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“Get Rich, or Die Trying”: Lessons from

Rambus' High‐Risk Predatory Litigation
in the Semiconductor Industry
a b c
Richard Tansey , Mark Neal & Ray Carroll
a
Department of Management, Marketing and International
Business, Texas A&M International University, USA
b
Department of Management, Sultan Qaboos University, Oman
c
Dalhousie University, Halifax, Canada
Version of record first published: 14 Oct 2010.
To cite this article: Richard Tansey , Mark Neal & Ray Carroll (2005): “Get Rich, or Die Trying”:
Lessons from Rambus' High‐Risk Predatory Litigation in the Semiconductor Industry, Industry and
Innovation, 12:1, 93-115
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Industry and Innovation,
Vol. 12, No. 1, 93–115, March 2005
ARTICLE
‘‘Get Rich, or Die Trying’’:

Lessons from Rambus’ High-Risk
Predatory Litigation in the
Downloaded by [School of Oriental and African Studies] at 10:24 20 March 2013
Semiconductor Industry
RICHARD TANSEY*, MARK NEAL** & RAY CARROLL{

*Department of Management, Marketing and International Business, Texas A&M
International University, USA, **Department of Management, Sultan Qaboos University,
Oman, {Dalhousie University, Halifax, Canada
ABSTRACT Patent litigation is a visible and widespread feature of the semiconductor

industry, as firms pursue judicial mechanisms to defend, or promote, their intellectual
property portfolios. This study highlights the antecedents, strategic goals, tactics and
outcomes of the most significant US trial of this type in the last decade, namely
Rambus v. Infineon, whereby a smaller company (Rambus) successfully pursued a
‘‘do or die’’ litigation campaign against a larger rival, thus changing the rules of
engagement for the semiconductor industry as a whole. This campaign is notable, not
just because of its undoubted effects on the semiconductor industry, but because of
the innovative nature of Rambus’ strategy, which was extremely risky both in terms of
its prospects of success and its potential damage to the company if it failed. Arguing
that dominant logic and operating rules are important antecedents in the development
and pursuit of patent litigation strategies, this paper analyses the Rambus case using
a ‘‘dominant logic’’ and ‘‘effectuation’’ framework. Doing so demonstrates the
innovative nature of Rambus’ ‘‘high-risk predatory strategy’’, the outcome of a
dominant logic sustained by effectuation principles. The paper discusses the impact
and significance of this new strategic form.
KEY WORDS: Patent litigation, Rambus, semiconductor industry
In the landmark 2003 Rambus v. Infineon case (Lemley, 2002; Alban,

2004), the United States Court of Appeals for the Federal Circuit (CAFC)
ruled in the plaintiff’s favor on several critical issues regarding patent
Correspondence Address: Richard Tansey, Department of Management, Marketing and

International Business, Texas A&M International University, 5201 University Boulevard,
Laredo, TX 78041-1900, USA. Email: rtansey@tamiu.edu
1366-2716 Print/1469-8390 Online/05/010093–23 # 2005 Taylor & Francis Group Ltd
DOI: 10.1080/1366271042000339076
94 Richard Tansey et al.
disclosure at an industry standard-setting organization (SSO). Until then,

US patent legislation, especially the 1984 Semiconductor Chip Protection
Act, favored the interests of large manufacturers. This original 1984
legislation was ‘‘one of the few intellectual property laws with an express
reverse engineering privilege’’ (Samuelson and Scotchmer, 2002: 1587).
Thus both existing intellectual property (IP) laws and economic advantages
of size, particularly differential advantage in effectively using trade secrets,
favored the financial interests of large manufacturers of semiconductors
over those of small IP rivals. The historical significance of Rambus v.
Infineon 2003 was to reverse the swing of the legal patent pendulum in
favor of small IP firms. A seemingly peripheral smaller company thus

