Rambus Wins a Court Battle but Should Lose the War

An earlier version of this article implied that Rambus would be the plaintiff in this particular lawsuit. That is not the case. The Fool regrets the error.

A federal court just handed computer memory specialist Rambus (Nasdaq: RMBS  ) a big, fat gift. After only a few hours of deep thought, the jury decided that the company's memory patents are legal and enforceable, effectively forcing Hynix to pay $133 million plus interest for breaking said intellectual property protection. All together now:

3 ... 2 ... 1 ... appeal!

Same old song and dance
You've seen the opera play out dozens of times. Whether it's Netflix (Nasdaq: NFLX  ) suing Blockbuster (NYSE: BBI  ) with claims that it ripped off its DVD-by-mail rental model or Verizon (NYSE: VZ  ) going after Vonage (NYSE: VG  ) to enforce its VoIP patents, the story is very predictable. One side wins the first round, and then the appeals start. And keep going. And going.

Rambus is no stranger to legal wrangling. Calling itself "one of the world's premier technology licensing companies," it's practically asking for it. Rambus seems to be mainly involved in developing memory technologies for others to license and base actual hardware designs around.

What are we fighting for?
In the early 1990s, the company held a spot in JEDEC, the international computer-memory standards body, and that's part of the legal complaint from Hynix, Micron (NYSE: MU  ) , and Nanya Technology. This particular conflict started in 2000, and the dust might not settle for another couple of years.

The companies contend that Rambus might have used its influence to make industry standards out of its own ideas and then turned around and sued its rivals for using the standards without paying license fees. The trouble for Rambus is that it's an international fight, albeit by the company's own choosing. Courts in Germany, Italy, and the U.K. have dismissed similar claims against Micron. The European Patent Office has revoked some of the Rambus patents and reduced the scope of others. The international precedent here seems to say that the San Jose jurors got it wrong.

Investor implications
Rambus stock makes steep moves on every serious court decision, jumping as high as $43 a share two years ago and then $10.26 four months later. That stock ain't getting anywhere near my portfolio, even if it drops to penny-stock status. The entire company seems to be highly dependent on the legal system defending patents that possibly should never have been granted in the first place.

I don't like the company's apparent business strategy, or its position in the memory industry. Even its fans would have to admit that the litigation risks are severe. As frustrating as these drawn-out court battles can be, I think that Hynix is absolutely right to exhaust every litigation strategy at its disposal. Rambus doesn't deserve this legal win -- or your investment dollars.

Further skeptical Foolishness:


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