Rambus Reprises Litigation Blues

Investors in Rambus(RMBS) have become skittish again after the company launched a patent infringement lawsuit against Samsung Electronics, the world's largest memory chipmaker and a significant Rambus customer.

Traders were left to conclude that yet another lawsuit means the company's legal battles are far from over. Shares dropped nearly 6% on Tuesday; they recently rebounded 0.7% to $14.85 in midday trading Wednesday.

But while Rambus' new litigation -- the result of the failure to reach a contract extension with Samsung -- is less than ideal, the alternative was even less appealing, according to Rambus General Counsel John Danforth. He said investors should recognize that Samsung was paying less than what it has agreed to pay under an existing license contract, a situation that resulted in Samsung losing its status as a customer supplying 10% of Rambus' revenue.

"They've been in breach for months and months," he says. "They are a huge part of the memory business, but they are not a huge part of our revenue, proportionately, and that situation needs to get fixed."

Los Altos, Calif.-based Rambus designs memory interfaces for microchips, which it then licenses out to chipmakers. The company took action late Monday against Samsung after negotiations broke down on an existing licensing agreement that centered on SDRAM and DDR, two types of electronic memory. That license was due to expire on June 30 and it has now been terminated.

Rambus named Samsung as a defendant to join a pending patent litigation suit that involves Hynix Semiconductor, Nanya Technology and Inotera Memories regarding three other memory technologies, and filed a separate suit against Samsung alleging infringement on SDRAM and DDR. The lawsuits don't impact a license Samsung continues to hold on two additional technologies, which Danforth expects Samsung to continue to use.

This lastest legal twist was seen as a blow to Rambus following the high-profile settlement in March of its most contentious legal case with Infineon Technologies(IFX), which was viewed as the beginning of the end of its myriad legal issues. The terms of that settlement were disappointing, but the deal itself was still viewed as a step in the right direction.