changed the rules of engagement in the semiconductor industry to suit
itself over much larger competitors.
How was this achieved? This paper discusses the events leading up to
the monumental (and unexpected) changes enacted by Rambus v.
Infineon 2003. Doing so, demonstrates the novelty of Rambus’ IP strategy,
a novelty that partly explains the semiconductor cartel’s inability to
recognize the threat it posed, or to resist its campaign effectively.
Much has been written about aggressive semiconductor IP strategy
(Hall and Ziedonis, 2001; Meurer, 2003; Ziedonis, 2003). This paper
theorizes Rambus’ IP strategies, and finds them to be novel, by
recognizing that they are at once (1) predatory (Hinthorne, 1996) rather
than merely ‘‘aggressive’’; and (2) that the firm’s dominant logic (Prahalad
and Bettis, 1986; Bettis and Prahalad, 1995) is governed by ‘‘effectuation’’
rather than ‘‘causation’’ principles (Sarasvathy, 2001). This combination of
predatory values and effectuation principles results in a new form of IP
strategy: high-risk predatory litigation.
The favoring of large companies by IP legislation up until Rambus v.
Infineon 2003 meant that challenges to the ‘‘status quo’’ were unlikely to be
brought by large companies who were generally comfortable with current
regulations. It was thus only smaller IP companies who had an interest in
challenging the rules of engagement. Understandably, because of their
size, most smaller IP companies were unable or unwilling to pursue an
aggressive litigation campaign against their much larger rivals. Litigation is
extremely expensive, and this very expense again favored the cash-rich
cartel. Most small companies, although active in piecemeal litigation, were
simply not rich enough to pursue long and highly contested campaigns
where a negative outcome could lead to bankruptcy.
Rambus was different. The combination of predatory values with
effectuation principles meant that its dominant logic sustained a ‘‘do-or-die’’
strategy of high-risk predatory litigation. This relatively small company thus
literally risked its existence on the success of its litigation campaign. As we
shall see, the unshakable nature of its (mutually sustaining) dominant logic,
predatory values and effectuation principles becomes apparent when one
considers the obstacles and crises it encountered en route to its 2003 victory.
At one stage the judicial decision went against Rambus, resulting in a series
‘‘Get Rich, or Die Trying’’ 95
of class action suits that threatened its very existence. It is in such crises that
one can best assess the dominant logic that sustains companies’ strategic
courses. Rambus, facing hostile criticism from commentators and its own
shareholders, continued relentlessly on to a higher level of legal engagement,
risking further loss and eventual bankruptcy.
The changes enacted by Rambus’ eventual victory have radically shaken
up the semiconductor industry. This remarkable transformation could only
have been achieved by a small company willing to risk it all in a relentless
litigatory campaign. An examination of just such a company reveals the
reasons for its eventual success—a high-risk predatory IP strategy, the
outcome of a dominant logic sustained by effectuation principles.
Rambus’ High-Risk Predatory Attack on the Semiconductor

Oligopoly
The global Dynamic Random Access Memory (DRAM) industry has
experienced a major transformation in the last decade. From 1974 to 1998,
average annual revenue growth was 22 percent, reaching a high in 1995
with aggregate industry revenue of US$40 billion (Victor and Ausubel,
2002). By 1998, however, industry revenues had fallen to only a third of
their peak earnings, and the years between 1998 and 2003 actually saw
negative earnings, as the largest firms used low prices to preserve market
share (Assimakopoulos et al., 2003).
Today, this global industry is a mature oligopoly dominated by four
large firms (listed with market share): Samsung (32 percent), Micron (18
percent), Infineon (12 percent) and Hynix (13 percent) (Inquirer, 2003). The
industry incumbents were Micron and Infineon, while the two Korean firms
were latecomers who used their linkages to IP companies to overcome
industry entry-level barriers (Mathews, 2002). Until recently, these firms
focused on producing DRAM, which represented the highest volume
commodity integrated circuit built today, comprising 11 percent of the total
semiconductor market (Assimakopoulos et al., 2003). By concentrating on
high-volume standardized products, and competing mainly on cost-cutting
and price, this semiconductor industry has thus behaved like more
traditional manufacturing sectors. Although the industry enjoyed a
reputation for being entrepreneurial because of its historical Silicon
Valley origins, in reality it pursued a very conservative product strategy.
As Victor and Ausubel (2002) noted:
[DRAM] managers should take note that for all their famous entrepreneurial
independence, the heroes of Silicon Valley and other high-tech regions have
collectively behaved like perfectly programmed robots. (p. 261)
Such collusive industry behavior produces a new generation of incrementally
improved DRAM every 2 or 3 years. These new products are merely the
modified ‘‘fruit flies of technological evolution’’. (p. 244)
DRAM firms were also conservative when it came to IP strategy,

