Newsmaker: Rambus' main man in the memory war

It's Rambus on the phone. In Silicon Valley, them's fightin' words.

Emotions run high when it comes to Rambus, which designs chips and technology that enable data to transfer rapidly between two different components. Sony used memory from Rambus in the PlayStation 2 and will use other Rambus-designed products in the PlayStation 3.

The company is also involved in a hotly contested series of lawsuits with memory makers that span the globe. Last week, a jury ruled that South Korea's Hynix Semiconductor must pay Rambus more than $306 million in damages, and that's only for shipments of memory to the U.S. That's not a bad payday for a company with about 230 employees. Other suits against other manufacturers and in other jurisdictions are pending. In the end, the total could top $1 billion.

But CEO Harold Hughes says Rambus wants to move out of the court and become, effectively, an R&D arm for the industry.

Hughes is no stranger to most of these companies, having worked in the chip industry for 30 years. He started at Intel in 1974 on the same day as CEO Paul Otellini and helped start Intel Capital while there.

Hughes sat down with CNET News.com to discuss his company's plans for revenue, the Hynix suit, and the ongoing arguments about intellectual property.

Q: During the conference call after the Hynix verdict was announced, you and (Rambus general counsel) John Danforth emphasized that the clarity of the decision may push some of the Hynix licensing negotiations forward. Have negotiations with other parties been on hold pending the outcome?
Harold Hughes: I've tried to maintain contact certainly with Hynix for quite some time by virtue of the amount of money involved and we were very confident that we owned the technology represented by the patents. But so far, there has not been sufficient consequence to losing trials.

What do you mean?
Hughes: The DRAM (dynamic random access memory) industry works fairly closely together in their legal representations and there is the theory that we would have to sweep the table across all competitors before we actually get to the point of forcing settlements.

I'm trying to take the discussion away from the courts and into the competitive DRAM market, where we believe that Hynix, in particular, has some competitive problems. In the DRAM market, there are obviously different segments; there is a high-performance segment, usually used in graphics. By working with someone like Hynix on a business basis, we can improve their profitability and by so doing, presumably, offset part of, or conceivably even more than, the royalty they would owe us, while at the same time making them a much more effective competitor and supplier.

I've used the expression that people view Rambus memory technology as an unguarded cookie jar.

So you'd help them design memory?
Hughes: Higher-end memory. Our products have run at higher speeds for quite some time, starting back with RDRAM (Rambus' DRAM). XDR (a high-speed memory from Rambus that will be in PlayStation 3) runs at a multiple of what is available in the market.

But we have to go through the courts, and that's how this started several years ago for better or worse, and there's no obvious way that we would extract ourselves from it.

One of the difficulties about this case is that Hynix could have settled a long time ago or agreed to a royalty for a lot less.
Hughes: Well, that depends. Remember, the $306 million related only to U.S. sales. We may actually even get some interest added to that, which when compounded over five years, in and of itself would become a real number. I would say the number represented by the $300 million is probably the minimal calculation as to how much they "sold in the U.S."

Another interesting aspect of the case is that the evidence favoring your side was pretty compelling. Some technical documents created by the defendants refer to your technology. One manufacturer talks in a memo about how the industry will need faster memory, but hopefully they won't have to pay Rambus royalties. Why have they fought so long? Is it a cultural thing in the DRAM industry?
Hughes: I had that very conversation, and I don't think it's a cultural thing. Who wants to pay a large amount of money? It's a $30 billion business. At 2 to 3 percent, you're starting to talk about very large amounts of money. The cost to defend against a lawsuit is a fraction of that. It compounds for us because we're litigating against three of them (Samsung Electronics, Nanya Technology and Micron Technology), so it's not an irrational process.

But at the end of the day, we're a well-financed, profitable company. We continue to invest in technology far beyond what's currently required by the market and likely to be used in generations of DRAM. Our business model is a sound one. If you have a company that's willing to take the risk that we do and invest in the technology development as far out as we do, why not see that as something that you could use advantageously?

Do you think it might help validate the intellectual-property business model? Right now, when you bring up patents and royalties, everyone gets the willies and starts complaining about the patent office and trolls.
Hughes: Well, obviously there is a big movement afoot to characterize IP as, let's say, a scurrilous activity. I've seen drafts of bills that are very IP-unfriendly. But let's step back and take a look at what is in the best interest of this country. The jobs that we develop and the technology we create is exactly focused on where a high-tech company should go.

More Newsmakers

[Pop4]

Opinion: > > > (I plan on enjoying this article later in the day.)

Personnally I am a huge fan of PNY and their combining a quality issue in the 2005 PNY 512mb pc2700/pc3200 DDR Dimm modules.
After the modest resolutions settled in the Rambus case this past month, I excited and curiously, visited the Rambus website(Google) and knew there were looming conclussions or advancments.
Less inportant was the 'SOHO" (?XDR) x64 "REV" Dimm displayed for the lead-in for the website. The current values in the transparency of computing covers (All) the memory option in their place and purpose; where there is a cross platform.

[kgofsb]

Primary example of patent abuse

Rambus attended meetings of the standards organization that created specification for memory chips, where they promoted their ideas for DRAM technology, and encouraged the standards organization to adopt their ideas. They did not tell the other members that they had filed patents on the technology they were hoping to get adopted as standard. The standards body (naively) trusted Rambus and incorporated many of their suggestions, and memory manufacturers invested billions of dollars designing new chips and setting up production lines. Once they started selling those chips, Rambus sued for patent infringement.

Now you have to ask yourself one question: Is that fraud?

The amount of money that Rambus invests in their "intellectual property" is dwarfed by what the memory chip companies have to spend to design and build chips. They are not innovators, they are parasites. The patent system that is supposed to reward inventors and risk-takers ends up doing the opposite.

But don't expect your government to do anything about this problem. They are too busy worrying about the 4% of the population that doesn't have the legal right to live here. OR maybe they want to invade another country that sits on top f anoil field.

[mortis9]

i wholeheartedly agree

and the sad part is that it would only take one high profile defeat in court for this to be turned against Rambus. This is a fundemental problem in US patent law, but you're right, it doesn't seem to be very important. I will point this out: those industry players that are getting sued and losing money to Rambus have for more influence on Capital Hill than does Rambus, so it stands to reason that these laws work in their favor as well, otherwise things would likely play out differently.

Another great example is the Blackberry suit. Those patents were overturned yet RIM still had to make a payout of nearly a third of a billion dollars. That doesn't make sense to me.

[CtrlFreak]

Beg to differ

The mem companies knew about the Rambus patent apps years before adopting the standard, under NDA, as they have now admitted in court. They adopted the standard, built and sold the chips anyway, assuming they could wipe Rambus out (note the recent anti-trust admissions and convictions). If that doesn't warrant a legal victory for Rambus, what then?

[rensanceman]

Rambus Insider selling after Hynix patent win??!!

As a shareholder in Rambus I am very angry at the duplicity shown by the insiders of the firm. After the Hynix win of over $300 million, the insiders, including notably Danforth, began selling their stock which is a terrible sign for Wall Street. They began selling in the $40-38 range. The stock now sits at around $31. What is different from what Ken Lay of Enron did and the insiders at Rambus. SEC and class action attorneys please take note.