Rambus: Legal Battles Continue

The never ending Rambus (RMBS) saga might one day be coming to an end. In the past several months, Rambus has won numerous battles, but they have yet to win the war. For example, the FTC has dropped their case against Rambus after Rambus won the appeal at the Court of Appeals of the District of Columbia . The European Union and Rambus have recently come to an agreement on reasonable royalty rates and the 30 day comment period granted by the EU ends on July 12^th.

But the biggest news is that the Rambus case at the ITC (vs. Nvidia, Hewlett Packard and about ten others) is scheduled to start in late August and the antitrust case against Samsung, Hynix and Micron (MU) is scheduled to start in late September.

In recent days, attempts to delay these cases by Rambus opponents have failed and the cases are proceeding, this time with Rambus on the offensive.

Major news went unnoticed by the business press in late June in the ITC case when the ITC Administrative Law Judge Theodore Essex issued his claims construction ruling. The ruling was virtually 100% favorable to Rambus. In patent cases, the claims construction ruling (also sometimes referred to as the “Markman” ruling) interprets how the claims are construed or interpreted. The expert witnesses have to testify under the constraints of how the claim terms have been defined by the court. In patent cases, when you win the claims construction battle, you typically win the infringement portion of the case. The ITC case (with some patents that last past 2020) is progressing much faster than many thought possible.

Judge Essex has avoided several attempts to delay the trial. The trial start date did slip two weeks to August 31, 2009, but the rest of the schedule has remained unchanged. There is a court ordered mandatory settlement conference (their third one) which must be completed by July 13^th. This coincidentally occurs just after the 30 day comment period from the European Union.

The case that really has the DRAM manufacturers worried is the Rambus antitrust case in CA State Court. In this case, Rambus has brought price fixing charges against Samsung, Hynix, and Micron and the damages have been calculated by Rambus’ expert witness at 4.382 billion dollars. This amount is subject to automatic trebling.

That makes this the biggest antitrust case in US history (as far as I am aware of). Hynix signed a plea agreement in April 2005 admitting that they fixed prices and Samsung signed a similar plea agreement in October 2005. Both companies had several executives go to jail. Micron received amnesty from the US Department of Justice because they exposed the price fixing conspiracy, but their own emails show the depth of their involvement. This story has been covered by major news media in the past and just over a year ago, Bloomberg did an expose on the DRAM Price Fixing Cartel which has intimate details of what transpired.

The damages in this antitrust price fixing case are huge. Rambus lost billions of dollars in royalties when the DRAM manufacturer’s actions convinced Intel (INTC) to shy away from RDRAM as the standard memory for future Intel PCs. Recently revealed court documents show that Rambus alleges the damages to be 4.382 billion dollars, which are then subject to automatic trebling because this is a Cartwright Act case.

Therefore, the total damages facing the DRAM manufacturers are over 13 billion dollars. With Rambus having approximately 104 million shares outstanding, that is over $120/share in past damages alone, and it should be noted that the agreement with the EU did not limit the recovery of any past damages.

There was late breaking news out of Judge Kramer’s court yesterday when court observers learned that three writs by Samsung, Hynix, and Micron were denied by the CA appellate court. These three writs were related to the favorable Delaware spoliation ruling Micron won back in January. By denying these writs, the California Appeals Court has refused to move the Septemebr start date in the trial. There are two more writs filed, one regarding "no injury proven" and one regarding "foreign commerce" that have to be ruled on by the Appellate court. I expect favorable rulings in the very near future.

The Delaware ruling by Judge Sue Robinson that Rambus lost is now under appeal and Rambus filed their blue brief in that case on July 2^nd at the Court of Appeals of the Federal Circuit. Rambus attacked several aspects of the Delaware ruling, including that the case should have been transferred back to Northern District of California and never been heard in Delaware to begin with.

This would be a clean path for the Federal Circuit to rule, because if they agree with Rambus, then it would be as if Judge Robinson’s ruling never existed.

Yesterday in Judge Kramer’s court in San Francisco, Judge Kramer once again refused to move the start date of the trial scheduled for September 28^th. He has refused to allow Rambus to pursue damages prior to May of 2000 due to the statute of limitations, but Rambus current damages estimate of 4.382 billion dollars (subject to trebling) didn’t even start until year 2001, so this ruling has no effect on the damages Rambus is pursuing. Evidence before May of 2000 is currently excluded, but Judge Kramer has invited Rambus to submit an estoppel motion on fraudulent concealment that would open the door to evidence from before May 2000.

