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Rambus Case Puts Rivals on Defensive

Chip maker considers its own antitrust suit after FTC charges are dismissed.

March 08, 2004|From Associated Press

Two years ago, computer chip designer Rambus Inc. appeared to be losing a multi-front war: A deal to use its technology in Intel-based PCs soured, its tactics sparked a federal antitrust complaint and it faced a multitude of lawsuits.

Now, the company's fortunes seem to be turning as a tale of intrigue unfolds in the rough-and-tumble business of the memory chips used in numerous devices including desktop computers and video game consoles.

The reversal came when an administrative law judge last month dismissed Federal Trade Commission antitrust charges against Rambus.

The company had claimed all along that chip makers, rather than being victims of Rambus, had colluded to keep its technology off the market.

Rambus, which licenses technology that speeds up computer memory, says the decision not only clears its name but also will be helpful should it decide to launch its own antitrust suits against chip makers.

Such a development would not be surprising given that leading memory chip companies -- which ones, exactly, is unclear -- are facing price-fixing probes by the U.S. Justice Department and the European Union.

It's an ironic twist because the original FTC probe targeting Rambus started with chip maker complaints that Rambus was competing unfairly.

"When the full story is written, this may be one of the classic tactical mistakes of recent legal history," said John Danforth, Rambus' general counsel. "What they didn't think about was [what would happen] once they opened up this can of worms."

The tangled web of litigation and investigations involves the important but unsung $16-billion business of dynamic random access memory, or DRAM, which stores data from a microprocessor.

The Justice Department and the EU aren't commenting on the price-fixing probe, which stems from steep price hikes in late 2001 and early 2002. Major players -- Samsung Electronics Co., Micron Technology Inc., Infineon Technologies and Hynix Semiconductor Inc. -- have confirmed being contacted by one or two of the agencies, and all say they're cooperating.

Most declined to comment further, though Micron says the investigation is unrelated to FTC claims that Rambus lulled the chip makers into including its patented technology into their standards.

Those actions triggered the first legal volleys, in 1999.

David Parker, a spokesman for Boise, Idaho-based Micron, said Rambus is now trying "to distract the public and others from focusing on Rambus' actions leading to the FTC's suit against them."

But the 334-page decision by the FTC's chief administrative law judge, Stephen J. McGuire, cites e-mail in which employees of the chip makers discuss pricing strategies and the need to have a unified strategy against Rambus.

Most relate to Rambus' relationship with Intel Corp., which stopped making PC memory chips in 1985 to focus on microprocessors. In the 1990s, it realized that future Pentium processors would require faster memory than what was available at the time. It chose Rambus' technology in 1996.

Memory chip manufacturers, whose industry is notorious for its low margins, did not want to further shrink their profits by paying Rambus royalties. They also didn't want Intel to make their business decisions.

"I urge you to please educate others and get their agreement to say, 'no to Rambus and no to Intel domination,' " Farhad Tabrizi, an executive at Hyundai, which later became part of Hynix, wrote in an e-mail to an executive at Hitachi, which also made DRAM.

In 1997, Tabrizi sent an e-mail to other manufacturers, urging them "to stick together on this matter."

"If all of us put our resources together, we do not have to go on this undesirable path," he wrote.

Up until the fall of 2001, DRAM prices were in the basement, making Rambus' technology less attractive in comparison. Then, in October of that year, Intel said it would stop supporting Rambus, instead favoring the technologies preferred by the chip makers.

Shortly after that, DRAM prices nearly quadrupled.

"So the apparent price-fixing that occurred afterward appears to be an example of a cartel taking advantage of their success," said Rambus' Danforth.

On Nov. 21, 2001, after Rambus' exclusive Intel deal ended, Micron manager Kathy Radford wrote in an e-mail: "The consensus from all suppliers is that if Micron makes the move, all of them will do the same and make it stick."

Radford was not available for comment, spokesman Parker said. Tabrizi, who left Hynix last month, also was not made available for comment by a spokesman for his new company, Lexar Media.

Analysts say the price fluctuations could have had many causes beyond price fixing.

At the time of the price drops, PC sales were falling, chips were in oversupply and the semiconductor industry was in its deepest downturn.

"They wanted to control their output," said Nam Hyung Kim, an analyst at the research firm ISuppli Corp. "But I don't think that's based on their cooperative teamwork. At that time, market conditions were terrible, and they had to survive."

Even if Rambus appears to have a strong case for its own antitrust suits, it might not want to pursue them. For one, McGuire's decision can be appealed to the full FTC. Also, Rambus must still work with chip makers. Rambus counts several as partners but is battling others.

"Rambus wants to dominate the DRAM market," Kim said. "But unless they have endorsements from these top DRAM suppliers, they will never dominate."

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