Future of memory market hangs on Rambus trials

It's the trial of the century, at least as far as the memory industry is concerned.

Rambus, which designs high-speed memory chips, will square off this week against chipmakers Micron Technology and Hyundai in a German court case that will, along with the outcome of other pending cases, send shockwaves through the entire memory market.

In the German case, Mountain View, Calif.-based Rambus claims Micron and Hyundai are infringing on its patents by manufacturing SDRAM, the most common type of memory used in computers today, and DDR DRAM, its successor. Similar claims are pending against German chipmaker Infineon.

If upheld, the patents are worth billions of dollars, some analysts have said, as they would give Rambus the right to collect royalties on the lion's share of the $30 billion worth of memory sold annually.

At least seven other companies, including market leader Samsung, already have settled with Rambus.

"I firmly believe those patents are valid," said Rich Belgard, an independent patent expert. "It is a very clean claim."

If the company loses, the dollars disappear. In a twist from the usual court settlement, the existing royalty agreements are contingent on court victories.

"If the patents are (rejected) here, which I don't think is an option here, clearly no company is obligated to pay any royalty," said Avo Kanadjian, senior vice president at Rambus.

Revenge of the standards body
But even if the company wins on patent infringement, which many expect, Rambus is expected to face other legal hurdles.

Gartner analysts Andrew Norwood and Richard Gordon say that regardless of the outcome of the Rambus patent struggle, the big loser will be the semiconductor industry at large. see commentary

Micron, Hyundai and Infineon all have alleged that Rambus' right to collect royalties should be nullified because of Rambus' conduct as a member of the Joint Electronic Devices Engineering Council (JEDEC), a non-profit organization that seeks to promote technological standards

In the JEDEC, Rambus "engaged in an illegal scheme to secure worldwide domination of the market for semiconductor memory" by not disclosing the existence of its intellectual property at the time the memory standards were being formed, according to court papers filed by Hyundai.

Confidential Rambus documents that Hyundai is counting on to prove its case will be released publicly for the first time in the trial, which starts Feb. 16 in Mannheim, Germany.

These same issues will be aired in the United States for the first time in Virginia next month, when Rambus and Infineon head to court. In May, Micron and Rambus will square off in a Delaware court. No court date has been set for Hyundai's action in California. Rambus and Micron will also face each other in Italy.

Hyundai declined to comment for this article, while Micron and Infineon did not immediately respond to requests for comment.

The Federal Trade Commission also has begun taking depositions from witnesses, said sources, in what could turn into a wider investigation of Rambus.

The charges by Micron, Hyundai and Infineon all revolve around Rambus' former membership in JEDEC, according to various court documents filed by the parties.

Rambus first filed the specifications for its memory patents in April 1990. In February 1992, it joined JEDEC. The group subsequently adopted standards relating to SDRAM. In 1996, Rambus left JEDEC.

What did it do while a member of JEDEC? Nothing. Rambus didn't try to persuade JEDEC memory committees to vote on proposals that would affect its patents and didn't vote on any, Rambus has mantained. Some companies had also already licensed Rambus' technology.

"We attended meetings, but we never proposed a standard," said Kanadjian. "We've been very consistent that lot of inventions we have brought to the market pre-date any issues brought up at JEDEC."

Nothing means something
Doing nothing, however, is a violation of the law, the memory makers claim. Although the original claim was filed in 1990, Rambus didn't receive its patents, and make them fully public, until after it left JEDEC. By then, SDRAM was already established as the next standard for memory.

"If Rambus had disclosed these patents at JEDEC, we contend that these standards would never have been adopted," Patrick Lynch, a lawyer for Hyundai, said in a recent hearing in the U.S. District Court for the Northern District of California. "The intent was to have an open standard."

Other companies, including Wang and Dell, have been found in violation of antitrust law for not disclosing patent applications, according to several sources and Hyundai legal papers. However, in many of these instances, the companies actively promoted their technology to some degree. By contrast, Rambus was relatively passive.

Hyundai lawyers, however, say the confidential documents--which consist of meeting notes and business plans for Rambus dating back to 1989--will show that Rambus engaged in conduct to control the tenor of the standards debate.

In a recent ruling in the Hyundai case, Judge Ronald Whyte said nondisclosure "may constitute a violation."

Woe to standards
To some, Rambus' conduct with JEDEC could be the undoing of standards organizations.

"The JEDEC issue is crucial to the DRAM issue," said Sherry Garber, senior vice president at researcher Semico. "The need (is) for an independent organization like JEDEC where people can go and discuss (issues)...It has always been a very open organization."

The stakes, she added, are high on the financial side as well. In 2000, the global memory market totaled $28.9 billion and will grow to $33 billion this year. In terms of unit volumes, SDRAM occupies about 80 percent of the market, while DDR DRAM and RDRAM (a type of memory based on Rambus designs) combined account for another 3 percent.

JEDEC's rules, unfortunately, are also not clear on what, if any, penalty should be imposed. Under its own guidelines, participating companies are required to disclose any patents which relate to proposed standards. JEDEC rules also specifically state that the organization cannot adopt standards relating to undisclosed patents.

On the face of it, Rambus' conduct appears to violate the group's policy. Still, a violation of the rules may not lead to a nullification of the right to collect royalties.

For one thing, it would have been difficult for the committee to come up with an alternative, making royalties inevitable.

"It would have been difficult not to use" the patents, said Peter Glaskowsky, an analyst at MicroDesign Resources. One of the patents controls how the processor gets a memory address, or the location of the data in memory. Rambus' technique is relatively straightforward and efficient, he said.

Second, JEDEC's rules permit companies to submit patents for adoption by the group and to collect royalties from members. As a result, the courts may rule that preventing the company from collecting royalties is an excessive penalty that even JEDEC wouldn't impose.

Third, Rambus left the organization in 1996 and never participated in the formulation of DDR DRAM standards. Hence, even if the company can't collect royalties on SDRAM because of its failure to disclose, Rambus will likely claim that it has the right to DDR DRAM royalties because JEDEC rules only apply to members.

JEDEC representatives declined to comment on the case.

What next?
So what will happen next? If Rambus wins its patent cases, more claims for royalties will likely follow. Nearly every memory maker will be on the hook for royalties. Next will be companies that make controllers, which shuttle data to and from memory.

This group could well include microprocessor upstart Transmeta, which includes an integrated DDR DRAM controller in its chips.

"We are in discussions with controller manufacturers as well," said Kanadjian.

The antitrust cases, however, could take some time. While the decision in the German suit should be out in a few weeks, Infineon's antitrust case won't begin until March. Hyundai's antitrust case does not yet have a trial date.