Therese Poletti's Tech Tales
Jan. 19, 2010, 3:23 a.m. EST
Rambus investors in limbo as trial delayed again
Commentary: Is defense stalling by calling in sick?
SAN FRANCISCO (MarketWatch) -- It's a little worrisome when your whole case is put in disarray when one of your top lawyers gets sick.
The largest memory chip makers in the world apparently don't have a very deep bench of legal brains to help try one of the most highly anticipated antitrust cases in the computer industry, where billions are being sought in damages.
That would be the 2004 lawsuit filed by the litigious memory chip designer Rambus, which alleges that three of the world's biggest memory firms -- Hynix Semiconductor Inc., Micron Technology Inc., and Samsung Electronics Ltd. conspired and formed a cartel that fixed memory chip prices, making Rambus' alternative memory chip technology unattractive and too expensive.
The big trial, referred to by many investors as the "cartel trial," was finally scheduled to begin last Wednesday in San Francisco Superior Court. Lawyers for both sides were expected to start jury selection. The long-awaited case had been postponed once already at the end of last August, when Samsung asked the court for a postponement, because one of its lawyers was sick.
This time, it's a different lawyer, different company. Micron is now playing the sick card and has asked for another two-month continuance.
Rambus investors looking forward to trial
A Micron spokesman declined to comment. But Rambus' Chief Financial Officer Satish Rishi, told investors at a Needham conference on Thursday that Micron filed a brief seeking a two-month delay, saying that one of its lawyers is sick. Superior Court Judge Richard Kramer asked the parties to meet again Thursday, Jan. 21, where he will rule on the next course of action and when the trial can be scheduled.
Rambus investors had been looking forward to the trial in the hopes that the company will be able to vindicate itself and shed its image as just a litigious intellectual property company. The Los Altos, Calif. company, founded by two computer scientists in 1990, developed novel methods to speed up memory chip communication with the core processor in a PC. But it has been the pariah of the memory chip industry since its designs were first embraced by Intel Corp. in 1996 as its next generation memory technology.
Many of the big memory giants fought efforts to license its technology. They saw Rambus as akin to a patent troll, a company that doesn't manufacture anything, but bilks others who use its designs. When Rambus sued some memory giants for patent infringement, many counter-sued, alleging anticompetitive actions by Rambus. They contended Rambus did not disclose its patents and applications when it was invited to and attended memory standards setting meetings in the mid 1990s, which ultimately embraced some of Rambus' methods to speed up memory chips as standards.
Some chip makers and the Federal Trade Commission also alleged that Rambus was altering its patent claims based on information it gleaned at the meetings so it could monopolize the industry. Others, such as Toshiba, instead licensed its designs.
Rambus' CFO Rishi was asked by an investor during the Needham conference when the litigation will end. "It is not our desire to litigate," he said. "But in an IP model if you don't enforce your IP rights, no one will pay you. We would love to be in the position where all our litigants are customers."
No love for Rambus
It has been clear over the years, though, that many big memory firms never wanted to be a Rambus customer, let alone pay out royalties for its designs, which it claims are at the heart of nearly all computer memory chips. The big guns, though, aren't referred to as a cartel for naught. Several years ago, the U.S. Department of Justice filed criminal charges in a sweeping price fixing case against Hynix, Samsung, Micron, Infineon Technologies and Elpida Memory Inc.
All the firms except Micron pled guilty, about $730 million in fines was paid and several chip industry executives went to jail. Micron cooperated with the DOJ.
Many investors hope that some of the behavior in the past price fixing cases will come to light and help Rambus prove its claims in a trial estimated to take about two months.
"A lot of people went to jail for this," said Jeff Schreiner, an analyst with CapStone Investments, one of the few firms to follow Rambus. He said some evidence from the DOJ's price fixing case will be admitted, as well as Micron's leniency agreement with the DOJ. "To use mob terminology, they turned state's evidence against the Koreans and ratted everyone out."
In Rambus' initial complaint, filed in 2004, the company contends e-mails and other documents in evidence will show blatant collusion among memory chip executives, such as a written plea in 1996 from a Hynix executive to other chip makers to "educate others and get their agreement to say NO TO RAMBUS."
"We believe that Rambus' allegations are baseless," said a Micron spokesman. "We look forward to the evidence being presented at trial that Intel and PC OEM customers ultimately chose DDR, an open standard memory solution, based on the technology and its cost advantages, rather than Rambus' proprietary product."
Some analysts believe, though, that Rambus has a good shot of winning this case.
"Once the case starts, we feel it is significantly higher than a 50-50 coin toss in favor of Rambus," said CapStone's Schreiner. He has a buy rating on the stock and does not own any shares. "Right now, I'd say it's 50-50 as to what happens next," he added.
Rambus has had more recent victories, and while its never-ending litigation continues, its seven-year brawl with the FTC seems to have ended when the U.S. Supreme Court refused to hear an appeal by the FTC in February 2009, alleging that Rambus violated antitrust laws.
After seeing the stock pop in December in anticipation of the upcoming trial, its shares tumbled as word got out last week in the options market and on the investor message boards -- still popular with Rambus' large base of retail investors -- that the trial was again delayed. Last week, its shares fell 11%, based on Friday's close. Part of that overall downdraft was during a general sell-off in the tech sector after investors got nervous Intel's profit margins had peaked in its stellar fourth quarter. See Intel news.
The defense looks like it is scared and engaging in stalling tactics. At least they should have a better backup plan in place to deal with sick attorneys. This lawsuit needs to go to trial. Hopefully, Judge Kramer will realize that and order the trial to start soon.
Investors have had this case hanging over the stock for too long.
Therese Poletti is a senior columnist for MarketWatch in San Francisco.