Rambus has been down over the past two weeks primarily due to delta hedging of their recent convertible bond offering. But the overall market forces and the uncertainty of the September start date in California were also weighing heavily on the stock.

With yesterday’s news, it appears that Judge Kramer will not consider any delays in the September start date and the California Appeals court has denied three writs that could have delayed the case (and they did this in record time).

In summary, the ITC case against Nvidia, Hewlett Packard and others is starting next month at the ITC and the AT case is starting the month after that in California. The EU comment period is over on July 12^th, and Rambus has agreed to standard royalty rates on DRAM and Controllers. Those rates, when combined with past damages, make Rambus an attractive buying opportunity at prices below $20/share. When settlements start, which could be at any time, Rambus has the potential to become a triple digit stock in a matter of weeks.

Disclosure: Long RMBS, Short MU

Comments

[Roger Knights:]

Good article. But "in a matter of months" would be more realistic.

Jul 07 09:32 AM

[JGKopp:]

Well said Nuke John.

You left out details of Hynix to date. They were required to post a bond and give Rambus a lien of said manufacturing plants. I think the deadline for posting these items has already passed. How did that go down?


When does the media get a hold of this story?

John

Jul 07 09:51 AM

[Prufrock:]

Nuke,
One of your best essays to date, succinct and trenchant. The near term focus is squarely on the 13th of July, and the week that follows. I had thought his might be a long, slow, uneventful summer waiting for the September trial; I was wrong. The rulings are coming fast (in RMBS-time) and furiously. The relentless attempts by the cartel to postpone the AT trial bespeak desperation on their part.
Nvidia is being faced down by the Markman at the ITC. The EU window is open for settlements. Elpida has their financing in order. Samsung will soon have a heavy wallet (and they will need it, if they don't settle). Hynix is on the line for infringement, appealing a case they can't possibly win. And Micron, as usual, is doing nothing to help itself, except maybe working behind the scenes from a political perspective.
Thanks for the update and the insight.

Pruf

Jul 07 10:49 AM

[CPST1:]

Way to go. Another movie in the making.

I'd love to be/play the frustrated desktop owner...imho

In the end it all falls to a point of diminishing returns, but the point is Moores Law
en.wikipedia.org/wiki/...
catapulted the defendants to the heights they reached based on a technology they breached and in the process caused undo obstruction. Everyday users of computers and associated peripherals were jeopardized, and to further mention the likes of American ingenuity as the intent of Rambus to aid the advancement of society. The defendants took the technology as their own to control, then manipulate, and at the cost of the people that relied most on the efficiency of their own systems, the consumer.

Jul 07 11:49 AM

[Nuke John:]

Hynix did post the bond. This was on the docket in case # 00-20905 in Northern District of CA a little over a week ago. They were forced to do this if they wanted to pursue the appeal at the CAFC.

IMHO, Hynix, Samsung and Elpida all want revenge on Micron for turning them in to the US DOJ in exchange for amnesty. It is highly possible that Micron will be the last man standing in the AT case.


On Jul 07 09:51 AM JGKopp wrote:

> Well said Nuke John.
>
> You left out details of Hynix to date. They were required to post
> a bond and give Rambus a lien of said manufacturing plants. I think
> the deadline for posting these items has already passed. How did
> that go down?
>
>
> When does the media get a hold of this story?
>
> John

Jul 07 01:10 PM

[FloridaBoy2:]

Thanks for the article. :- )

Jul 07 03:03 PM

[EE.MOSS:]

NUKE JOHN,
ANOTHER GREAT JOB. COULD YOU PLEASE AXPLAIN IN LAYMEN'S TERMS THE FOLLOWING STATEMENT ?
"JUDGE KRAMER HAS INVITED RAMBUS TO SUBMIT AN ESTOPPEL MOTION ON FRAUDULENT CONCEALMENT THAT WOULD OPEN THE DOOR TO EVIDENCE BEFORE MAY 2000."
DOES THIS OPEN A NEW CAN OF WORMS ? DOES THIS PUT RAMBUS ON THE DEFENSIVE ?

Jul 07 06:34 PM

[FloridaBoy2:]

The judge will allow RMBS to submit a motion to allow evidence before 2000. This is advantageous to RMBS.

Elpida is getting a big loan from the Japanese government. I don't think they have a lot of fight left in them.
dealbook.blogs.nytimes.../

Hynix is not doing well financially. Here is a link to a statement by Hynix about the bond.

hsma.hynix.com/hsma/pr...


