The high-tech industry’s wars over intellectual property (IP) can be infuriatingly long and costly. They can also be richly rewarding. Just ask Rambus Inc. On Tuesday, June 11, 2013, the semiconductor IP provider announced an agreement with SK Hynix Inc. (formerly Hynix Semiconductor Inc.) that effectively ended a patent infringement legal tussle that began in 2000.
Under the terms of the agreement, Rambus gets a total of $240 million − payable over the next five years in tranches of $12 million per quarter, and SK Hynix gets the opportunity to put a nightmare behind it and the rights to use “Rambus memory-related patented innovations” in its products.
By now, only the lawyers and journalists like myself, who wrote about the first set of patent disputes filed by Rambus more than a decade ago, remember what the case was all about. In fact, the two companies have gone through some significant metamorphosis since the late 1990s when Rambus began trying to enforce its “rights” to be reimbursed for what company executives alleged were numerous violations of its patents.
SK Hynix went through frightening moments when it was given barely a snowball’s chance in hell of surviving. It did. But just for a quick trip down memory lane to see how the company struggled, read the following story written in 2001 by Arik Hesseldahl. (Hynix On Life Support). Hynix is today the No. 2 supplier of memory components in the semiconductor market and it is finally getting some respite from years of battling to stave off creditor demands and remain competitive with South Korean rival and No. 1 vendor Samsung Electronics Inc.
Hesseldahl wasn’t the only writer to state bluntly that Hynix faced a dire future. But, I digress. The company is still around and strong enough – after SK Telecom Co. agreed to inject about $3 billion for a 21 percent stake − to agree to pay Rambus millions for the patent violations.
Rambus itself has had changes at the top and the current CEO Ronald Black (pictured left) has been in the position for only about a year. It has also figured out that the IP licensing business can be lucrative, but only if it doesn’t involve a regular trip to the courthouse. So, what are the lessons from this IP war for the electronics industry? I see at least three:
- Resolve the Differences Quickly: Sure, Rambus is getting $240 million from SK Hynix but the money was hard won and whatever gains it made from going to court has been frittered away in the negative image the company developed in the industry. Rambus fought many other companies and ended up with too many pyrrhic victories and probably paid millions to lawyers on top of these. SK Hynix, too, couldn’t be said to have won a single battle in this war. It asserted the rights to be innocent until proven guilty, but the squabbling with Rambus was a huge distraction to the company. This is not to say any enterprise should cave in to a dubious patent claim, but a call for the industry to find better ways of resolving issues like this.
- Litigations Result in Lost Opportunities and Distrust: Look no further for this reality check than the war raging between Apple Inc. and Samsung Electronics Inc. The two companies were partners with the Korean company supplying critical components to its North American consumer electronics rival. That partnership, which took years to build, has been severely ruptured by years of patent litigation that has led largely nowhere. Apple hasn’t collected a dime from a $1 billion jury award against its South Korean adversary while Samsung isn’t likely to benefit much from a recent ban on the import of certain iPhones into North America. A supplier-OEM relationship that was vital and beneficial to both companies has been dragged into the patent mud and isn’t likely to survive much longer.
- ARM’s Licensing Method Works: This is so obvious you wonder why many more companies don’t use the licensing arrangement ARM Holdings Plc has with many semiconductor vendors. Rambus was combative for two decades, and it doesn’t have much to show for butting heads with potential licensees of its intellectual properties. Plus, it won’t be the first company many in the electronics industry will turn to for IP if they had a choice. I can’t put this better than Rambus’ new CEO Black did a few weeks ago at the JPMorgan Global Technology conference. Here’s an excerpt from what Black said:
We wanted to move away from the assertion-based litigation [and] back to the company’s roots as a technology partner developing technology for the customers. The market is starting to see the improvements in relationships and just in the spirit of openness. It doesn’t mean that we won’t litigate, we have to sometimes. But I think our preference [is] to collaborate with customers because if you look at companies that do the technology licensing well, they get and deserve higher multiples where the customers have very sticky relationships.
Of course, not all business relationships lend themselves readily to the ARM licensing method, and the clash of egos plus the desire for a quick payoff could still lead many in the electronics industry quickly to court before they even consider settling their differences over a warm beer. The clear winners in the IP war currently raging throughout the industry aren’t really the actual corporate combatants; the winners are the lawyers on both sides of the divide.