The Founding of an Empire?

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The First Rule of War: Pick Your Battles Carefully

When the lawsuit against Hitachi was first filed, Hitachi indicated that they would fight the allegations, and reports indicated that many manufacturers had offered to assist Hitachi in their fight, including providing access to prior art in order to disprove the Rambus claims. In June, Toshiba signed a licensing agreement with Rambus that requires Toshiba to pay royalties on the technology in question. Many within the industry (and in the media) were shocked at this turn of events, but were even more stunned when Hitachi signed a similar agreement a short time later. The capitulation by Hitachi and Toshiba has left many of the anti-Rambus crowd reeling, with Rambus proponents proclaiming that this is ‘proof’ that Rambus owns the patents, otherwise these two companies would not have settled.

Many in the industry believe that Rambus has basically usurped ownership of technology that it did not develop, however, if this is the case why would Toshiba and Hitachi agree to settle? Payment of royalties on SDRAM and DDR SDRAM products will likely run into several million (or even tens of millions) dollars for each of these companies, so why would they settle so quickly? Unofficial sources within these companies have indicated that the decisions were made at the highest levels of management, against the recommendations of the engineering groups.

The real problem seems to lie in the fact that untangling all of the paperwork and proving prior art takes a lot of time and money. In order to bring additional pressure to bear, Rambus had requested the ITC to slap an injunction on Hitachi memory and microprocessor products until the matter was settled, which the courts seemed willing to consider. If approved, an injunction could have cost Hitachi many tens of millions of dollars in lost revenues. In this scenario, Rambus has absolutely nothing to lose, because they have no product, and therefore cannot be counter-sued, giving them a huge amount of leverage.

A little bit of investigation seems to reveal why these two companies were targeted first. Hitachi’s memory business has been mired in red ink for quite some time, and they are currently in the process of selling this operation to NEC. Though NEC has declined to comment about the suit, it would have more than likely been an issue of major concern. Toshiba, on the other hand, has a very lucrative and exclusive contract with Sony to supply RDRAM for the Playstation 2. It is very likely that Toshiba top brass decided that they stood more to lose from any Rambus injunctions or licensing issues than it would cost them to simply pay royalties on their SDRAM and DDR products.

For Rambus, it was very important to get capitulation from at least one company. This would give them additional weight in a U.S. court against foreign manufacturers. With these agreements under their belt, it would seem that Rambus now has the upper hand in this IP tug-of-war, however there are still many other manufacturers that have not signed – including the top 5 in the industry (Hyundai-LGS, Samsung, Micron, NEC and Infineon). In fact, prior to last week, spokespersons within Micron had indicated that they were inclined to disagree with the Rambus claims, and had taken a ‘come and get us’ stance.

There seem to be two possible scenarios that could play out over the next several months. The first is that all manufacturers, including Micron, capitulate and sign agreements with Rambus. This would mean that all DRAM manufacturers would be paying royalties to Rambus for RDRAM, SDRAM and DDR SDRAM products, with some possibility of back payments (the Hitachi agreement reportedly did not include any back payments, however the Toshiba agreement did). The second scenario is that Micron lets Rambus drag them into court, and fights them in an arena that Micron has used successfully for their own benefit in the past.

It is even possible that Intel is not entirely pleased with the way things are going. During the past 5 years, Intel has managed to gain significant control of the processor, chipset, motherboard and even the network market. Most recently, they made an attempt to get into the video graphics arena, without much success. It is obvious that the plan is to essentially own and control the PC hardware industry as much as Microsoft controls the software industry. If Rambus succeeds, Intel will have yet another potentially powerful competitor.

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