preferring a policy of defensive patenting (Gallini, 2002; Samoya, 2003). As
a strategy, defensive patenting had led the dominant DRAM firms to amass
large patent portfolios clustered around their technologies. The firms then
used core patents in the portfolio to engage in frequent cross-licensing
deals. Such patent exchanges were advantageous in that they avoided
expensive infringement suits, and reduced each manufacturer’s need to
create many of the basic components required in new products.
Understandably, large firms preferred the security of cross-licensing to
the uncertainty of patent litigation. This preference was rational in
situations where the possible targets of litigation themselves wielded

extensive patent portfolios, and thus had the ability to counter-sue,
claiming infringement of their own IP rights. If escalated, such patent
litigation could lead to destructive and prolonged ‘‘mutual blocking’’ of both
parties’ products and processes (Samoya, 2003: 20). This explains why
myriad patent infringements, which were not the subject of cross-licensing
deals, were not acted upon.
This is not to say that all was quiet. On the contrary, the framework of
defensive patenting merely contained IP patent litigations such that they
did not hit epidemic or total-war levels. Within the overall framework of
cooperative cross-licensing, prolonged and bitter disputes indeed occurred
between the large companies; and smaller design companies were notably
litigious (for figures see Hall and Ziedonis, 2001). Many of these campaigns
were ‘‘exclusionary’’ in the sense that firms pursued patent litigation to
exclude rivals or direct competitors from technology use or licensing deals,
and thus to prevent rivals from obtaining future market share. Some suits
were ‘‘opportunistic’’, whereby an IP firm sought to extend or stretch the
remit and understanding of its patents, to establish prior ownership of
existing or novel technologies (Meurer, 2003). Executives commonly
pursued such litigation strategies in the hope that defendants would settle
early, thus securing cash or license income without the cost of going to
court. Importantly, suits of either type were usually moderate in scope and
potential impact. They were designed and prosecuted to secure money or
market from the target company, not to eliminate it completely.
Large companies were thus normatively and pragmatically averse to
patent litigation, which they usually encountered in its ‘‘exclusionary’’ and
‘‘opportunistic’’ forms. Because of their beliefs and circumstances, such
companies were especially averse to a rarer but more threatening third
form of litigation: ‘‘predatory litigation’’ (Hinthorne, 1996). Although there is
considerable overlap with the other categories, ‘‘predatory litigation’’ can be
distinguished by its extreme persistence and potential destructive impact.
As a strategy, predatory litigation is designed to cause maximum,
irreparable harm to its target. Companies pursuing this form of litigation
are typically tenacious and single-minded in achieving their objectives. If
they do not win at first, they move to a higher level of legal engagement and
continue their campaign there. As with the other categories of patent
litigation, predatory litigation can be used to achieve early settlement.

Unlike other patent litigation strategies, however, this is not a primary
objective. If the target firm does not settle, the litigant persists until either
the destruction has been achieved, or it eventually loses the case at the
highest level.
Rambus and Predatory Patent Litigation Strategy

The DRAM firm Rambus was founded in March 1990. From the beginning, it
threatened to revitalize the industry’s entrepreneurial ethos by designing
radically new high-speed specialty DRAM for next generation memory