On Jul 07 06:34 PM EE.MOSS wrote:

> NUKE JOHN,
> ANOTHER GREAT JOB. COULD YOU PLEASE AXPLAIN IN LAYMEN'S TERMS THE
> FOLLOWING STATEMENT ?
> "JUDGE KRAMER HAS INVITED RAMBUS TO SUBMIT AN ESTOPPEL MOTION ON
> FRAUDULENT CONCEALMENT THAT WOULD OPEN THE DOOR TO EVIDENCE BEFORE
> MAY 2000."
> DOES THIS OPEN A NEW CAN OF WORMS ? DOES THIS PUT RAMBUS ON THE DEFENSIVE
> ?

Jul 07 07:17 PM

[Nuke John:]

Rambus attorneys want to introduce all the evidence of the price fixing scheme to kill RDRAM, and a lot of that evidence occurred before May of 2000. There is a 4 year statute of limitations, and Rambus filed this case in May of 2004, so the evidence from before May of 2000 would normally be excluded. However, while this was being argued, Judge Kramer mentioned on several occasions that he could only rule on the matters before him. The Rambus attorney argued that Rambus has a fraudulent concealment claim, and they want an Estoppel as to the Statute of Limitations (ie, the statute of limitations wouldn't apply if the cartel fraudulently concealed their price fixing activities). Judge Kramer issued his order "without prejudice" and recognizes that Rambus can file a motion for estoppel which would allow the evidence from before May of 2000 in the case, since this was part of an ongoing crime. In a previous hearing, Judge Kramer even used an analogy about a train coming down the track when he talked about the evidence, so IMHO, I think the pre 2000 evidence will be allowed in.

But even if the pre May 2000 isn't allowed in, Rambus still has tons of evidence after May of 2000 that will show the jury what the cartel did.

NJ




On Jul 07 07:17 PM FloridaBoy2 wrote:

> The judge will allow RMBS to submit a motion to allow evidence before
> 2000. This is advantageous to RMBS.
>
> Elpida is getting a big loan from the Japanese government. I don't
> think they have a lot of fight left in them.
> dealbook.blogs.nytimes.../
>
>
> Hynix is not doing well financially. Here is a link to a statement
> by Hynix about the bond.
>
> hsma.hynix.com/hsma/pr...
>

Jul 08 09:06 AM

[CPST1:]

I'm sorry to act up here again only somewhere, there is another dimension to price change regardless of implied volatility.

But firstly I suggest that a vital component regarding this lawsuit, is the loss of ability to own the stock as a common holder. Or so it seems from ones own aspect.

That and there's a sort of vacuum cleaners, that are programmed to seek volatile underlying positions and find every piece of action there is to pick up before moving on.

Jul 08 04:38 PM

[JCC:]

Nuke John - Any comments on the patent office rulings today relating to Nvidia?

Jul 14 03:37 PM

[User 428547:]

Hi Huke John,
what is the significance of the Nvidia's court victories?
www.marketwatch.com/st...
Appreciate your analysis. Commments from others also welcome
Frank

Jul 16 03:42 PM

[Nuke John:]

Nvidia doesn't have any court victories over Rambus. These articles about the USPTO rejections border on being irresponsible by the news media. They simply don't understand the process the USPTO goes through on Inter Partes and Ex Parte reexaminations.

The initial officve action by the USPTO is always to initially state that there is a substantial new question of patentability, then they start a 2-5 year process of evaluating the claims at the USPTO. But, their first step is always to reject all the claims. This is very misleading when it is reported in the Press, because the Patent holder is typically able to defend the majority of the claims and ultimately the patent winds up stronger. This has been the case thus far with Rambus patents.

The key thing to note is that the patent is deemed valid throughout the whole reexam process, and the patent can't be invalidated until the entire process is completed and that includes an appeal at the CAFC. The total length of time for this is 5-8 years, and I am not aware of any patent that has ever been rejected after going through this entire process (if the patentee appealed to the CAFC). Most courts are not willing to stay their cases during this process.

271patent.blogspot.com...

The CAFC has the final say in Patent cases....and in the case of Rambus v. Nvidia et. al at the USPTO, the CAFC will eventually get the case (if they don't settle) long before the USPTO's Board of Patent Appeals & Interferences even gets the case.

Just a side not, in recent reexams by the USPTO, Rambus has had over 58% of their claims eventually validated (and they are still challenging the others). All of those claims were initially rejected in the examiner's first office action.

The recent press release by Nvidia was not really news...it is standard procedure at the USPTO.

