High-stakes memory chip trial kicks off

Scott Hillis

SAN FRANCISCO: A high-stakes legal showdown over computer memory chips kicks off this week as Rambus Inc. seeks to prove that South Korea's Hynix Semiconductor Inc. ignored its patents and should pay hundreds of millions of dollars in damages.

After six years of back-and-forth legal wrangling, jury selection began on Monday, and the two companies are set to deliver opening arguments on Wednesday in the U.S. District Court for Northern California in San Jose.

A verdict is expected to be issued in mid-April, and if Rambus wins, the jury could order Hynix, the second-biggest memory chip maker in the world, to pay hundreds of millions of dollars in back licensing fees and damages.

The case is being closely watched in the $20 billion-a-year DRAM industry because Rambus has similar suits pending with other memory chip makers such as No. 1 Samsung Electronics, also of South Korea.

"There is a lot at stake for Rambus," said John Ward, a patent infringement attorney with the Silicon Valley law firm of Greenberg Traurig.

"They want to set the tone going forward. They want to collect on these patents, and if they get a victory here, it's a pretty big stick for them to get others to cave in on licensing," Ward said.

Rambus says Hynix knowingly infringed patents on technology called dynamic random access memory, or DRAM, which is used in virtually all personal computers.

"We think that we have overcome a number of hurdles and, while you can never be assured of an outcome, we feel reasonably good going into this trial," Danforth said.

Hynix is expected to argue that either its memory chips do not violate Rambus patents or that U.S. authorities erred in granting the patents.

Hynix officials were not immediately available to comment, and a request for comment sent through the company's Web site went unanswered.

The South Korean firm suffered a separate legal blow this month when four executives pleaded guilty to price fixing and agreed to serve jail time in the United States. That case is unrelated to the Rambus patent dispute.

Rambus declines to reveal how much it wants in damages, but says Hynix has roughly 20 percent of the DRAM market. Since Rambus has collected royalties of 2.5 percent to 3.5 percent in other licensing deals, a court victory could mean it reaps up to $210 million, big money for a company that had revenue of $156 million last year.

Expectations of a big legal victory have helped drive up Rambus stock more 70 percent this year. The stock was boosted in January after Judge Ronald Whyte denied Hynix's request to dismiss the case based on what it said was unethical behavior by Rambus.

A courtroom win could also help shake a view that Rambus's business model consists mainly of suing other companies, an image executives complain has dogged it despite the fact that it employs hundreds of engineers and researchers.

"Overall I expect that Rambus will prevail. The preliminary rulings have all gone in Rambus's direction," said Daniel Amir, an analyst with WR Hambrecht + Co. "Hynix is in a pretty deep situation."

"The view ahead of the trial is that there is a lot of potential upside if they win this case against Hynix," said Amir, whose firm doesn't own Rambus shares or do banking business for the company.