Rambus Rams Home a Victory

Earlier this month, I attempted to provide a balanced look at the costs to shareholders of the legal battle that chip designer Rambus (Nasdaq: RMBS  ) was waging. Rabid stockholders, however, would brook no challenge to the company catechism that it had designed the industry standard in chip memory and was entitled to royalties from just about everyone. They flooded my mailbox with an assortment of diatribes and invective for the heresy of noting countervailing opinion.

Turns out, maybe they were right all along.

In one of the longer-running lawsuits Rambus filed against German chipmaker InfineonTechnologies (NYSE: IFX  ) , the two sides have announced a settlement to the dispute. Even as the latter recently prevailed in U.S. courts, there were still lawsuits and countersuits filed in Europe that promised to remain a drag on each party's finances. Rambus alone was expected to spend more than $33 million defending its position, and the cost of high-priced lawyers was climbing.

Despite the earlier win, the price tag must have been taking its toll on Infineon, too, as it agreed to pay Rambus $5.8 million each quarter for the next two years. Moreover, depending on the outcome of the lawsuits that Rambus has against HynixSemiconductor and Micron Technology (NYSE: MU  ) , Infineon might shell out an additional $100 million. It's certainly a lot of money to pay for a lawsuit that Infineon said had no merit, but is it nearly enough to compensate shareholders of Rambus for their slash-and-burn lawsuit binge?

Rambus' stockholders, though, were elated, as they have been with each victory the company has scored, and pushed their shares 30% higher. At each setback, they've pummeled the stock. Soon, perhaps, the stock will trade at a more reasonable pace than the manic one it has been subjected to of late.

The bitter lawsuits began in 2000, when Rambus said Infineon had infringed on its patents after the industry standards-setting organization JEDEC made Rambus' dynamic random access memory chips -- or DRAM -- the industry standard. Infineon countered with its own lawsuits that Rambus had hidden from JEDEC the fact that it even had patents before presenting the designs for consideration. DRAM and its various iterations are the most common type of memory used in computers today.

While Rambus has settled one bugaboo and given Infineon "most favored" customer status, it still has multiple coffer-draining lawsuits against Hynix, Micron, NanyaTechnologies, and InoteraMemories to keep its lawyers employed for years. These legal battles will be joined soon, but the settlement with Infineon may now be enough impetus for the others to reach out and settle, too. It will also undoubtedly serve to confirm the beliefs of the more-militant shareholders that their religion has been right all along.

Read more about this drama of seemingly epic proportions in the chip industry:

Fool contributor Rich Duprey enjoys reading the epic classics of history. He does not own any of the stocks mentioned in the article.


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