devices (RDRAM)1. Because of the company’s small size, IP business model
and its entrepreneurial focus on radical innovation, Rambus’ executives
challenged industry norms with an alternative dominant logic (Bettis and
Prahalad, 1995) and set of effectuation rules (Sarasvathy, 2001) for
positioning itself within the semiconductor industry. In particular, Rambus
rejected industry norms that sanctioned and sustained ‘‘defensive patenting’’.
This paper examines Rambus as an instructive example of predatory
patent litigation strategy in the semiconductor industry. It shows how
Rambus’ dynamic strategy began as opportunistic litigation, but in
response to ‘‘technological lockout’’ by the main DRAM manufacturers, it
escalated its activities to the predatory exclusionary level. Rambus’
activities thus flew in the face of the negative industry view of predatory
patent litigation. Its suits against Infineon and JEDEC2 (the industry
standard-setting body that approves new DRAM device standards)
conflicted not only in practice, but in normative principle—and it was at
both levels that the conflicts were understood and prosecuted by the
parties involved. Through an examination of this clash of dominant logics
and operating principles, this paper thus argues three things:
1. Rambus’ entrepreneurial IP licensing model and its firm dominant
logic, its patent litigation goals, tactics and behavior were highly
unorthodox in an industry accustomed to oligopolistic behavior
among the four major DRAM manufacturers.
2. Patent disclosure duties at SSOs such as JEDEC play a critical role
in shaping the speed and economic efficiency of disseminating new
innovations (Scotchmer, 1991; Lemley, 2002). Economists have
traditionally focused on the conflicting incentives that steer
manufacturing firms to choose trade secrets or patents to protect
their new innovations (Besen and Raskind, 1991; Scotchmer, 1991;
Gilbert and Newberry, 2001). Such analyses are, however, ‘‘one
1
Rambus Dynamic Random Access Memory.
2
JEDEC Solid State Technology Association was formerly known as the Joint Electronic
Device Engineering Council. Founded in 1960, it has grown to become the most important
standardizing trade council for the semiconductor industry.
eyed’’ in that they ignore or underplay the impact of early SSO

disclosure duties on a firm’s ability to protect its new innovations
against rivals’ reverse engineering tactics (Lemley, 2002). The
Rambus case demonstrates a firm’s ability, through high-risk,
predatory litigation strategy, to change the very rules of engage-
ment in an industry, thus redefining the nature, contents and
efficacy of the patents held.
3. Predatory patent litigation is periodically necessary for the creative
destruction of industry rules and norms that stifle major innovations
and new business models (Schumpeter, 1975: 82–85). Rather than
being damaging, predatory patent litigation creates new institutional

mechanisms that encourage entrepreneurial firm behavior for
reinvigorating the growth of mature industries.
From Closed to Open Business Innovation Models in the Global

Semiconductor Industry
According to scholars such as Hamel and Prahalad (1993), managerial
frames of reference shape a firm’s comprehension of its own business
activities and the nature of its industry. As mental models (Foster and
Kaplan, 2001), these frames of reference include a firm’s assumptions,
premises and accepted wisdom; as such, they are usually implicit, invisible
and inarticulate. Although these latent aspects make it difficult for
researchers to uncover a firm’s current business model, reference frames
determine a firm’s strategic reasoning, dominant logic and temporary firm
advantage in ambiguous and complex markets (Eisenhardt and Sull,
2001). Importantly, such mental models encourage managers to sustain a
dominant logic (Prahalad and Bettis, 1986; Bettis and Prahalad, 1995): ‘‘a
set of heuristic rules, norms and beliefs that managers create to guide their
actions’’ (Chesbrough and Rosenbloom, 2002: 531). A firm’s dominant
logic thus acts as an information filter for selectively focusing on and
interpreting only a small proportion of available external data, and it can
thus impose constraints on an organization’s ability to learn and develop.
At best, a firm’s dominant logic represents a local optimal solution, based
on a set of simple rules for succeeding in prevailing industry conditions
(Eisenhardt and Sull, 2001). It is not a global strategic solution, but offers
firms a limited set of rules for temporarily exploiting fleeting opportunities in
complex, emerging business contexts.
The global semiconductor industry’s old dominant logic for managing
patents has been characterized as a ‘‘closed innovation business model’’
(Chesbrough, 2003). Within this traditional paradigm, each firm concen-
trated on discovering IP aimed at maximizing the number of new products
they individually introduced into the marketplace. Firms hoarded their
internally developed IP by erecting ‘‘patent thickets’’ (Shapiro, 2000) to limit
rivals’ access to their proprietary technologies (Hall and Ziedonis, 2001;
Ziedonis, 2001). Patents were thus employed strategically to erect entry

