RICHMOND, Va. -- As part of its ongoing patent infringement trial against Infineon Technologies AG, Rambus Inc. this week was forced by the court to disclose the royalty rates to which licensees of its SDRAM technology have agreed.
Eight DRAM makers, including market leading Samsung Electronics Co. Ltd., are each paying Rambus 3.5% for rights to manufacture a double-data-rate version of the SDRAM devices, a level considered significantly higher than analysts had estimated. The rates, which had been kept under wraps, were particularly surprising, observers noted, because Samsung as an early license was thought to have brokered more favorable terms.
Infineon, which Rambus is suing for patent infringement over its refusal to license the SDRAM interface, is to date paying no premium on its DDR SDRAM devices. The apparent pricing mismatch is being enjoyed by two other DRAM makers embroiled in legal suits with the Los Altos, Calif., design firm -- Hynix Semiconductor (formerly Hyundai Electronics Industries) and Micron Technology.
"We now know why Elpida Memory [the DRAM joint venture between Hitachi Ltd. and NEC Corp.] said it may want to renegotiate its DDR and SDRAM license with Rambus," said Dan Scovel, an analyst with Needham & Co., New York. "Most observers in industry thought the Rambus DDR license would have [carried] a 2% to 2.5% royalty. The 3.5% figure is very high, especially when three major competitors aren't paying any royalties."
The royalty rates came to light in testimony by David Teece, professor of business for the University of California at Berkeley, to establish possible damages Rambus suffered as a result of Infineon's refusal to license its synchronous patents. Teece also testified that each of the eight licenses were paying 0.75% royalties on single-data-rate SDRAM.
Scovel believed the 0.75% SDRAM rate was nominal and didn't present any major cost disadvantage for the licensees. Avo Kanadjian, vice president of worldwide marketing for Rambus, also confirmed in an interview that these are the royalty rates being paid to the company. Until now neither Rambus nor the licensees would discuss terms, but Kanadjian said the rates had to be disclosed during the court proceedings.
In his testimony, Teece calculated that if Infineon had agreed to the same royalty terms as Rambus' other SDRAM licensees, the company would have owed Rambus $3 million in the seven month period ending Oct. 10, 2000, for sales into the United States alone.
In the trial, Infineon also said depositions of Rambus patent lawyers revealed that some of the licensees have a "most favored nation" clause that would enable them to receive a lower rate should such a rate be negotiated in the future with other companies. Rambus officials have long maintained they set a high royalty rate on DDR, because they considered it a rival to Direct Rambus DRAM.
Danny Lam, an analyst with Fisher-Holstein Inc., Wilmington, Del., said the high DDR royalty was intended to discourage licensees from entering the DDR market and adopt RDRAM instead. However, Samsung and Elpida, the largest DRAM producers among the eight licensees, both have major plans to ramp up DDR production, as well as RDRAM output.