Rambus Inc was dealt a major defeat on Wednesday as a jury rejected its claims in a $4 billion antitrust lawsuit against Micron Technology Inc and Hynix Semiconductor Inc, a decision that wiped out almost two-thirds of its market value.
Investors took to the hills. Shares of Rambus, which derives the bulk of its income from litigating to defend its patents, plummeted almost 80 percent to $4 before ending down 61 percent -- marking its largest single-day loss ever and eradicating more than $1.2 billion of Rambus' market value.
After more than eight weeks of deliberations, a San Francisco state court jury rejected claims by Rambus that Micron and Hynix colluded to fix memory chip prices and discourage the adoption of its technology.
The decision was a massive blow not just to Rambus -- which could have sought triple damages under state antitrust law -- but also to Wall Street investors who had bid its share price up based on years of aggressive, and often successful, litigation.
The high-profile defeat raises questions about a business model like Rambus' that relies almost entirely on litigation. It was the second major defeat for the Silicon Valley semiconductor designer this year. In May, a court ruled it had been wrong to shred hundreds of boxes of documents relevant to two patent-infringement lawsuits involving Micron and Hynix.
Rambus Chief Executive Harold Hughes said he was reviewing options for appeal. But legal experts predict a tough road ahead if Rambus pursues that route. The company can first ask the trial judge to revisit the verdict, then head for the appellate courts.
This kind of factual determination is very rarely overturned, said Robert Lande, an antitrust professor at the University of Baltimore School of Law.
Micron attorney William Price said the verdict sent a message to other companies, while Hynix lawyer Ken Nissly said the outcome banished claims of a price-fixing conspiracy.
You can't count on winning in litigation what you can't win in the marketplace, Price said.
The verdict boosted Micron stock by 23.4 percent to $6.74. Rambus shares closed at $7.11 with 15.88 million shares traded -- of which 13.766 million changed hands after the verdict was announced.
Hynix shares shot up as much as 5.6 percent on opening in Seoul, and remained up 3 percent at 23,050 won in early trade.
WE REST OUR CASE
John Danforth, a one-time Rambus general counsel who still owns its stock, said the company had strong evidence going into the trial but that the judge did not let all of it reach the jury.
A large award could have dramatically changed the fortunes of Rambus, which had a stock market value of about $2 billion before the verdict was announced.
Over the years, Rambus has attracted a loyal following of small investors who see the company as a David battling chip Goliaths. Many contribute to a vigorous online message board where they discuss Rambus and ongoing cases. During the trial, shareholders chipped in to pay for the lunches of members who attended the trial and posted progress reports.
I've followed it for 10 years now and we've really seen nothing in terms of capturing the value that's been lost. That was the whole reason for owning the stock, said Capstone Investments' Jeff Schreiner, one of a handful of financial analysts who have closely covered Rambus' legal saga.
We don't believe there's a lot to appeal, and we're not going to stick around, he said.
Rambus has run up more than $300 million in legal bills since it was founded in 1990, equivalent to $1 million per employee, as it sued the biggest names in the business for infringing some of its more than 1,000 patents.
It has a separate patent case ongoing against Micron and Hynix, and another against graphics chipmaker Nvidia.
Last year, Rambus settled antitrust claims against Samsung Electronics Co Ltd in a deal worth up to $900 million to Rambus.
On Wednesday, three-fourths of the jurors sided with Micron and Hynix and against Rambus, according to a poll of the jurors by the judge.
The case in Superior Court of the State of California, County of San Francisco is Rambus Inc. v. Micron Technology Inc. et al, 04-431105.