barriers against rivals in an effort to gain first mover advantages. The
market rewarded firms primarily for internally developing their own new
products and processes, rather than creating IP for widespread external
use (Grindley and Teece, 1997).
As part of this ‘‘closed innovation model’’ dominant logic, a limited type
of cross-licensing existed between semiconductor firms to reduce the costs
of using another firm’s proprietary technology. Since semiconductor
devices represented cumulative system technologies (Grindley and
Teece, 1997), few firms could build all the essential device components
without access to other firms’ patent portfolios (Hall and Ziedonis, 2001).
Cross-licensing allowed a company to obtain permission to manufacture
another firm’s patented technology.
Such cross-licensing agreements created an inexpensive means for
obtaining limited access to a rival’s patent portfolio by securing field-of-use
licenses. Such licenses generally lasted for only 5 years, allowing another
firm to manufacture a rival’s patented technology by using only their own
proprietary knowledge. These licenses thus did not provide for inter-firm
sharing of trade secrets. They merely granted rival firms the right to duplicate
a patent holder’s technology without being sued for infringement. Through
this legal mechanism, cross-licensing fees were kept ‘‘artificially low’’ in the
pre-1990 semiconductor industry (Grindley and Teece, 1997: 16).
The rigid link between internal IP and internal control/manufacturing has
recently been decoupled under the emerging ‘‘open innovation business’’
model (Chesbrough, 2003). The old dominant logic’s core premise that ‘‘We
should control our intellectual property, so that our competitors don’t profit
from our ideas’’ has been replaced with a realization that external sharing can
generate important revenue sources, and superior business models than a
firm’s own internal business platform. In this way, IP licensing allows a firm
the opportunity to enter new high-growth markets by collaborating with
partners who have superior business models.
Patent licensing exploded in the decade of the 1990s. The USA
became the world’s largest IP exporter in 1998, enjoying a net trade
account surplus of US$36 billion (Chesbrough, 2003: 41). Often overlooked
in political discussions of the overall US foreign trade deficit is the fact that
Japan and South Korea together account for 63 per cent of US IP exports
(Grindley and Teece, 1997).
Rambus’ licensing fees directly challenged the global semiconductor
industry’s closed innovation model of low cross-licensing fees by
increasing its IP customer fee rates two to five times over traditional
industry fees. Rambus’ South Korean and Japanese partners were willing
to pay such ‘‘exorbitant’’ license fees during the 2000–2003 semiconductor
recession, because they were shifting their product mix away from
commodity memory chips that were declining in price, to higher priced
new niche networking and personal computer chips. This strategic choice
represented another instance in which Asian latecomer technology firms
used licensing to ‘‘leap-frog’’ incumbents who were locked into current

industry manufacturing standards (Mathews, 2002: 474). In contrast, the
incumbents, Infineon and Micron, judicially opposed Rambus’ new open
innovation licensing model.
Several legal reasons explain why US semiconductor firms demanded
low industry IP license fees for using external IP (Hall and Ziedonis, 2001;
Lee and Evans, 2002; McDaniel, 2002). Past judicial and economic
conditions encouraged memory manufacturers to rely on four basic
foundational premises in their dominant logic:
1. The judicial enforcement of patent laws was weak. US patent

infringement litigation was notoriously slow and costly. Defense
attorneys thus often succeeded in obtaining dismissals for patent
infringement cases on dubious grounds of antitrust and patent
misuse (Wade, 1995; Grindley and Teece, 1997).
2. The weak enforcement of patents encouraged companies to
circumvent a rival’s patent scope by reverse engineering. Within
the first year of a product’s introduction into the marketplace, rivals
were able to reverse engineer 70 percent of the new semiconduc-
tor products in the early 1990s (Slater, 1993). Despite this
widespread piracy, legal loopholes and judges’ limited technologi-
cal expertise allowed engineers to succeed in persuading judges
that firms’ proprietary devices did not infringe on existing patents
(Hall and Ziedonis, 2001). In these conditions, such legally
unprotected innovations become ‘‘fugitive resources’’, since they
move freely between firms (Teece et al., 1997).
3. Semiconductor firms used industry standard-setting bodies,
especially JEDEC, to develop industry standards and ‘‘reasonable’’
IP licensing fees for new memory technologies. Under JEDEC
rules, members assessed each other’s patent fees between 1 and
2 percent (Rambus, Inc. v. Infineon Technologies, AG, 2001;
Varchaver, 2001). Thus, JEDEC’s activities legitimated large
memory manufacturers’ dominant-logical preference for low IP
licensing fees.
4. The DRAM market was a commodity market with very narrow profit
margins for manufacturers (Mazurek, 1999; Assimakopoulos et al.,
2003).
As core premises, these foundational beliefs underpinned the dominant
logic shared by the big DRAM manufacturers, thus sustaining their
strategic conservatism.
Rambus’ Rival Dominant Logic for Open Innovation IP Licensing

