(RMBS) Rambus Suffers Another Legal Blow

Technology licensing company Rambus Inc. (RMBS) received an untoward ruling for a lawsuit filed for patent infringement, by a judge at the International Trade Commission (ITC). In the initial verdict, the judge mentioned that the plaintiffs did not conduct any breach with Rambus’ patented technologies. However, the final judgment is due in July.

In a suit filed in 2010, Rambus complained that a number of its patents have been illegally used by chip makers LSI Corp. (LSI), MediaTek Inc. and STMicroelectronics (STM).

This is the second loss in a row for Rambus, which met a similar fate in November 2011. At that time, Rambus received an unfavorable ruling by a California jury on the long-drawn (almost 7 years) antitrust battle with Micron Technology Inc. (MU) and Hynix Semiconductor Inc.

Micron and Hynix were accused of anti-trust charges, including conspiracy to fix DRAM prices and prevent Rambus’ RDRAM memory technology from gaining traction in the market. However, considering the case a few months post trial, the jury negated the claims and cleared the defendants of all liabilities.

The unfavorable court decisions are jeopardizing investor sentiment, which is well inferred from the 3.5% decrease in share prices last Friday.

But, the good thing is that Rambus has been prompt in settling earlier claims with some tech companies. The company already made out-of-court settlements with NVIDIA Corp. (NVDA), Freescale Semiconductor and Broadcom Corp. (BRCM), signing patent licensing agreements with them. This arrangement not only saved some money for Rambus that might have been wasted in legal battle, but also secured its revenue streams.

Though Rambus’ growth prospects are imminent, we remain on the sidelines given the Fed’s decision to declare three of its patents invalid. This would reduce its growth to the extent that it is dependent on the three patents. Moreover, Japanese chip-maker Elpida’s declaration of bankruptcy is also a concern for Rambus, as the company accounted for around 10.0% of its annual revenues. This would be a direct hit to its patent licensing royalty.

Currently, Rambus has a Zacks #3 Rank, indicating a short-term Hold rating.
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STMICROELECTRON (STM): Free Stock Analysis Report

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