Rambus Back in Legal Limbo

Two things move shares of Rambus(RMBS Quote - Cramer on RMBS - Stock Picks): legal rulings and rumors about legal rulings.

On Wednesday, the Federal Trade Commission served up a heaping portion of the former when it issued an opinion concluding that Rambus had engaged in a course of deceptive conduct that allowed it to monopolize the market for computer memory.

The news sent Rambus shares down nearly 25%, as investors scrambled to assess the damage, particularly as it relates to the company's existing royalty-based revenue stream and its ongoing litigation to secure royalty payments from other memory makers.

Rambus, based in Los Altos, Calif., designs and licenses technology related to computer memory.

The FTC said it will begin considering remedies for Rambus' misconduct within the next two months.

In a conference call early Wednesday morning, Rambus' management put on a brave face.

"We believe we can continue with our litigation and licensing activities," said John Danforth, Rambus' senior legal adviser. He noted that he understood the opinion to cover only DDR memory, rather than newer memory technologies such as DDR2.

In 2002, the FTC charged Rambus with deliberately engaging in a pattern of anticompetitive acts in order to deceive an industry organization that was developing a standard for computer memory.

An administrative law judge within the FTC dismissed the charges in 2004, concluding that the evidence did not support the allegations.

Wednesday's 119-page opinion by the FTC's five commissioners unanimously overturns that ruling.

According to the opinion, Rambus took part in the standard-setting organization, known as JEDEC, without disclosing the fact that it had patents on many of the technologies it was pushing to be included as part of the standard.

"Through its successful strategy, Rambus was able to conceal its patents and patent applications until after the standards were adopted and the market was locked in," reads the opinion penned by commissioner Pamela Jones Harbour. "Only then did Rambus reveal its patents -- through patent infringement lawsuits against JEDEC members who practiced the standard."

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