Analysts: Rambus case to alter standards-setting rules

Now that a fraud verdict against memory chip designer Rambus Inc. has been lifted by a federal court of appeals, the company is poised to once again defend its intellectual property in courts around the world. The fallout from the decision is likely to change the way standards-setting organizations operate and could affect several other memory vendors, analysts said Thursday.

The U.S. Court of Appeals for the Federal Circuit, in Washington, D.C., in a decision released Wednesday, found that a lower court improperly allowed a jury verdict of fraud to stand against Rambus.

When Rambus sued Infineon Technologies AG in 2000, alleging Infineon violated Rambus patents with its products, Infineon turned around and accused Rambus of fraud for participating in Joint Electron Device Engineering Council (JEDEC) meetings without disclosing that it either had obtained or was seeking patents on several key technologies included in the SDRAM (synchronous dynamic RAM) standard.

A jury found Rambus guilty of fraud on two separate charges of interfering with the SDRAM standard and the DDR (double date rate) SDRAM standard, but the judge in that case overturned the DDR SDRAM verdict, citing the fact that Rambus had withdrawn from JEDEC before the DDR SDRAM standard was completed.

A three-member panel of appeals court judges overturned that verdict in a split decision Wednesday, saying that JEDEC's disclosure policy was not clear enough to charge Rambus with fraud.

The case delves into the sometimes murky world of U.S. patent law, which has become a controversial topic among technology companies. Inc. was granted a patent in 1999 for a one-click Web purchasing system and later sought an injunction against a similar system from Inc., and British Telecommunications PLC went even further in claiming to have invented and patented the hyperlink.

Under U.S patent laws, a patent application must describe a specific invention in terms of exactly how the technology works and what it can be used for, said Randy Gard, a partner in law firm Carl & Ferrell LLP in Palo Alto, California. The specific applications of the invention are known as claims and are crucial to determining patent infringement.

"The first time you write that patent, you have dueling requirements. There's a requirement to be fairly specific as to how the invention works, but at the same time, you have to describe all of the variations and exclusions you can think of," he said.

Rambus, based in Los Altos, California, filed for a patent on DRAM with the U.S. Patent and Trademark Office (PTO) in 1990. That original patent was written as broadly as possible to cover a number of different technologies, said John Danforth, Rambus's general counsel, in an interview Wednesday. The main technology that emerged from those patents was RDRAM (Rambus DRAM).

Rambus officially joined JEDEC in 1992. JEDEC was an organization that convened to set standards for memory manufacturers so PC vendors could select one type of memory from various memory manufacturers without having to worry about interoperability. The SDRAM standard was agreed upon in early 1993 by the council members.

What happened -- or didn't happen -- at those meetings to decide the SDRAM standard set the stage for the legal battles that would continue for more than ten years.

A slightly modified version of Rambus's original patent was awarded in 1993, and Rambus disclosed that patent to JEDEC during a committee meeting, according to the court's opinion.

While the patent is pending, if the person or company that applied for the patent realizes that the industry is moving toward a slightly different application of the invention, they can add or modify previous claims to reflect that new application, as long as it was referenced in the detailed description of how the device works, Gard said.

"That's not cheating. That's the recognition that as you continue to work with an application, you may think of a better way to frame your application. Or, while that first application was pending, you then realized that technology is being used or deployed in the marketplace, and the way you claimed your invention doesn't cover what's being done in the marketplace, yet the detailed description describes what the market is doing," he said.

However, Rambus was involved in an organization that was actively discussing ways to advance memory technology, giving Rambus a unique perspective as to how the market would evolve, or a chance to influence the organization to adopt a standard on which it could claim royalties.

"It's not at all easy to know if a patent application (applies to) a standard," said Steve Becker, a partner in the law firm of McDermott, Will & Emery in Washington, D.C. "Rambus had a basic patent disclosure that disclosed almost all the technology that would be adopted by the committee, but only a few of those (technologies were) patent claims that would require a license" in order to manufacture, he said.

Because JEDEC did not have a specific policy in place regarding disclosure of pending patents, Rambus could not be found guilty of fraud, the court said. The company still tried to obtain patent claims that covered technology included in the SDRAM standard, which didn't impress the court.

"The record shows at most that Rambus wanted to obtain claims covering the SDRAM standard. Some of that evidence does not put Rambus in the best light. Rambus thought it could cover the SDRAM standard and tried to do so while a member of an open standards-setting committee. While such actions impeach Rambus' business ethics, the record does not contain substantial evidence that Rambus breached its duty under the EIA/JEDEC policy," the court wrote in its majority opinion. The EIA, or Electronics Industry Association, is a trade organization associated with JEDEC.

A clear impact of the Rambus case will be felt at standards-setting organizations, said Ray Jacobsen, also a partner with McDermott, Will & Emery. "Standards-setting organizations must come up with rules that they want to enforce, such as, 'we don't want people to attend meetings unless they certify they won't file applications regarding the standard'," he said.

Individuals who attend standards-setting meetings also will have to be aware of the full range of their patent portfolios, he said. "This is going to place a lot more burdens on companies who participate in standards-setting organizations. To make sure they vote more accurately, they need to know their full range of patents," he said.

From 1989 to 1991, Rambus taught several memory manufacturers around the world how to manufacture its proprietary memory technology after requiring those companies to sign nondisclosure agreements, Danforth said. Some of the technologies used in Rambus' memory chips were incorporated in the SDRAM standard decided through the JEDEC meetings of the early 1990s.

In order to convince manufacturers to license the Rambus technology, it had to disclose its proprietary technology so the companies could evaluate the product, said Nathan Brookwood, principal analyst with market research company Insight 64, in Saratoga, California. Rambus is unique among the companies with which it has been involved in litigation as it only designs memory chips, whereas Infineon and the other companies manufacture their own chips.

The litigation between DRAM vendors and Rambus seems far from over as a result of this decision, analysts said. Infineon is also expected to seek a rehearing of the appeals court's decision.

"The DRAM vendors hate to pay license fees," Brookwood said. "Samsung (Electronics Co. Ltd.) is in a pretty good position, having already struck a deal with Rambus. At the opposite end are Micron (Technology Inc.) and Infineon, who have been the most resistant to the notion of paying license fees for anything," he said.

Danforth also indicated that Rambus' patent infringement claims have seen new life with Wednesday's decision.

"We believe that when we've made a contribution this significant to the industry, we should be compensated for that," Danforth said Wednesday. "We've contributed many substantial things to high-speed memory, and we should be compensated for what we've invented and other people use."