Bloomberg News

Hynix, Micron Raise Rambus Shredding Claims as Trial Begins

June 08, 2011

(Updates with hearing scheduled in fourth paragraph.)

June 8 (Bloomberg) -- Hynix Semiconductor Inc. and Micron Technology Inc., facing the start of a trial in a $4.3 billion antitrust suit by Rambus Inc., want jurors to know the chip designer shredded documents as a “litigation strategy.”

Based on a federal appeals court’s ruling last month that Rambus destroyed documents relevant to patent cases against Hynix and Micron, the chipmakers seek an order telling jurors the shredding was proven. The request may be the final pretrial skirmish in a case that has taken more than seven years to reach trial.

Jurors should know that the “raison d’etre for Rambus’s document retention policy was to further Rambus’s litigation strategy by frustrating the fact-finding efforts of parties adverse to Rambus,” Hynix and Micron said in filings in the last two weeks in California state court in San Francisco.

Judge James McBride today scheduled a June 14 hearing on the defendants’ request. He also began the jury selection process after telling a panel of about 180 potential jurors that the trial may last five months.

“It’s going to be an interesting trial, that’s the good news,” McBride told the crowd. “We think that this jury is going to be in business through Thanksgiving,” he added, eliciting a collective gasp and laughter from the room. He later told lawyers he’s “intent” on swearing in the jury by June 16.

Rambus, based in Sunnyvale, California, is seeking as much as $12.9 billion from Hynix and Micron over claims they drove Rambus-designed dynamic random access memory, or RDRAM, chips out of the computer memory market. The $4.3 billion damages sought by Rambus against the two companies would be automatically tripled under California law, Rambus General Counsel Thomas Lavelle said in an interview this month.

Rambus, in a filing this week, argued the memory manufacturers’ request attempts to circumvent previous rulings. The spoliation, or destruction, of “patent documents in anticipation of patent-infringement litigation should not be given preclusive effect in this antitrust case,” Rambus argued.

Analysts on Trial

Analysts tracking Rambus say a victory in the antitrust case could drive the company’s stock to historic highs, while analysts covering Micron and Hynix say they aren’t concerned with the outcome of the trial.

Rambus shares have soared as much as 57 percent in the wake of legal victories in patent cases. The antitrust case is a more “black and white subject matter” for jurors than patent litigation, Jeff Schreiner, an analyst at San Diego-based Capstone Investments, said in an interview.

For investors, the case presents “one of the top risk- reward investment opportunities” of the summer that could cause Rambus shares to jump as high as $109, he said. That would be almost eight times the $13.74 share price as of 3:42 p.m. in Nasdaq stock market trading in New York.

Micron investors “are largely looking beyond it at the moment,” Daniel Amir, an analyst at Lazard Capital Markets in San Francisco, said of the trial. While a judgment against Micron presents a “headline risk,” he said, shareholders “don’t see it as a big risk, largely because these on-and-off things take years to resolve.”

Neither Micron nor Hynix has set money aside for a possible defeat, according to Amir, who said the “more realistic” worst-case scenario for Micron is a jury award of “a few hundred million” dollars.

Trial Delays

Rambus’s case, filed in 2004, has repeatedly been delayed on its way to trial because of legal maneuvering and scheduling conflicts.

The manufacturers will try “anything and everything” to halt the case because stalling has been their “main strategy,” Lavelle said.

“They’ve got a hook, and they’re going to say because of the spoliation ruling in the Federal Circuit that we don’t have an antitrust case against them,” Lavelle said. “Rambus is going to remind jurors this is a case about their behavior.”

Rambus claims Ichon, South Korea-based Hynix and Boise, Idaho-based Micron inflated the price of RDRAM chips and collusively underpriced their own SDRAM and DDR chips to undercut competition from Rambus.

$185 Million Fine

Lavelle said Rambus’s case relies only in small part on an antitrust case brought by the U.S. Department of Justice that resulted in Hynix pleading guilty to price-fixing claims and paying a $185 million fine in 2005. In 2004, a Micron Technology salesman pleaded guilty to obstructing the government probe.

The Rambus general counsel said the company’s case can stand alone, independent of the U.S. case, on “overwhelming evidence.”

One item Rambus lawyers plan to show the jury is a June 5, 2001, e-mail from a Micron sales manager to colleagues.

“We want DDR to explode into the marketplace so have actually been requesting Infineon, Samsung and Hynix to lower their DDR pricing to help it become a standard (and drive Rambus away completely),” the sales manager said in the e-mail.

Samsung Electronics Co., the world’s largest maker of memory chips, which was named as a defendant in Rambus’s original complaint, agreed in January 2010 to pay $900 million to end all legal claims with Rambus and reach a new licensing deal over computer-memory technology.

Infineon Technologies

Infineon Technologies AG was removed from the antitrust case when it agreed in 2005 to pay as much as $150 million to settle all legal claims with Rambus.

Hynix, the world’s second-largest memory-chip maker, and Micron, the biggest U.S. memory-chip maker, deny Rambus’s claims that they tried to stifle competition.

“This litigation is part of Rambus’s continued attempts to place blame on third parties for its failure to compete successfully in the marketplace,” Micron General Counsel Rod Lewis said in an e-mailed statement. “RDRAM failed because it was inherently less efficient and more expensive than competing technologies and not well suited to a shifting PC marketplace.”

Ken Nissly, a lawyer for Hynix, said in an interview that Hynix invested more than $100 million in developing RDRAM, adding that the company “was not part of any alleged conspiracy against Rambus.”

“It is widely accepted as true that RDRAM was more expensive to manufacture because of certain technical aspects of the product,” he said.

The case is Rambus Inc. v. Micron Technology Inc., 04- 431105, California Superior Court (San Francisco).

--With assistance from Ian King in San Francisco and Susan Decker in Washington. Editors: Peter Blumberg, Charles Carter.

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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