Tide turns for Rambus

Legal victory against Hynix could affect entire DRAM market

By Tam Harbert, Contributing Writer -- Electronic Business, 7/1/2006

A legal victory by Rambus in spring 2006 may be a turning point in the company's six-year battle to force DRAM makers to license its patents. If so, the decision would greatly affect Rambus' bottom line but would not have much impact on the $25 billion DRAM market as a whole.

In April a U.S. District Court jury in San Jose, Calif., awarded Rambus $306.5 million in its patent infringement case against Hynix Semiconductor. The win is significant because it was the first time Rambus was able to present to a court its patent case on its merits, according to Michael D. Cohen, director of research at Pacific American Securities. (Pacific American owns no Rambus stock and has no investment banking business with the company, although Cohen personally owns 500 Rambus shares.) Although Rambus had lost a lawsuit against Infineon Technologies in the Eastern District of Virginia in 2001, an appeals court later revised the claims construction language the judge had used in the case and overturned the decision. Before the case went to another trial, however, the parties reached a settlement in which Infineon agreed to pay $150 million in license fees.

The San Jose court found that Rambus' patents were valid and that Hynix had infringed all of the patents that Rambus had brought to trial. This finding does not bode well for the other companies Rambus is suing, including Micron Technology and Samsung, says Cohen. Because DRAM parts are commodities—a chip from one company is exactly like a chip from another—if a court found that the Hynix parts infringe, then it's likely that a court would find that the exact same parts from other companies infringe, he contends. "This court ruling has great precedence value," says Cohen.

If Rambus achieves its goal of collecting license fees from all the DRAM makers, the royalties could amount to roughly $797 million per year and most of that amount would fall to the company's bottom line, says Cohen. That would make a big difference for a company that had net income of $34 million in FY 2005.

And yet, even a big win for Rambus will have little effect on DRAM pricing, says Nam Hyung Kim, director and principal analyst for memory ICs and storage systems at research firm iSuppli. DRAM vendors are accustomed to swings in fees and penalties related to trade and legal issues, he says. Even the record fine of $300 million that Samsung received from the U.S. Department of Justice in its DRAM price-fixing probe has had little effect on the company, which has $7 billion of DRAM revenue, he notes.