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Many of you are familiar with the DRAM chips that are used in computers. The size of the chips basically determine how many programs your computer can have running.

DRAM is used in every single computer and one company started it all. Rambus (RMBS) was credited behind the famous RDRAM that became a mainstream in the industry.

However, as time went on the RDRAM chips became less prominent. This was largely due to companies like Intel (INTC) going with DRAM as opposed to that of Rambus.

Last year was a major blow to Rambus. Rambus was in a lawsuit with Micron Technology (MU) and Hynix. Rambus claimed that Micron and Hynix colluded by lowering prices so much that it would push RDRAM out of the market. This would cause companies like Intel to only use DRAM. The lawsuit called Micron and Hynix to pay nearly $4 billion, which would have been tripled under California law. However, the court ruled in favor of Micron saying that Rambus chips were inferior to the current chips.

When the news was announced the stock fell 72%. This was dissapointing to Rambus shareholders as now it seemed that Rambus technology had little value. The company has very little market share and will probably continue to decrease. Rambus management believed that a win for them would cause the company finally to collect royalties from anyone who uses DRAM. Unfortunately, it didn't turn out that way.

Then Rambus was hit with another problem. The United States Patent Office has overturned Rambus' Barth patents. These three patents are essential to Rambus and are related to the way memory chips are designed. Rambus has made millions off this patent by being able to sue many companies that have infringed on it.

Currently, Nvidia (NVDA) and Hewlett-Packard (HPQ) are being sued by Rambus for infringing on these patents. However, with the recent ruling by the patent office, these lawsuits could just close with out either company paying anything to Rambus. While Nvidia has signed a patent agreement with Rambus, that could fall apart now.

Under the agreement, Rambus had granted NVIDIA a patent license for certain memory controllers at a 1 percent royalty rate for SDR memory controllers and a 2 percent royalty rate for other memory controllers, including DDR, DDR2, DDR3, LPDDR, LPDDR2, GDDR2, GDDR3, GDDR4, and portions of GDDR5 memory controllers. Now this agreement could close as there is no patent to hold it together. This is good for Nvidia and horrible for Rambus.

HP has not paid any money to Rambus and with the current ruling, it will probably get out of paying anything.

Rambus has had a tough time and will continue to have a tough time because it is losing its patents that provide significant cash flow. That's why shareholders of Rambus should sell and get out before any more damage is done. As time goes on, the value of Rambus patents will fall. Many longs have stated that the company has a potential to be bought out, but with the current uncertainty, I do not see any suitors that would be willing to buy the company, especially at this price.

Source: Rambus: A Dying Company With Dying Patents