Rambus and a Price-Fixing Tale

OCTOBER 31, 2005

NEWS ANALYSIS By Arik Hesseldahl Rambus and a Price-Fixing Tale The chip-technology designer fights in court for rivals' documents that may bolster its defense against an FTC antitrust complaint

It's a matter of public record that at least three companies participated in a global conspiracy to manipulate the prices of computer memory chips. The U.S. Justice Dept. settled the issue by handing down more than $600 million in fines against the businesses, most recently Samsung in October. What isn't known, though, is why they did it.

And Rambus (RMBS ), a $145 million company that designs -- but doesn't manufacture -- technologies that let chips communicate at high speeds, is intent on finding out. On Oct. 31 it will urge a California Superior Court in San Francisco to release documents it says will help in that pursuit. The documents will help shed light on a host of legal tussles ensnaring Rambus. It first sued Infineon (IFX ), for patent infringement in 2000, only to be sued itself that same year by Micron (MU ) and Hyundai, the company that later became Hynix Semiconductor. Those companies sought to invalidate certain Rambus patents.

In 2001, the Federal Trade Commission launched its own investigation into allegations of fraudulent behavior by Rambus while it was a member of an industry standards consortium. That investigation led to a suit heard before an administrative law judge in 2002, which Rambus eventually won, but FTC lawyers have appealed the case to the full commission.

REMOVED FROM THE RECORD. In 2004, Rambus went on a new legal offensive, filing antitrust lawsuits against Micron, Hynix, Infineon, and later Samsung. It has since settled all its outstanding litigation with Infineon. Against the backdrop of all these legal proceedings, the chip manufacturers have been under investigation by Justice for alleged price-fixing since 2002.

The documents Rambus is now trying to get released are under protective order in its lawsuit against Micron, Hynix, and Infineon. They had been part of the evidence record in the FTC's case against Rambus, but were removed from the record at Justice's behest on the eve of the trial in the FTC case.

Rambus says the documents are communications between high-ranking executives of Micron and Hynix and could prove that those companies, along with other chipmakers, acted in concert from 1999 to 2002 to discourage computer manufacturers from adopting a Rambus-designed memory-chip technology, using price collusion to do it. Rambus has alleged in a lawsuit that the companies colluded to fix prices on computer memory chips known as dynamic random access memory, or DRAM.

WHEN COMPETITORS TALK. What's more, the documents could bolster Rambus' defense in the separate antitrust case brought by the FTC. The trouble is, Micron and Hynix want the documents to stay sealed, insisting they contain confidential trade secrets.

John Danforth, vice-president and general counsel for Rambus, says the documents in question consist of communications between companies, not within a single outfit, as would typically be the case with trade secrets. "As we say in our filing, we believe the documents do not contain confidential competitive information because they are instead communications between competitors," Danforth says. "A trade secret is something you keep from your competitors."

Rambus could use the documents to weaken any arguments that Hynix, Samsung, and indeed Micron may mount in their fight. The Justice Dept. has levied more than $600 million in combined fines against Hynix, as well as Samsung and Infineon, for price-fixing. (Micron is also involved in the investigation, saying it is "cooperating fully" under a corporate leniency deal.)

A DIFFERENT TUNE. Hynix, Samsung, and Infineon have already admitted to accusations of a conspiracy to fix prices from 1999 to April of 2002 (see BW Online 10/14/05 "Samsung's Day of Reckoning"). But now, in the suit with Rambus, Hynix needs to sing a different tune. It needs to prove that, around the same period, it didn't fix prices -- or that if it did, it didn't do it in such a way that affected Rambus.

Representatives of Hynix declined to comment on the matter. Micron, through a spokeswoman, reiterated its position that it views the Justice investigation separately from the Rambus litigation.

Rambus reckons that making the documents public will show that it has been right all along. In a court filing, Rambus says chipmakers communicated among themselves in June and July of 2000 to discuss a coordinated response to Rambus' low prices for its own particular variety of DRAM called RDRAM. In particular, the companies attempted to undercut Rambus to win business from Dell (DELL ), according to the filings.

A PRICE HIKE'S TIMING. "The goal of these communications and agreements was to prevent RDRAM price competition at a critical time, when Dell had announced that in the absence of such competition, it would revise its product plans and abandon or sharply reduce its use of RDRAM," the filing reads. "Because of the manufacturers' concerted efforts to lower prices, Dell revised its product lines and plans in and after the summer of 2000 and gradually moved away from using the RDRAM device."

By late 2001, Rambus says, the alleged conspiracy had proven mostly successful. Demand for RDRAM chips was falling, and PC producers were building devices using different, cheaper chips, so-called DDR chips. That was the time chipmakers chose to raise prices on DDR chips, as shown in a widely cited e-mail from a Micron employee.

"We will be increasing prices to all OEM customers [computer manufacturers]," says a Micron e-mail dated November 26, 2001. "Infineon has already laid the ground work by trying to lift prices a few weeks ago. We believe that they have been successful with only a couple of OEMs to date. Samsung has also had discussions with the OEMs early last week and is preparing them for increases in the first part of December. The consensus from all suppliers is that if Micron makes the move, all of them will do the same and make it stick." The rest of the e-mail, which is a page-and-a-half long, is redacted.

MURKY RULES? Further actions -- alleged in a section of a Rambus court filing with several redacted sections -- describe "coordinated price increases" in the fall of 2001 and spring of 2002 that resulted from discussions that took place no later than July, 2001. If successful in its argument to have the documents released, Rambus would seek to enter them into the record of evidence in its ongoing defense of the antitrust case before the FTC. The commission launched a complaint against Rambus in 2002 alleging that it failed to disclose patents it had applied for on certain technologies relating to memory chips at a time in the mid-1990s when manufacturers of these items were setting new standards. By keeping silent, the FTC said, Rambus ensured that in time it could seek royalty payments from chipmakers after the standards had been adopted. Rambus has said the rules regarding the disclosure of related patents were murky.

Rambus won the first round with the FTC after an administrative judge dismissed the agency's complaint last year. But the FTC has appealed, and the case will next be argued before the full commission.

"IRRELEVANT"? Geoffrey Olivery, an FTC attorney on the case, declined to comment. But in a filing opposing Rambus' attempt to reopen the record of evidence in that case, the FTC chides Rambus for seeking to "deflect attention from its own conduct by blaming third parties." The commission's opposition to reopening the record was filed on Sept. 29.

It also calls Rambus' assertion that its technology failed in the marketplace as the result of a conspiracy "irrelevant" and that "even if Rambus' rather implausible-sounding story were true...it would not give Rambus a free pass in this litigation with respect to its unlawful conduct."

Rambus says the sealed communications tell a different story.