Rambus’ patent litigation efforts to secure higher license fees from memory
manufacturers follows Hamel and Prahalad’s (1993) view of entrepreneurial
corporate behavior as a form of ‘‘strategic stretch’’. By leveraging a firm’s

aspirations beyond typically pursued industry bounds, firms emphasize their
‘‘unique core competencies to destroy existing industry structures in order to
redefine the competitive rules of the game in one’s favor’’ (Stoelhorst, 2002:
262).
Rambus stretched its legal activities away from a traditional defensive
posture that emphasized a narrow defense of its patent rights, and towards
an assault on the validity of JEDEC patent disclosure policies and its ability
to set low IP licensing fees between firms. Rambus thus developed an
alternative set of premises, collectively sustaining a new dominant logic for
licensing IP within the global semiconductor industry:

1. Strong judicial enforcement of recent pro-patent legal rulings.
Because of recent improvements in efficiency, and the pro-
entrepreneurial bias, of civil courts, especially the US CAFC,
patent holders can quickly and inexpensively defend their rights
against firms that infringe their patents. This transformed judicial
environment allows IP firms to pursue strategies based on speed,
innovation, customer focus and greatly improved productivity,
rather than internal control and coordination (Nadler and Tushman,
1997). Thus Rambus executives implicitly agreed with Digital
Equipment Corporation’s (DEC) famous dictum: ‘‘Our patents can
be a sword or a shield. They give us freedom of action’’ (Stratton,
1995: 49).
2. Patents as offensive ‘‘smart bombs’’ (Rivette and Kline, 2000)
against rivals’ reverse engineering tactics to circumscribe another
firm’s patent rights. Patents give a firm the right to ‘‘stake out and
defend a proprietary market advantage’’ (Rivette and Kline, 2000).
Ensuring secure domestic and international patents protects new
proprietary memory architecture. Patenting proprietary architec-
tures is legally more effective than patenting incremental innova-
tions based other firms’ prior art (Morris and Ferguson, 1993).
3. The creative destruction of industry standard-setting rules. Industry
conflict is a positive means for removing arbitrary rules and norms
that reinforce the status quo, which is skewed in favor of large
memory manufacturers. For high-tech Silicon Valley firms, daily
conflict stimulates innovative thinking as an alternative to industry
norms and rules, and creates superior knowledge of options and
improves decision-making quality (Eisenhardt and Sull, 2001).
4. Rambus’ peripheral strategy to change the industry’s commodity
orientation. Although the center of the global DRAM industry is
crowded with a handful of mature commodity products (Wade,
1995), new product spaces exist on the industry periphery for
innovative and premium-priced niche products. Some advanced
niche products will create large and lucrative markets to replace the
DRAM industry’s over-dependence on a few glutted commodity
markets (Chesbrough, 2003). Dominant DRAM manufacturers

