Latest Barrage of Lawsuits Is Just Business as Usual in Silicon Valley
Beneath the squeaky-clean image of Silicon Valley as the heartland of technological innovation, lies a legal caldron of patent squabbles, antitrust accusations and employee poaching.
A rash of lawsuits filed last week by several of the world’s top electronics companies against one another is a reminder that the computer industry’s reputation for fair-fighting entrepreneurship stretches only so far.
Lawsuits have been as much a part of the get-rich-quick game in the computer industry as all-night engineering sessions and breakthrough business ideas have been, stretching back to the very origins of the industry.
“It’s part of the lore of the industry that sometimes people can make more in the courtroom than they can in the marketplace,” said Susan Nycum, an intellectual property attorney in Palo Alto for more than three decades.
Memory-chip technology developer Rambus Inc.--fast on its way to becoming the world’s most profitable computer chip franchise--was hit last Monday by a lawsuit from Micron Technology Inc., the world’s No. 2 memory chip maker. Micron claimed Rambus violated U.S. antitrust laws and sought to invalidate some Rambus patents.
Hyundai Electronics joined the rugby pile-on the next day by filing a suit arguing that its memory chips did not infringe Rambus patents and rejecting claims by Rambus that the Korean chip maker owed Rambus patent royalties.
In the latest move, No. 1 chip maker Intel Corp. on Wednesday sued Broadcom Corp., a top supplier of high-speed communications chips, alleging Broadcom infringed Intel patents in “nearly every aspect of its business” by luring Intel workers to reveal trade secrets.
Broadcom denied the charges. Rambus said it would contest both rivals’ claims.
The hybrid nature of chip design forces the industry to negotiate broad patent swaps. When no agreement can be reached, lawsuits follow. This contrasts with industries like pharmaceuticals, where drug companies seek exclusive rights to blockbuster drugs.
The paradox is that no semiconductor can be made with just one company’s patents. Every chip is a mix of circuit designs, manufacturing processes and material science that depend on active cross-licensing of many companies’ patents.
“Patents are a sword and a shield,” Nycum said. “Normally, intellectual property protection is used as a shield. It gives companies protection against competitors. But when competitors feel threatened, intellectual property becomes a sword.”
The Rambus suits are part of an ongoing battle by the company to force major chip makers to recognize its key memory acceleration patents. Hitachi Ltd. and Toshiba Corp. signed licenses with Rambus this summer. But Rambus remains locked in a battle with Infineon of Germany, among others, to force them to agree to its terms.
Morgan Stanley Dean Witter analyst Mark Edelstone said he believes Rambus’ patent portfolio remains strong and will prevail in court. The company is likely to drive hard bargains with manufacturers that resist it, he said.
Because Rambus licenses its technology to manufacturers but builds no products of its own, the company is forced to be very aggressive in the protection of its patents, said Joe Osha, semiconductor analyst at Merrill Lynch.
Similarly, Intel has always been very litigious, but in the Broadcom case this appears to stem from competitive weakness.
“Intel has not managed to gain much traction in the Internet business. Broadcom’s success has been because it beat [Intel communications chip unit] Level One to market. Period. Repeatedly,” Osha said, speaking as a market watcher, not a legal expert.
High-tech innovation wasn’t always so litigious. Driven by often utopian visions of technical possibility, engineers during the formative years of Silicon Valley in the 1960s and 1970s freely exchanged ideas and copied one another’s work.
The milieu of free idea exchange gave birth to the PC during the 1970s. Apple co-founders Steve Jobs and Steve Wozniak and Microsoft’s Bill Gates and Paul Allen got their starts in this early freewheeling era, but they took things further by transforming the ideas into hardware and software they could patent.
But the urge to litigate now lives in the very sinew of the industry, with many major electronics companies deriving a healthy share of their profits, if not their revenues, from royalty license payments by other companies. It’s why lawyers hold senior executive positions at many circuit makers.
