statement from Rambus.

Micron got similar treatment. "Rather than negotiate, Micron chose to litigate. Rambus expects to prevail in this litigation and to be fairly compensated for the use of its IP," Rambus said.

Micron is no stranger to litigation either, said Steve Cullen, principal analyst at Cahners In-Stat Group, Scottsdale, Ariz. The company has a history of taking the fight to others. In the early 1990s, the company rushed in where the U.S. government feared to tread, successfully prosecuting Korean memory makers for dumping DRAM.

"I think part of the corporate culture at Micron is if there's going to be a fight, don't stand around and wait for the other guy to throw the first punch-go get 'em," Cullen said.

Regardless of which company wins, Micron for the moment is hinting that it is determined to go the whole nine yards, making it a very different opponent from Oki Electric Industry Co. Ltd., Toshiba Corp. and Hitachi Ltd., which all apparently threw in the towel rather than get snagged in court battles with Rambus.

Micron has taken the opening swing, now it should ready itself for the counterpunch, said Mark E. Brown, a partner and IP expert at Oppenheimer Wolff & Donnelly LLP's law office in Los Angeles. "Once you file one of these, you are in a fight. You've jumped in and you have got to expect the other guy to hit back. I wouldn't be at all surprised to see Rambus filing a counterclaim."

Micron faces an uphill battle in proving its case, Brown said. "The burden will be on Micron to prove the validity of their claims by clear and convincing arguments."

The bitter core of Micron's 182-point complaint is its aggressive assertion that Rambus has no right to claim patents on what Micron contends were open industry standards hammered out a decade ago by the Joint Electron Device Engineering Council (JEDEC). Micron asserts that JEDEC latecomer Rambus broke the rules when it took the open standards and filed patents on them behind the backs of other members. Hyundai's case will probably repeat the same claims.

Micron's legal action has the same overtones as a 1996 case involving Dell Computer Corp. The PC-maker lost against the Federal Trade Commission, which claimed that Dell had failed to disclose patents to an organization similar to JEDEC.

But the antitrust argument is weak, according to Brown. "The antitrust claim may be farfetched. They have a relatively weak set of facts. That Rambus managed to deceive the whole industry? It's a lot to believe."

What Micron and Hyundai really need is evidence. If they can produce prior art and prove that Rambus' patents are based on someone else's work, they stand a good chance of winning.

"We've always believed there were some design notebooks out there that would prove the designs were done by the DRAM industry," said Sherry Garber, senior vice president at Semico Research Corp., Phoenix.

In the meantime, Rambus will have its hands full, fighting legal fires on three fronts, with its patent infringement suit pending against German company Infineon. "Their lawyers are going to rack up a lot of frequent-flyer miles," Cullen said.

Rambus is ready for battle, said Mark Edelstone, semiconductor analyst with Morgan Stanley Dean Witter. "I know for a fact that Rambus has been preparing themselves and getting the resources in place to have three litigations going simultaneously," Edelstone said. "They certainly have the financial wherewithal to wage a long battle."

And it's a battle with much at stake. If Micron or Hyundai wins, no one will have to pay Rambus royalties on SDRAM or DDR. If they lose, the added cost of royalties could decimate their revenues. In a business where margins are already tight, the extra burden of 1 or 2 percent in royalties could cause real damage, said Jim Cantore, program manager of semiconductors at International Data Corp., Framingham, Mass. "In the memory market you live and die on your cost per megabit," he said.

If Micron loses against Rambus, it will have to decide whether it wants to lose customers or profit, said Cantore. Computer prices might also go up as a result of the added memory cost, he said.

Hyundai also feels it would be put in a critical position if it had to pay SDRAM royalties. Still feeling the pinch from the Asian economic crisis, Hyundai management has issued a decree that its memory division must make money, Cantore said. "There is an enormous amount of pressure to make money. They are not in a position to increase costs."