Patently Uncertain: Ruling Against Rambus Further Muddles Its Future

Given how spooked investors are by Rambus' (RMBS Quote) current legal battle with Infineon Technologies (IFX Quote), the next year could be tough for the already weakened stock -- Rambus has seven other patent cases pending.

Obviously it's much too soon to say whether these other cases will deliver the kinds of twists and turns that drove Rambus shares down more than 50% in the last two days. And of course, Rambus still could prevail in this and the other cases, which could propel its stock higher. But these are legal cases, and that means they're uncertain.

Investing in Rambus has never been a clear-cut matter. The company designs dynamic random access memory chips and then licenses those designs to chipmakers for use in things like personal computers. With its lawsuits, Rambus hopes to collect royalties from a much broader collection of chipmakers. It says other companies are infringing on patents on two types of dynamic random access memory, or DRAM.

And investors have latched on to those hopes, pushing the stock up 114% last year. Even after falling back, it still traded at a steep price-to-earnings ratio earlier this month. That's because its earnings projections are still based largely on how Rambus will succeed with its own Rambus DRAM, or RDRAM. Investors' hopes created the fatter multiple.

Of course, the past two days have shown how that hope can be quickly pierced when a pretrial ruling in federal court in Richmond, Va., went against Rambus. On Friday Rambus' shares fell $8.29, or 34%, to $15.80 after losing 32% on Thursday.

No Brakes Rambus' stock has tumbled over the past two days.

On top of the case in Virginia, several other cases are due to go to trial sometime in the next few months and others are expected later this year. A few don't have any dates set at all.

While the main issue in all of the cases are the patents that Rambus says it holds, some of the cases also cover questions surrounding Rambus' participation in JEDEC, or the Joint Electron Device Engineering Council, a trade group that worked on developing a standard for memory. That only adds more uncertainty to how these patent rulings could shake out.

All Rise

The Infineon case suddenly came into focus this week because it's the first Rambus suit near a trial, meaning that the outstanding pretrial motions and orders came out. For Rambus, a stock that has never been a stranger to a 20% move, that has meant a sharp decline as investors began betting that the court in Virginia and others will go against Rambus.

The trial will determine if Infineon pays royalties to Rambus on synchronous DRAM, or SDRAM, and double data rate DRAM, or DDR. Rambus' main revenue source is RDRAM, which isn't at issue here. On Friday the Virginia judge issued an opinion that limited the definitions of some of the terms that are used in the patents, which was seen as making Rambus' case tougher. Also on Friday the judge granted Rambus' request to delay the trial until April 10 because of some Infineon documents it was agreed Rambus needs time to look at.

Provided the trial actually begins on April 10, the next trial due up is Micron Technology (MU Quote) vs. Rambus, which is expected in May in U.S. District Court in Wilmington, Del. This case, which was filed by Micron as a preemptive move at the end of August, was initially due to start in October but will instead be handled in two smaller trials. The first mini-trial will focus on issues surrounding Rambus' role in JEDEC, according to Rambus Chief Financial Officer Gary Harmon. Harmon said that provided the May date sticks, pretrial activity could pick up as early as next month. The second part of the trial, in which Micron asks the court to rule that it isn't infringing any Rambus patents, is still scheduled for October. Micron wasn't available to comment.

The other case in the U.S. is Hyundai Electronics vs. Rambus in U.S. District Court in San Jose, Calif. That suit, also filed in August, is still in the very early stages; as yet a trial date hasn't been set. The case also focuses on both JEDEC issues and patent infringement.

Overseas

The same players are lining up against each other over in Europe. In Germany, Rambus vs. Infineon was due to come to trial in February but was rescheduled for May. That suit, which focuses on patent infringement, was filed on Sept. 13 and will take place in Mannheim, Germany. If the schedule holds, it'll be the first case to take place in Germany.

Also postponed from a February start were two other suits filed in Mannheim, Germany: Rambus vs. Micron and Rambus vs. Hyundai. Still to be rescheduled, Rambus currently expects the cases in court in July. Unlike in the U.S., the German cases won't be tried before a jury but before a judge, Harmon said. Both sides will file documents to the judge, who reviews them.

There are few details available about the two patent suits Rambus filed against Micron and Hyundai in France. No date has yet been set for a trial.

A quick look at history shows that none of these cases even have to go to trial. Rambus filed a patent suit against Hitachi in January 2000 both in the U.S. and in Germany. About six months later, the two companies agreed on royalties that Hitachi would pay Rambus.

Rambus has begun collecting royalties during the past two quarters on SDRAM and DDR from seven companies, Harmon says. In addition to memory makers like Samsung and Mitsubishi, it recently signed up Matsushita Electric(MC Quote) for licenses. And even if it loses some cases, Harmon expects those agreements to hold since the patents are at stake only in certain districts.

But that's yet another uncertainty for Rambus investors.