Calling last week a rough spot for Rambus, Inc. (NASDAQ: RMBS) might be the understatement of the year.  This was after a federal judge in Delaware ruled that the chip patent shop could not enforce some of its patents against Micron Technology Inc. (NYSE: MU).  Rambus is far from dead, but this case could at least in theory go to the core of patent shops which manufacture nothing on their own which and live off of royalty and license payments from manufacturers.

The judge’s ruling essentially makes 12 patents unenforceable in thiscase.  This also flies contrary to prior rulings from district court inCalifornia.  It was only about two months ago when Rambus receivedfavorable pre-trial rulings.

For starters, Rambus’ patents apply to applications such as high-speed and low-power mixed signal interfaces for chips.  The company said it disagrees with the ruling (no shockthere), and it plans to appeal.  The judges found that Rambus destroyed documents that it should  have expected would come up in litigation.

Rambus has a number of patents it has asserted against Micron (and against others), and nowMicron is now saying that it believes the ruling applies to theremaining patents as well.  Micron also noted that it expects to file amotion in California seeking a ruling of unenforceability based uponthe Delaware decision.

Part of the issue surrounds what is called a "patent minefieldstrategy" where many patents on applications and uses are filed thatcover many broad uses on current and future applications. 

Rambus shares fell almost 40% on Friday.  That sort of drop is notbecause of this case alone.  It is based upon the likelihood that othercompanies which are involved in royalty cases or which are already inroyalty pacts will now push back.  That is one of the prices of merelybeing a patent farm where others are out doing the work and still haveto pay royalties out of their control.

This is far from the end of Rambus.  Rambus has rulings go against itin the past.  It has lost some cases.  and it has won cases.  It also has many royalty and licenseagreements.  Another issue which will make thiscase more difficult to assess is that there are very few analysts which follow the stock. 

Shares fell nearly 40% down to $11.24 last week.  Its 52-week trading range is $4.95 to $26.41.  Shares are up about 3% this morning now that traders have had the weekend to digest the ruling.

This is far from the end, even if it could mark a new chapter.  But thecompany probably just figured out over the weekend that its legalexpenses for the foreseeable future are going higher.  Much higher.

Jon C. Ogg
January 12, 2009

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