Although quite small in terms of revenue (less than $160 million in 2005), Rambus controls, through its intellectual property portfolio, one of the critical areas of the information technology domain: design for high-speed memory chips, such as the ones used in personal computers (DRAMs or in case of Rambus RDRAMs). Created in 1990, Rambus is a pure intellectual property company: it does not manufacture chips but licences their design to major manufacturers. The company is justifiably famous for its tough licencing policy: its terms are quite onerous and their enforcement is vigorous. At one point or another of its corporate life, it has litigated practically every major chip company in the world, including Infineon, Samsung, Micron and Hynix. So far, its track record has been quite impressive: it has won practically every case.
Yet, a few months after its latest win, against Infineon, it is now facing a major legal challenge: in a final finding, published on August 16, the US Federal Trade Commission (FTC) found Rambus guilty of monopolistic behaviour in the memory chip segment. The complaint was filed in 2002 by the same chip companies sued by Rambus.
The case is far from settled, as Rambus vowed to appeal the finding. Nevertheless, it represents a potentially significant legal precedent.
Rambus is clearly not Microsoft and therefore is not being charged with abusing its actual market position. Instead, the company is accused of improper behaviour in an industry standards-setting body, the Joint Electron Device Engineering Council (JEDEC), which comprises all the major memory players and operates on a cooperative basis. The FTC alleges that Rambus used its participation in JEDEC to improve the specifications for the proprietary patents, which would cover JEDEC standards. Also, the FTC says, Rambus failed to disclose its conduct to other JEDEC participants. The FTC did not mince its words in its opinion, calling the company’s conduct “deceptive” and accusing it of engaging in an “anticompetitive ‘hold up’ of the computer memory industry.”
The Commission did not as yet decide on the remedy. As we recall, this proved to be quite a challenge in the Microsoft case.
Whatever the outcome of this particular case, it looks like the FTC ruling will contribute to a broader clarification of the rules of conduct for participants in industry-standard setting groups, which are becoming increasingly common as an alternative to either open source or proprietary patents. It would become considerably more difficult if not impossible to engage in a “patent ambush” strategy.
As bad news rarely comes alone, Rambus is threatened by NASDAQ with being delisted for allegedly failing to file on time its regulatory documents. The company is also under on-going investigation by the US Securities and Exchange Commission for its handling of stock options.
So far, Rambus has not officially reacted to the FTC ruling, though its lawyer told journalists immediately after the ruling that the company was disappointed and would probably appeal. On the dedicated Litigation update page of the Rambus web site, the ruling has not been published.
These days, one needs a robust constitution to be a Rambus shareholder: the stock price moved from $10 in September 2005 to over $46 in April 2006 before dropping back to $10.50 on August 14. Since the FTC ruling, however, the price has bounced back a bit - approaching $14 a share On Friday, August 25. A favourable development in another case has helped: a California judge delayed action on six-year-old patent dispute between Rambus and Hynix Semiconductor, prompting speculation that a settlement is in the works.