A federal appeals court dismissed a fraud claim against memory-chip designer Rambus on Wednesday and resurrected charges that a competitor may have infringed on Rambus? patents.
The United States Court of Appeals for the Federal District essentially tossed out trial-court verdicts in the hotly contested legal battle between Rambus and German memory manufacturer Infineon. The appeals court found that the court erred in ruling that Rambus did not have valid patent infringement claims against Infineon.
The appeals court also set aside a jury verdict that Rambus committed fraud, an injunction against Rambus, and an order that Rambus pay Infineon millions in attorney's fees.
The court's decision could have serious ramifications in the semiconductor industry. Not only are millions of dollars at stake for Infineon and Rambus, but the final outcome is considered a litmus test on the validity of Rambus' patents. Lawsuits are pending between Rambus and Micron, for example, as well as other memory manufacturers.
Rambus also is seeking royalty payments from many companies for its high-speed computer memory that could reach more than $1 billion, according to some estimates. Emerging victorious against Infineon could aid its efforts to collect from other companies.
News of the verdict sent Rambus' shares soaring. The stock gained $4.25, or 57 percent, to close at $11.69.
Rambus began to file patent claims for a new type of computer memory in the early 1990s. At the same time, it joined a standards body called JEDEC
--formerly known as the Joint Electron Device Engineering Council--that was attempting to define technical specifications for the next generation of computer memory.
Rambus did not disclose its patent activities to JEDEC. Later, JEDEC announced memory standards that, according to Rambus, infringed on its patents. Infineon, among others, argued that the patent claims were invalid because Rambus did not disclose its activities, which is required under JEDEC's bylaws. Nondisclosure also constituted fraud, Infineon claimed.
Although a district court agreed with Infineon, the appeals court noted that JEDEC's bylaws were far from clear. It also said the group did not uniformly enforce its own rules.
"The record contains a tracking list showing only five disclosed applications and 60 disclosed patents from a committee membership of over 50 companies," the court wrote in its opinion. "If these members perceived the duty to encompass any patent or application with a vague relationship to the JEDEC standard, the record would likely contain a substantially greater number of disclosed patents and applications.
"Even Infineon?s own actions demonstrate that the disclosure duty was not so broad because Infineon itself did not disclose to JEDEC an application on testing SDRAM. When direct competitors participate in an open standards committee, their work necessitates a written patent policy with clear guidance on the committee?s intellectual property position."
The appeals court also ruled that the district court did not use the proper legal standards when evaluating the validity of Rambus' patent claims. The case now returns to the trial court.
"We are pleased by today's rulings," Rambus CEO Geoff Tate said in a statement. "We are a company focused on innovation and on solving our customers challenging chip-to-chip interface problems. Today's rulings help substantiate the importance of our past inventions and allow us to continue our focus on technology leadership."
The reversal also mirrors what patent experts and chip analysts said before the trial began in 2001.
Meanwhile, the Federal Trade Commission is looking into Rambus? activities at JEDEC.
On the front line
The case, and subsequent favorable verdicts, could greatly improve Rambus' prospects. Legal fees have been a drag on the company. Last quarter, court-related fees came to around $5 million, almost equal to the company's $5.5 million in net earnings. Overall revenue was $25.7 million.
"It went our way in every substantive way," Steve Tobak, senior vice president of marketing at Rambus, said of Wednesday's court decision.
Although many chipmakers won't be happy with the ruling, some smaller companies that license their technology applauded the results. Often, these companies find themselves under attack by the large legal teams at big companies.
"I'm delighted. (Rambus is) on the front lines of the intellectual property specialty," said Mark Wolf, CEO of Amberwave, which licenses strained silicon technology.