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Rambus Inc. (NASDAQ:RMBS)

Legal Update Conference

September 24, 2012 09:00 am ET

Executives

Satish Rishi - Senior Vice President and Chief Financial Officer

Tom Lavelle - Senior Vice President and General Counsel

Analysts

Paul Coster - JPMorgan

Mike Crawford - B. Riley & Company

Hamed Khorsand - BWS Financial

Operator

Good day, ladies and gentlemen, and welcome to the Rambus Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Satish Rishi. Please go ahead.

Satish Rishi

Thank you, operator, and thank you for joining us for the special conference call regarding the ruling from Judge White in the Hynix case. I am Satish Rishi, CFO, and with me on the call today is, Tom Lavelle, our General Counsel. Ron Black, our CEO, is on a plane and couldn't participate in this call.

A replay of this conference call will be available for the next two-week at 855-859-2056. You can hear the replay by dialing the toll-free number and then entering ID number 34575979 when you hear the prompt. In addition, we are simultaneously webcasting this call and replay can be accessed on our website beginning today at 5.00 pm Pacific Time.

I need to advise you that the discussion today will contain forward-looking statements regarding our financial prospects, pending and current litigation, and demand for our technologies among other things. These statements are subject to risks and uncertainties which are more fully described in the documents we file with the SEC including our 8-Ks, 10-Qs, and 10-Ks. These forward-looking statements may differ materially from our actual results and we are under no obligation to update these statements. We can find more information on our website at www.rambus.com on the Investor Relations' page.

Now, I'll turn the call over to Tom.

Tom Lavelle

Thanks, Satish, and good morning everyone. Late Friday, we received the decision from Judge Whyte. In the Northern district of California Court in the Hynix matter.

In the decision, Judge Whyte has reaffirmed the validity of our patents in this case, and reaffirmed jury's findings that Hynix infringed our patents. Judge Whyte further ruled that we are entitled to receive royalty payments based on that infringement, and that those payments will be limited to rates that are reasonable and non-discriminatory. The amount in royalty payments we are entitled to receive from Hynix under this decision will be determined through briefings that both sides will be submitting to the court in October.

The good news is that Judge Whyte, has determined we are definitely entitled to payment from Hynix. On the topic of documents spoliation and our document retention practices, Judge Whyte found that Rambus should have preserved documents at the time we reasonably anticipated litigation. He found out while the evidence does not show Rambus deliberately shredded documents it knew to be damaging, he did find that "Rambus quoting out from the ruling spoliated evidence in bad fate or at least willfully."

Importantly Judge Whyte found that our document retention program "did not render unavailable to Hynix any material documents from the files on the patents in the suite." Thus he found no prejudice to Hynix with respect to the patents or prior art that may have affected the patents, but based on his finding that Rambus may have destroyed some documents that could have SK Hynix in one of its defenses not related to the validity of the patents, he has imposed to section that damages will be recalculated, possibly different from those awarded by the jury. The recalculation will be based on reasonable and non-discriminatory or RAND rates. There is no set formula or calculation of what constitutes RAND, and it is precisely this question that will be briefed for Judge Whyte in October.

In summary, while we are disappointed with the fining of spoliation, we feel that this is a positive result as it clearly states there is value in our technology and we have a right to collect royalties for the use of our patented inventions. There is now no question whether Hynix owes us money for the wrong standing infringements of our patents. The only remaining question is how much. Again, we will be addressing the RAND rates in our briefing that is due to the court in October, but for now, we will open the line for questions.

Operator, could you please open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Paul Coster from JPMorgan. Your line is open.

Paul Coster - JPMorgan

Yes. Thank you. Can you remind us, please, what the royalty is attached to in terms of unit ships product categories.

Satish Rishi

I am sorry. You are asking the rates, or the damages that were awarded?

Paul Coster - JPMorgan

No. I want to just first of all establish what the royalties will relate to in terms of units shipments, what product categories?

Satish Rishi

Yes. They relate the SDR, DRAM products and the DDR DRAM products of Hynix and that would have been those products from the year 2000 through 2010.

Paul Coster - JPMorgan

Do you have any proxies for what the royalty rate might be in a reasonable in non-discriminatory come fixed for these products?

Satish Rishi

No. As I said, there is no formula or calculation that's standard available for what is referred to as RAND or reasonable or non-discriminatory. It's a factual question that will be determined by the briefings and probably or arguments that will be made in front of Judge Whyte.

Paul Coster - JPMorgan

When the jury originally awarded the some issues, what royalty rate did they use?

Satish Rishi

Well, they used a higher royalty rate. Judge Whyte actually took the case back under advisement and lowered the rate to 4.25% for DDR, and 1.0% for SDR products.

Paul Coster - JPMorgan

Finally, when you reconvene, how long will the process take do you think?

Satish Rishi

That's a great question. I am hoping that will be relatively quick. We expect to have briefings filed in October. No date has been set for oral argument at this point, but the issue is reduced to the one question of how much the royalty should be under the RAND calculation or RAND analysis, so I am not good at predicting how long courts take to reach their conclusions.

