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Analysts like Rambus' lawsuit chances

Several analysts draft enthusiastic reports, confident the controversial memory chip designer will win a string of high-profile lawsuits in Europe.

Several analysts drafted bullish reports Friday on Rambus, confident the controversial memory chip designer will win a string of high-profile lawsuits in Europe.

If Rambus wins the patent infringement cases in Germany and France, it stands to reap as much as $1 billion in royalty payments, retroactive over the past decade. Courtroom victories could also dramatically increase Rambus' market share by shutting out competitors in certain regions and market segments.

Though it was a relatively obscure company two years ago, Mountain View, Calif.-based Rambus has emerged one of the most litigious and controversial semiconductor companies on the market today.

In 1990, the company filed a series of patents for a new type of high-speed computer memory, Rambus dynamic random access memory (RDRAM). A few manufacturers had adopted its technology early in the decade, but the company dramatically increased its scope and client base in 1996, when Intel announced it would pair future microprocessors with RDRAM.

But RDRAM turned out to be expensive and complex to make. Memory manufacturers recoiled at having to pay the company royalties. Even Intel CEO Craig Barrett has complained about the royalty structure, calling at least some of the company's focus on Rambus "a mistake."

Despite the complaints, Rambus has aggressively pursued companies that don't comply with its fee structure.

In September, Rambus filed four lawsuits: two separate suits in Germany against Korean chipmaker Hyundai and U.S. memory maker Micron Technology and two similar suits in France. Before that, Rambus also filed a complaint with the U.S. International Trade Commission to bar the importation of certain Hyundai memory chips into the United States. Both Micron and Hyundai filed lawsuits against Rambus in U.S. courts in August.

The lawsuits have revolved around patents filed by the company starting in April 1990. Those patents eventually formed the basis for RDRAM. Micron, among other memory manufacturers, has taken out a license to manufacture RDRAM.

Rambus says the patents give it a legitimate claim to royalty payments for the production of RDRAM as well as synchronous dynamic random access memory (SD RAM), the standard form of memory found in computers today. Rambus also claims it has control over DDR DRAM, a cheaper form of high-speed memory that is winning favor over RDRAM.

In many instances, memory manufacturers likely were unaware that any royalty claim existed until after the fact, Rambus executives have acknowledged. Nonetheless, analysts say Rambus has a good chance of winning the suits and collecting retroactive royalties for the past decade that could exceed $1 billion.

Rambus executives told analysts recently that the company will go to trial in Germany against Infineon on Dec. 22, and it will face Hyundai and Micron on Feb. 16. Another trial with Micron in Italy will likely take place in April.

Rambus is also pursuing 11 patent infringement cases in the United States, the company's prime market for RDRAM and a jurisdiction where Rambus has more than 100 patents issued. But the slow-moving U.S. legal system makes it unlikely the American cases will be settled soon, analysts said, whereas the European trials are already set and will likely result in swift verdicts.

The prospect of a European courtroom victory makes analysts bullish on Rambus. UBS Warburg and Morgan Stanley Dean Whitter reiterated "strong buy" ratings on Friday, while Chase Hambrecht & Quist initiated coverage with a "buy" rating.

Rambus stock soared 15.47 percent in midday trading Friday, hitting $44.31. Although the stock is down 21.92 percent since Monday, it has shot up 162.84 percent since the beginning of the year.

Meanwhile, UBS Warburg analysts Gregory Mischou and Kelley Yukich called the situation potentially "bleak" for Infineon, Hyundai and Micron.

"Decision's in Rambus' favor in these venues would result in an injunction preventing the opposing party from manufacturing or selling infringing products without a license in the subject country. We believe this result would be serious for Micron in particular, in light of its wafer (fabrication plant) in Avezzano, Italy," the analysts wrote in a research note issued Friday.

"Rambus management pointed out that as these companies pursue their claims and/or defenses without paying royalties to Rambus, they face the risk of being prevented by legal injunctions from participating in important end markets unless they are willing to pay license fees once the court actions are resolved," Mischou and Yukich wrote. "We also believe that by waiting for a legal decision, these players risk being put at a disadvantage in negotiating royalty rates, relative to their competitors who have already signed license agreements."