maximized their revenue by mass production of commodity chips
with small profit margins, rather than following an uncertain
strategy of producing a small number of premium priced specialty
memory chips for developing new consumer electronics product
markets.
Rambus thus followed ‘‘effectuation’’ rather than ‘‘causation’’ principles
for pursuing their aggressive patent litigation campaigns against the largest
global memory manufacturers (Sarasvathy, 2001). Causation processes
assume that particular outcomes (dependent variables) are given, such as
an industry’s rules and norms comprising its dominant logic; and then
managers focus on selecting the means (independent variables) to achieve
these outcomes. Memory manufacturers have traditionally assumed that a
one-to-one mapping exists between outcomes and means.
Since memory manufacturers focused on their dominant logic’s four core
foundations as the ends of their strategic endeavors, judicial activity was
narrowly perceived as a defensive means of preserving any one of these
premises.
Rambus’ effectuation processes reversed such managerial decision
making by taking a set of means, i.e. a set of dominant logic premises, as
given; and instead focusing on using any of these means to devise multiple
new creative judicial strategies for establishing their firm’s dominant logic
as the new industry IP licensing model. Since effectuation processes
involve mapping one mean to many outcomes, such processes are actor-
dependent and are excellent at exploiting environmental contingencies,
especially altered judicial landscapes. Rambus’ aggressive patent litigation
policy against memory manufacturers thus followed three core effectuation
principles (Sarasvathy, 2001):
1. Strategic criteria of affordable loss, not expected returns. Rambus
pursued expensive suits against Infineon, Micron and Hynix in
multiple countries at different judicial levels (see Table 1 in the
Appendix). Because of initially large cash reserves, Rambus focused
on whether its legal costs were survivable, rather than justifying to
shareholders expected returns on such legal investments.
2. Tactical exploitation of situational contingencies instead of exploita-
tion of pre-existing industry knowledge. Rambus attempted to
capitalize on various legal contingencies, i.e. ‘‘court shopping’’ for
sympathetic judges and state legal systems that favored the rights
of small firms.
3. Strategic control of an unpredictable future rather than predicting an
uncertain future. Rambus’ recent victory over Infineon in the US
CAFC allows Rambus executives future strategic control for when
and how they are legally required to disclose new patented
technology at JEDEC standard-setting meetings in the DRAM
industry. This historic CAFC decision nullifies JEDEC’s previous
rule that all participants must disclose their proprietary patent

interests at the beginning of JEDEC’s discussion concerning the
adoption of a new industry memory standard. This court ruled that
firms were not legally required to disclose their relevant patents until
at the last stage, when member firms had to vote on whether to
adopt a new standard. This decision allows Rambus to conceal its
new patents, often for extended time periods, and thus to lessen
the future unpredictability of a rival infringing its patent rights or
circumventing them by reverse engineering.
To explore these issues the following section examines this now-famous

Infineon–Rambus dispute. As with all its strategic litigation to date, Rambus
embarked on a policy of collapsing and prosecuting normative, legal and
trade conflicts in order to challenge the dominant logic enshrined in industry
regulation. This is a landmark example of conflict between dominant logics
based on effectuation and causal principles, which demonstrates how one
small player using effectuation rules can overturn the rules of engagement
for larger players who are richer, longer-established and more strategically
conservative.
The Origins of the Infineon–Rambus Dispute: A Strategic Response

to Technological Lockout
In 1999, Rambus faced an unexpected roadblock for pursuing its RDRAM
strategy: the three largest Integrated Device Manufacturers (IDMs) refused
to adopt RDRAM as their standard memory device, and Intel followed their
lead by abandoning its strategy of using RDRAM as its main memory
device for its Pentium computers. Schilling (1998) defined this type of
situation as a form of ‘‘technological lockout’’ (p. 267), when an industry
rejects a firm’s product as a dominant design. Despite investing $850
million in memory IDMs, especially Samsung and Micron, Intel had failed to
convince memory IDMs about RDRAM’s superiority: IDMs instead believed
that SDRAM3 and DDR4 were cheaper, smaller and faster. Reacting to IDM
truculence, Intel finally capitulated by relegating RDRAM to niche product
status for its high-end desktop PCs and network equipment.
Rambus responded quickly to the Intel cancellation by initiating an
extended litigation campaign against memory manufacturers, claiming that
IDMs had illicitly incorporated RDRAM features (delayed lock loop, variable
block size, delay line latency and dual edge clocking) into the JEDEC-
approved SDRAM and DDR standards. As part of this campaign, Rambus
issued an ultimatum to Infineon, Micron and Hynix: pay a DDR royalty fee
of 3.5 per cent (almost double normal fees) and a 0.75 per cent SDRAM
royalty fee, or face Rambus patent infringement suits (Jacobs, 2001). A
3
Synchronous Dynamic Random Access Memory.
4
Double Data Rate.
semiconductor columnist described this strategy as the ‘‘new-millennium