Paul Coster - JPMorgan

Okay. Thank you very much.

Operator

(Operator Instructions) Our next question comes from Mike Crawford from B. Riley & Company. Your line is open.

Mike Crawford - B. Riley & Company

Thank you. Can you remind us the status of your other litigations with Hynix, including DDR2 and if you have DDR3?

Satish Rishi

If you talk about the patent infringement case, Mike, they are on hold at present time. You may also recall that we have the San Francisco price fixing trial that went to jury almost exactly a year ago, and the jury rendered his verdict in November from which we have filed our briefings on appeal last week, I don't know if that's answering your question, Mike.

Mike Crawford - B. Riley & Company

Okay, so the patent infringement case is on hold, and Northern District, San Jose in Judge Whyte's court, correct?

Satish Rishi

Correct.

Mike Crawford - B. Riley & Company

Right, so it's been thought that that's been on hold pending the outcome of, I think, this ruling more than anything, or do you think he is going to wait all the way until this goes back up potentially to the CAFC, before he would resume?

Satish Rishi

Yes. I don't think I want to speculate on what he is going to do on that, Mike. What we are looking for is to get an answer on this question, namely, how much are we owed. And, then determining what happens from there, because this is a very helpful ruling to us in a sense that we know are only discussing how much not whether. That had been the question going forward up until Friday afternoon, late Friday.

Mike Crawford - B. Riley & Company

Okay. To the extent that Rambus and Hynix were able to reach some agreement and settle, is that something that Rambus would be willing to do just to settle part of these issues such as all DDR infringement or would you still be seeking a comprehensive worldwide go-forward license as well?

Satish Rishi

Typically, we look for comprehensive worldwide including a license going forward, which even with this ruling and when this gets implemented, they still don't have a forward license, so the best solution would be to have a comprehensive settlement involving all the back damages and the forward license under normal circumstances, which is traditionally what we have always done.

Mike Crawford - B. Riley & Company

Great. Thank you very much.

Satish Rishi

Thanks, Mike.

Operator

(Operator Instructions). We have a follow-up question from Paul Coster from JPMorgan. Your line is open.

Paul Coster - JPMorgan

Yes. Thanks again. Does this have any bearing on the Micron patent infringement case was also being reviewed.

Satish Rishi

Thanks, Paul. Not directly in the sense that Judge Whyte and Judge Robinson as you may recall reached very different conclusions on essentially the same setbacks. Judge Robinson has not ruled on the remand that went back to her courtroom. We don't know whether Judge Robinson will read this. I assume she will, and what effect if any this would have on Judge Robinson, would really be speculating, so I'd rather not answer.

Paul Coster - JPMorgan

Okay. Thank you.

Operator

Our next question comes from Hamed Khorsand from BWS Financial. Your line is open.

Hamed Khorsand - BWS Financial

Great. Good morning, guys. My question is, now that we have this ruling from Judge Whyte, what are the chances the Hynix drag this out, so we have ruling from Delaware and we are back for…

Satish Rishi

Hi, Hamed. I think that that's going into speculation what are the chances of something that was going to happen. There are lots of things that need to happen between now and any final resolution as everybody should know Rambus has from the beginning been looking for fair compensation for our patents. That's what we continue to look for. We believe this will help move us in the direction of getting fair compensation and this conversation is not about Micron at this point. We don't have any comment on Micron or Judge Robinson at this point, because we don't have any ruling from here. How? As I just said in the prior question, how this influences Judge Robinson, would be pure speculation.

Hamed Khorsand - BWS Financial

Okay. Are we now talking about you are going to get somewhere between $400 million now? Is that what's going to be? Is that going to be $400 million?

Satish Rishi

I frankly wouldn't speculate, but I wouldn't necessarily agree with the high end number. It's reasonable in non-discriminatory, and that's what needs to be discussed and who knows what that number is. We will be briefing that during the month of October and we'll see where we get with it.

Hamed Khorsand - BWS Financial

Okay. I guess then my question is just a follow-up on that. When Judge Whyte took those rates from the jury, what was the basis of him lowering them? I mean, was it on a reasonable basis?

Satish Rishi

Well, as a matter of fact, the standard and legal proceedings for patent damages, one of the standards is reasonable royalty rates, which is what we believe Judge Whyte ordered in March 2009 in his final judgment, and that was based on royalty rates that the company had been offering and receiving from other licensees during the period of time, so there one could speculate, but that's the reasonable royalty rate. Again, I don't want to be arguing that briefing is issue in this phone call.

Hamed Khorsand - BWS Financial

Okay. Thank you.

Operator

I am showing no further questions. I will now turn the call back over to Satish Rishi for closing remarks.

Satish Rishi

Thank you, Stephanie. Thank you, everyone for your interest in Rambus. We look forward to speaking you soon. Have a good day.

Operator

Ladies and gentlemen, that does conclude today's conference. You may all disconnect and have a wonderful day.

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