Tech Industry

Micron sues Rambus, says patents invalid

The maker of memory chips files a lawsuit against the chip designer, making Micron one of the first companies to resist Rambus' efforts to collect royalties.

Shares in memory designer Rambus dropped today, after memory-chip maker Micron Technology filed a lawsuit against Rambus, resisting the company's efforts to collect royalties on some of the most popular PC memory technologies.

Micron filed the suit yesterday in U.S. District Court in Delaware, accusing Mountain View, Calif.-based Rambus of enforcing patents that are invalid. Micron further asserts that it has not infringed any Rambus patents, declaring them unenforceable.

"The suit asserts violations of the federal antitrust laws and also asserts invalidity, noninfringement and nonenforceability of Rambus patents pursuant to a number of different bases," Micron said in a statement. Company representatives were not available for additional comment.

Rambus said today it expects to win the suit and "to be fairly compensated for the use of its intellectual property." Rambus said that before Micron filed the suit, Rambus had initiated negotiations with Micron over the intellectual property dispute.

Rambus stock dropped $3.38, or 4 percent, to close at $80.63.

While investors were spooked, some observers believe the company eventually will prevail against Micron.

"Fundamentally, Rambus does have some pretty strong patents," said Microdesign Resources analyst Peter Glaskowsky. "My guess will be that Micron will make a valiant effort and eventually decide that discretion is the better part of valor and license this technology."

Rambus could not immediately be reached for comment. In the past year the company has aggressively pursued litigation to protect patents filed in April 1990 that it believes give it a legitimate claim to royalty payments for some of the most widely used PC memory technologies.

Rambus' primary business has been licensing a technology for its own next-generation PC memory, RDRAM. However, in the past year, the company has sued memory makers such as Hitachi and cut deals with companies such as Toshiba, asserting that Rambus' patents entitle it to royalties on competing memory technologies, including Double Data Rate (DDR) memory and synchronous dynamic random access memory (SDRAM), the standard form of memory used in millions of PCs.

Toshiba and Hitachi agreed to pay royalties for SDRAM and DDR chips as well as for RDRAM. Rambus also has a lawsuit pending against Siemens spinoff Infineon to collect royalty payments.

Hitachi countersued Rambus, including the antitrust accusations, but eventually settled, Glaskowsky said. "If Micron is claiming that Rambus is exercising a monopoly on memory technology, but it's established that the monopoly is based on a patent, there's nothing wrong with that," Glaskowsky said.

Rambus has fundamental patents on technology used in existing SDRAM, such as having a "control register on a memory chip that controls how the memory chip connects to the system," Glaskowsky said. "That's found in every SDRAM that's ever been made for the PC industry."

Rambus also has patents covering aspects of future memory technologies such as DDR, of which Micron is one of the leading proponents, Glaskowsky added.

Glaskowsky predicted Micron's lawsuit likely will be the last of its kind against Rambus. "Micron has always been one of the more litigious memory vendors," he said. "If Micron ends up capitulating eventually, there would be very few companies left that would attempt to fight Rambus on this subject."

But others believe there's plenty more room for legal action. Bert McComas, founder of InQuest Market Research and a critic of the Rambus memory technology, said Micron is essentially filing a pre-emptive suit, bypassing expected lawsuits and settlements by Rambus against other memory makers such as Samsung and NEC.

"Micron filed suit to prevent Rambus from successfully taking down every other DRAM manufacturer," McComas said. "The whole thing needed to be accelerated, so that everyone who is threatened by Rambus is liberated."

The targets of Rambus suits have had to negotiate from a position of weakness in the U.S. courts, because they are based abroad, or, like Hitachi, are negotiating mergers, McComas said. "Rambus has been suing the companies that will settle," he said.

Morgan Stanley Dean Witter analyst Mark Edelstone has estimated that total royalties for Rambus could reach $1 billion if the company ends up receiving a 1 percent to 2 percent commission on all memory produced.

Rambus memory "still has a decent chance" to prevail in the marketplace, starting in two years at the earliest as Intel's Rambus-optimized Pentium 4 chip catches on, Glaskowsky said. But even if Rambus doesn't catch on, Glaskowsky estimated Rambus will collect $100 million to $200 million a year in royalties.