Rambus Loves Legal Wrangling

Editor's Note: This article has been modified to show that the Samsung countersuit could potentially affect four, and not all, of Rambus' patents, as well as to provide additional clarification on Rambus' dealings with the JEDEC.

Things had been looking up for chip designer Rambus (Nasdaq: RMBS  ) after it settled a particularly nasty lawsuit with chip manufacturer Infineon Technologies (NYSE: IFX  ) back in March. With legal costs spiraling out of control and a depressed stock, it seemingly began designing superior chips and putting its prodigious legal spree behind it -- at least partially. The sue-happy company still has complaints pending against Hynix Semiconductor, Nanya Technology, and Micron Technology (NYSE: MU  ) .

The lawyers must have gotten bored. Rambus unexpectedly announced it was revoking the licensing agreement with one of its best customers, Samsung, and added it to the list of companies in its legal bull's-eye, saying it was infringing on 25 patents. Samsung, smarting like a jilted paramour, returned the favor and slapped Rambus with a countersuit, asking the court to invalidate four of the chip designer's patents.

While it might seem like a case of tit for tat, Samsung filed its complaint in the same court that had handed Infineon a big victory before it settled its differences with Rambus.

Samsung had been a good player in the Rambus drama. According to Rambus, it invented the Internet -- oh wait, wrong invention -- it invented the popular DDR (double data rate) memory chip, which is just about standard in every computer, and demanded that customers like Samsung, Infineon, and Micron pay it royalties. Samsung actually did do that -- it accounted for around 10% of Rambus' revenues -- but with the development of the next-generation memory chips, Samsung refused to pay. With the license agreement between the two companies set to expire in a few weeks, it could be that Rambus was looking to negotiate a better agreement. If so, it may have backfired.

Rambus' dealings with JEDEC, which develops standards for the semiconductor industry, have been the subject of much legal debate. Rambus opponents suggest that it hid the fact that it had filed patents for the chip's design when it was a member of the JEDEC. While Rambus wasn't explicitly prohibited from doing so, members might have thought differently about granting its designs industry-standard status. Samsung charges just this sort of thing in its lawsuit, and dredges up the allegation that Rambus shredded key documents that would prove it. The Federal Trade Commission is using the shredding allegation in its appeal of its case that an administrative judge threw out last year.

For Rambus stockholders, the continuing legal assault on memory-chip makers only serves to drain the company's coffers while the stock continues to underperform, sitting about 50% lower than where it was just six months ago. As a negotiating tactic, filing a lawsuit against your customers leaves something to be desired. It should make shareholders begin to wonder whether management has their best interests in mind.

Yes, Rambus has shown it has incredible proficiency and muscle in the legal arena, but perhaps it's time to begin playing to its second-best strength: designing innovative chips.

Wade through the legalese with these related bits of Foolishness:

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. The Fool has a disclosure policy.


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12/31/1969 7:00 PM
IFX $0.00 Down +0.00 +0.00%
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RMBS $12.31 Up +0.52 +4.41%
Rambus, Inc. CAPS Rating: *

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