Micron and Intel Put Rambus in a Full Nelson

Grab a bag of potato chips and pull up a chair -- court battles are always great fun!

Today, the main event is Rambus (Nasdaq: RMBS  ) versus Micron Technology (Nasdaq: MU  ) and Hynix -- a steel-cage match that will leave at least one combatant bloodied and bruised. If Rambus wins, the memory-chip makers in the other corner stand to lose up to $12 billion in damages and court fees. Flip the outcome and Rambus might as well pack its bags and go home. A victory here is essential to the tech licensing outfit's business model.

This week's round brought executives from chip giant Intel (Nasdaq: INTC  ) to the witness stand. Brought in by Micron and friends, these witnesses painted Rambus in a terrible light. The company's engineers around the turn of the millennium "were not as competent and they didn't work as hard" as their Intel counterparts, said Intel engineer Paul Fahey. Strategic planning manager William Swope added that the "guillotine" contract structure that Rambus insisted on was suicidal to his company: "My recommendation to Mr. Otellini was that we could not do business with a company that could put us out of business."

If that sounds melodramatic coming from the largest chip business on the planet, consider what the accursed contract demanded. If Intel designed chips not using Rambus technology, the smaller company might have the power to shut that design down. In other words, Rambus wanted to force Intel's hand and shut out competing memory technologies like the DDR SDRAM solution that prevailed in the marketplace. I'm no lawyer, but that sounds like unfair competition to me.

Who's who?
It almost sounds like Rambus would play the defendant here, but the company is supposed to be the aggressor against anticompetitive cartel-building by Micron and others. The company will surely put a different spin on Intel's complaints before the last gavel is banged.

For now, the company's strongest weapon could be an old email from Micron's former VP of sales, Linda Turner, which seems to say that the company was actively calling on price-fixing action from the competition. It's evidence of conspiracy, according to Rambus. It was sarcasm, says Turner, based on the cutthroat nature of the memory business at the time; artificially lowering prices would have been suicidal.

Looking back at the wreckage
Rambus would argue that its technology was superior to the DDR competition, and that only unfair business practices kept the company from dominating the market. I'm not so sure, and neither is Micron -- or, for that matter, Intel.

I mean, look at a snapshot of circa-2000 technology in the form of the latest gaming consoles. The Sony (NYSE: SNE  ) PlayStation 2 sported Rambus memory and paid a premium for the privilege. Microsoft (Nasdaq: MSFT  ) went with DDR chips for the original Xbox instead. The Xbox memory system is about twice as fast as the PS2's Rambus equivalent.

In my eyes, Rambus owned some interesting technologies back in 1998 and could have made something of it. But overly aggressive contract dealings (possibly stemming from a sense of entitlement) killed RDRAM, and now the company's last "Hail Mary" option is to extract some cash through the legal system.

So what?
On its own, this is merely annoying and perhaps dangerous to companies like Micron and Samsung that make a living from actually building, promoting, and selling the right memory chips. In a larger sense, Rambus has been blazing the trail for similar tactics either in use or being threatened by modern-era heirs VirnetX (AMEX: VHC  ) and InterDigital (Nasdaq: IDCC  ) .

Some patent aggregators have an inflated sense of their place in the technology puzzle, and their most ardent supporters in the investment community base investment decisions on the same views. As long as the courts oblige, it works.

When they don't, disaster strikes. Does anyone remember Transmeta? The low-power processor techie quit making processors to become a patent troll, then sued Intel for patent infringement but it didn't work out, and the company went out of business in 2009. A couple of unfortunate court decisions are all that separate VirnetX and Rambus from that grim fate.

To see a company that does IP licensing the right way, have a look at this free video report. Proof positive that you don't have to twist your customers' arms to the breaking point, this time-honored household name has carved a very comfortable and still-growing niche for itself, come technology revolutions or new competition. The video is totally free -- just click here to get started.

Fool contributor Anders Bylund owns shares of Micron and has written puts on Intel, but holds no other position in any of the companies discussed here. The Motley Fool owns shares of Microsoft. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Intel, Microsoft, and InterDigital. They have also recommended creating a diagonal call position in Intel and a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio, follow him on Twitter or Google+, or peruse our Foolish disclosure policy.


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