Court rules against Rambus

A jury in the U.S. District Court for the Eastern District of Virginia ruled Wednesday that Rambus committed fraud against Infineon by failing to properly disclose patent information when required by an industry standards body. The jury awarded Infineon $3.5 million. But Judge Robert Payne is likely to reduce the award to $350,000 to conform with state law, according to reports from the trial. Infineon had sought $105 million.

Rambus immediately said it will file an appeal. The company's stock, which has whipsawed for the past month because of the trial, dropped 90 cents, or 6.5 percent, to $12.80 in regular trading Wednesday.

The verdict will likely reverberate through the PC industry. Rambus sued Infineon, alleging that the German memory manufacturer owed it royalties on its output of SDRAM, the most common form of memory used in PCs, and DDR DRAM, a high-speed memory design gaining popularity.

Infineon filed a counterclaim alleging Rambus did not properly disclose its patents to the Joint Electronic Devices Engineering Council (JEDEC), a trade group formed to set standards for computer memory chips. The failure to disclose amounted to fraud, Infineon claimed, because Rambus' technology was integrated into what was supposed to be an open, royalty-free standard.

Earlier in the week, the court dismissed Rambus' suit. On Wednesday, the jury affirmed Infineon's counterclaim for fraud.

If Rambus' claims were upheld, the decision would have paved the way for Rambus to win suits against other companies as well as cement its royalty agreements with companies that have already settled. If upheld, the royalty agreements would have been worth billions, according to analysts. Under current memory prices, Rambus would have been in a position to gain $2 on every PC with DDR DRAM sold and 17 cents to 20 cents on every PC with SDRAM memory.

Rambus' defeat, however, will likely prompt many of the companies that have signed agreements with Rambus to return to the bargaining table. Rambus executives, among others, have said the survival of the settlement agreements is contingent upon the patents being upheld by the court system.

Other companies that were potentially facing lawsuits, such as Transmeta, will also breathe a sigh of relief.

"Had it gone the other way, it would have artificially increased the base cost" of memory and chipsets, said Dean McCarron, principal analyst at Mercury Research. "What this really casts a pall over is Rambus further negotiating licenses that are favorable to it."

Rambus has similar suits pending against Micron Technology and Hynix Semiconductor (formerly Hyundai Electronics Industries). Although Wednesday's verdict isn't legally binding over those cases, it will likely weigh heavily in the background.

Rambus promised to continue to litigate its other cases and file an appeal of the Infineon decision.

"We are obviously disappointed in today's verdict and will immediately appeal," Rambus CEO Geoff Tate said in a statement. "The innovations at issue are Rambus inventions, and the evidence presented at trial made it clear that Infineon knew all along that they were Rambus inventions."

The trial has moved fairly fast. Patent attorneys refer to the Eastern District Court as the "rocket docket" because of the court's policy of handling cases rapidly.

Investors and many in the tech industry hold deeply divided opinions about Rambus. Some have claimed the company is being robbed of its intellectual property, while others have characterized Rambus as an opportunist. Intellectual property lawyers and patent experts also have divergent opinions on the merits of the company's claims.

While the court reduced the verdict, litigation costs have been taking their toll on Rambus. The company spent more than $7 million on legal fees in the most recent quarter and $4.3 million in the quarter before that. Litigation costs were one of the principal reasons profits were dented, the company said.

The facts of case date back more than a decade. In April 1990, Rambus, then a start-up, filed U.S. patent applications for high-speed memory interfaces. Approximately two years later, it joined the memory committee on JEDEC. JEDEC eventually approved architectural standards for DRAM and DDR DRAM.

Under the organization's rules, Rambus was required to disclose that it had patents that potentially entitled it to royalties for DRAM and DDR DRAM. It didn't. Rambus, however, defended itself by stating that the rules were unclear and not enforced by JEDEC. Evidence uncovered during the case showed that JEDEC's enforcement procedures were less than perfect.

Rambus, however, was hurt by evidence that indicated it tried to steer the memory committee toward technology standards that secretly favored it, McCarron said. "It certainly didn't look good," he said.

Although the eventual outcome of the case is far from certain, it has already had an impact on standards bodies. One source at JEDEC said that companies have become more forthright about revealing any potential intellectual property interests.