NJ



On Jul 16 03:42 PM User 428547 wrote:

> Hi Huke John,
> what is the significance of the Nvidia's court victories?
> www.marketwatch.com/st...
>
> Appreciate your analysis. Commments from others also welcome
> Frank

Jul 17 07:06 AM

[JCC:]

Nuke John - I would appreciate it if you would provide us with commentary on the next steps for Rambus.

Are they still on tract to start the case against Nvidia, Hewlett Packard and about ten others still scheduled to start in late August and the antitrust case against Samsung, Hynix and Micron (MU) is scheduled to start in late September.

These court actions can be a treacherous situation, and you knowledge of the subject is helpful.

Jul 17 08:30 AM

[Nuke John:]

As of right now, the ITC trial is scheduled to start on August 31st and the antitrust price fixing case against the cartel is scheduled to start in San Francisco on Sept. 28th. I think the cartel is out of delay tactics once the last two writs are denied by the CA appellate court, which I expect within the next few weeks (could be any day).

NJ


On Jul 17 08:30 AM JCC wrote:

> Nuke John - I would appreciate it if you would provide us with commentary
> on the next steps for Rambus.
>
> Are they still on tract to start the case against Nvidia, Hewlett
> Packard and about ten others still scheduled to start in late August
> and the antitrust case against Samsung, Hynix and Micron (seekingalpha.com/symbo...)
> is scheduled to start in late September.
>
> These court actions can be a treacherous situation, and you knowledge
> of the subject is helpful.

Jul 20 09:46 PM

[FloridaBoy2:]

I would think that as the noose tightens that there may be a settlement
prior to the trial. It does not appear that the memory makers, with the exception of Samsung, have the financial ability to satisfy a judgement.

Jul 21 07:57 AM

[Robert0713:]

>> I think the cartel is out of delay tactics once the last two writs are denied by the CA appellate court

You seem certain. Why?

Jul 21 09:44 AM

[Nuke John:]

I have followed the Rambus saga for 10 years and thus far there is a track record for writs at the CA Appeals Court. They ahve all been denied. These last two are on very weak arguments to begin with. The CA Appeals Court knows this is just a stall tactic. Their logic on writs is almost always to tell the party asking for the writ that the issue can still be appealed after the case is over.

Tom Lavelle, General Counsel for Rambus confirmed today that Judge Kramer was intent on keeping the trial on track. He also confirmed that the damages are 4.3 Billion subject to trebling (which is automatic).

We also learned on the Rambus CC that the ITC trial has been pushed back to October 13th (from August 31st).


On Jul 21 09:44 AM Robert0713 wrote:

> >> I think the cartel is out of delay tactics once the last two writs
> are denied by the CA appellate court
>
> You seem certain. Why?

Jul 23 06:30 PM

[Robert0713:]

Transcript's not up yet. I'll assume that, since you didn't say so, the push back of the ITC trial isn't a delay by the cartel.

thanks.

Jul 23 08:29 PM

[Robert0713:]

Another issue just popped up; or not. Today's news is that Qualcomm has been slapped by Japan's Fair Trade Commission. Is there any change of blowback on Rambus?

Jul 28 03:47 PM

[Robert0713:]

That's chance of blowback , and Korea did the same thing. In sum, is Rambus in danger of winning, then having said governments pull the rug out from under?

Jul 28 04:11 PM

[Nuke John:]

Sorry, just saw your comment. No.....the Korean government will likely be a party to the settlement discussions (in some form or fashion). If there is no settlement, then Rambus will just win in court and if they want to do business in the US....they will have to pay up. What the Koreans want is to drive a few more smallier DRAM companies out of business so they control over 60% of the world DRAM market. Paying Rambus a measley 2% will still allow them to make a fortune...they will just pass the royalty on down the value chain.

On Jul 28 04:11 PM Robert0713 wrote:

> That's chance of blowback , and Korea did the same thing. In sum,
> is Rambus in danger of winning, then having said governments pull
> the rug out from under?

Aug 14 02:43 PM

[FloridaBoy2:]

NJ,

I agree. I think there will be a settlement reached before the trial.

JMHO

Aug 14 04:54 PM

[Wisdom vs. ...:]

forgive me if this is a stupid question: is RMBS going to get royalties on the NEW chips that Samsung and others are introing this year?

Aug 14 06:15 PM

[JCC:]

Nuke John - I purchased Rambus a few months ago based upon your recommendation. Now it looks like it has a good chance of paying off.

I will be fun to watch this stock over the next month and an half.

Thanks for the TIP!!


