A U.S. appeals court found memory chip designer Rambus Inc was wrong to shred hundreds of boxes of documents relevant in two patent infringement lawsuits it filed, sending its shares down sharply.

The U.S. Court of Appeals for the Federal Circuit, in one of two parallel rulings, said on Friday it was clear Rambus had destroyed documents but it was not clear the action was so serious that a lower court should have tossed out its suit.

It sent the dismissal back to the U.S. District Court in Delaware, adding that the lower court might still decide the shredding was serious enough for Rambus to lose the case it brought against Micron Technology, the top U.S. maker of memory chips for computers.

In the other ruling, the appeals court found Rambus destroyed documents related to a patent suit it successfully brought against Korea's Hynix Semiconductor. It asked a California court in that case to review its ruling in view of the document destruction.

The decisions slammed Rambus' shares, which ended Friday at $15.83, down 17.9 percent on Nasdaq.

Rambus executives said on a conference call they had not decided if they would appeal Friday's decisions.

According the court record, Rambus held at least two shred days as part of a strategy to get ready for litigation over its patents.

Despite a stated goal of getting rid of all documents once they were old enough, employees were instructed to look for helpful documents to keep, documents that would help prove Rambus had intellectual property, the appeals court said.

According to a document German chipmaker Infineon filed in a separate case, Rambus employees were told there would be pizza, beer, champagne, etc. at a 1998 shred day.


It is undisputed that Rambus destroyed between 9,000 and 18,000 pounds of documents in 300 boxes, the appeals court said in its majority opinion in the Micron case.

Judge Arthur Gajarsa dissented in part, saying the lower court's dismissal of Rambus' suit because of the shredding should have been allowed to stand.

Rambus designs memory chips and licenses technology used in them to other chipmakers.

Investors had been watching for the appeals court's rulings. If the court had ruled for Rambus it would have helped it negotiate additional licensing arrangements.

Much of Rambus' income has come from patent litigation against companies it accuses of not paying for its technology.

We are very disappointed with the decisions in these cases, said Thomas Lavelle, senior vice president and general counsel at Rambus. We are hopeful when the district courts reconsider these decisions, they will find, as we believe, there was no bad faith and no prejudice.

One analyst said the share price drop was over the Hynix lawsuit. I think the market is reacting to the technical finding of (document) spoliation and the near-term loss of the roughly $400 million that was waiting for it in the Hynix case, said Michael Cohen, principal of MDC Financial Research, LLC, who owns Rambus stock.


The appeals court said it was not clear error for the Delaware court to conclude that Rambus' document policy was aimed at boosting its litigation strategy by frustrating the fact-finding efforts of opponents.

Micron had won in the Delaware court when a judge invalidated 12 Rambus patents, citing document destruction by Rambus as the reason.

But Rambus won against Hynix in a separate trial, when a federal judge in California found that nine Rambus patents were valid and had been infringed.

Trading in Rambus was halted six times on Friday as the stock hit circuit breakers after rapidly rising and then falling through the 10 percent threshold in a matter of minutes.

At nearly 15 million shares traded, volume was 18 times the daily average.

Messages left at Micron and Hynix offices seeking comment were not returned.

Rambus has filed lawsuits against a long list of technology companies in the past decade. Samsung Electronics settled a patent suit with Rambus in January 2010 in a deal that could cost it $900 million.

Friday's cases were: Hynix Semiconductor v. Rambus, 09-1299 and Micron Technology v. Rambus 09-1263 in the U.S. Court of Appeals for the Federal Circuit.

(Reporting by Diane Bartz; Additional reporting by Noel Randewich in San Francisco; Editing by Tim Dobbyn)