On Aug 14 02:43 PM Nuke John wrote:

>
> Sorry, just saw your comment. No.....the Korean government will likely
> be a party to the settlement discussions (in some form or fashion).
> If there is no settlement, then Rambus will just win in court and
> if they want to do business in the US....they will have to pay up.
> What the Koreans want is to drive a few more smallier DRAM companies
> out of business so they control over 60% of the world DRAM market.
> Paying Rambus a measley 2% will still allow them to make a fortune...they
> will just pass the royalty on down the value chain.
>
> On Jul 28 04:11 PM Robert0713 wrote:

Aug 15 08:52 PM

[GypsyDRB:]

Nuke John can you comment on the mean length these trails run? I bought 20 contracts in 2 separate Feb2010 calls w/ a break even of approx. $24.

As stated above, the two sides could settle, but before I buy additional calls I was wondering if you might provide any insight into the length of these types of trials.

Thanks in advance.

Gypsy

Aug 24 10:48 AM

[Robert0713:]

So now what??? The RMBS lawyers folded like a deck chair in a tornado. What say NukeJohn?? Settlement already a done deal, so who cares about the trial date??? RMBS lawyers grossly incompetent??? Judge a stooge for the cartel; bought the dog ate my homework excuse??

Aug 31 09:45 PM

[Nuke John:]

Now Rambus will drift with the market, with a slight negative bias for a few weeks as the traders who were expecting a September trial start date get out. I would not expect it to go lower than 13-14 (barring a market crash), but I could see it get down into the 13 range.

In my opinion, it was a travesty to delay a trial that everyone was ready for (except one ill lawyer for Samsung). But, this is the way it seems to go with Rambus. Now, the ITC trial against Nvidia is next up. Unfortunately, the Judge that Rambus has in the ITC Case is a novice patent judge and he has ruled aginst Tessera three time in the past year (two of those times he was overturned by the ITC Commission and I think he will be overturned a third time.

I expect the EU and Rambus to finalize their agreement sometime between Mid Sept. and Mid Oct.

While that will be good for Rambus, it doesn't guarantee that anyone starts paying those rates right away. Why should they (when no one else is paying)? There was an opt out clause after one year, which, in my belief, was something offered by Rambus to assure the parties that they had valid IP that lasted long after the Farmwald /Horowitz patents expire in April 2010. Of course, at the time Rambus agreed to tentative terms with the EU, they were expecting an August ITC Trial (which was moved to October). This tentative agreement was also negotiated before the ITC Staff took the position that the Ware patents are invalid. Things have changed a great deal for Rambus over the past 3 months when the EU tentative agreement was announced. One of the things that just changed two days ago was a 3 month delay in the Price Fixing AT Case in San Francisco.

Unfortunately, I don't believe that any parties will just automatically start paying Rambus when the EU-Rambus agreement is finalized. Why should they? They can just sit back and wait on the ITC and the AT Case and see what happens. In retrospect, it is probably a good thing that Rambus issued a new convertible note offering in June....because before this mess is over they're going to need that money.

Sep 02 11:18 PM

[Nuke John:]

The AT Case is now scheduled to start on Jan 11, 2010 and it is expected to last 7-8 weeks. Of course some people expect settlements before the evidence is allowed to come out in open court. I don't think the Jan trial will be delayed again, and I think the stock price will be above $24 by February, so your Feb Calls should be okay.


On Aug 24 10:48 AM GypsyDRB wrote:

> Nuke John can you comment on the mean length these trails run? I
> bought 20 contracts in 2 separate Feb2010 calls w/ a break even of
> approx. $24.
>
> As stated above, the two sides could settle, but before I buy additional
> calls I was wondering if you might provide any insight into the length
> of these types of trials.
>
> Thanks in advance.
>
> Gypsy

Sep 02 11:26 PM

[FloridaBoy2:]

NJ,

Thanks for the update. I read that Elpida is raising money through an equity offering. It is possible that the 'ill lawyer' is a delay tactic to allow more time for the parties to negotiate a settlement. I not sayin'...I'm just sayin'. :-)

Sep 03 09:03 AM

[GypsyDRB:]

Thanks NukeJohn. You sound a bit weary. Weekend is almost here!

Sep 03 09:54 AM

[GypsyDRB:]

NJ -

What do you think about the idea being bandied about that the trial delay was "orchestrated" to allow the EU to finalize the rates and antitrust settlement with RMBS which would allow the cartel and Nvidia to settle on those terms?

Sep 05 01:51 PM