Rambus—wielding a patent club in one hand and beckoning ‘come join us’
with the other’’ (Lammers, 2000).
This ‘‘new millennium strategy’’ represented a predatory campaign to
destroy the semiconductor industry’s ‘‘closed’’ low-priced IP licensing
model, and to use higher DDR fees as a means to force IDMs to adopt
RDRAM as the next generation memory device. Rambus thus attempted to
exploit the fact that IDM infringers were caught in a vise, namely memory
producers either paid above normal license fees to Rambus for licensing its
DDR patents or faced grave litigation risks. If memory firms paid Rambus’
licensing fees, then they severely eroded already thin operating margins. If
they refused to pay these fees, then Rambus could succeed in obtaining
costly legal damages against them. Thus, Infineon, Micron and Hynix faced
a lose–lose legal predicament because of Rambus’ willingness to leverage
its broad patent portfolio.
To escalate their legal advantage, Rambus demanded that IDMs
comply or face costly patent litigation. Rambus punctuated this demand,
threatening to impose 10 percent license fees, or even worse, refusing
future licenses to non-complying IDMs. Rambus implemented this threat by
filing cases against three of the world’s largest memory manufacturers in
US, German, French and British courts.
Multiple, Uncertain Outcomes I: The Strategy Rebounds
Patent and intellectual property cases are complex, especially when dealing
with a technical subject like integrated circuit design. In the case of Infineon
vs. Rambus it is clear that Rambus made some mistakes in the first trial that
they are not likely to repeat. But there is also reason to believe the non-
technical judge was out of his league when he attempted to dissect the
patents and determine their applicability to Infineon’s products, which he
knew little about. There is also speculation that political pressures had more
influence on the case than the technology itself. (Pitcairn, 2001)
In the ‘‘complex, high-stakes’’ conditions of the semiconductor industry

(Hinthorne, 1996), Rambus filed a suit in the US Eastern District Court of
Virginia against Infineon in 2001 for infringement of four patents and 57
claims (McDaniel, 2002). Nicknamed the ‘‘Rocket Docket’’ for its speed in
resolving civil cases, this court offered Rambus the possibility of obtaining
a summary judgment or a short trial (6–8 months). Several semiconductor
analysts agreed that Rambus’ litigation strategy was sound since its
patents were well written with several pages each of detailed technical
references (Lammers, 2000).
The IDM litigation campaign was initiated and sustained by a
‘‘pragmatic’’ belief that aggressive litigation created a sustainable
competitive advantage against rivals in commodity-oriented industries
(Hinthorne, 1996). There were, however, risks associated with this strategy
and its tactical use of effectuation rules, risks that were either ignored or
concealed. Certainly, Rambus executives did not produce a detailed
disclosure of the nature and scale of the risks and potential liabilities of
litigation. Their accounting disclosures downplayed the economic costs
(see Table 1) and omitted a factual discussion of the legal risks Rambus
incurred by suing Infineon. Instead, Rambus’ disclosures emphasized that
its legal case was strong, it would quickly and decisively prevail, and its
large positive cash flow made all litigation costs easily affordable (Rambus,
2000).
The initiation of the IDM litigation campaign was based on two

managerial beliefs at the core of Rambus’ dominant logic. Rambus
executives believed that the US legal landscape had dramatically changed
during the 1980s in favor of protecting patent holders’ rights (Ziedonis,
2003). They were thus challenging the semiconductor industry’s conven-
tional wisdom that weak laws allowed Rambus’ rivals to reverse engineer
around its patents with impunity. Secondly, Rambus initiated its litigation
offensive as a form of ‘‘smart bomb’’ (Rivette and Kline, 2000), anticipating
that civil courts were increasingly adopting a more ‘‘plastic’’ interpretation of
existing statutes in favoring patent holders’ rights, especially in cases
where proprietary architecture patents were infringed. In such complex,
high-stakes legal cases, law tends to become elastic since there are
several alternative sources for developing a legal position (Hinthorne,
1996). Legal doctrines are vague and capable of ‘‘multiple and inconsistent
interpretations’’ (Hinthorne, 1996: 262).
These two Rambus dominant logic beliefs help explain why this firm’s
executives denied or publicly discounted the gravity of legal problems that
either they had not anticipated, or issues for which they were under-
prepared. The validity of Rambus’ dominant logic was more likely to be
affirmed at the judicial appellate level rather than the local state level where
legal change could often operate at very slow speed.
Rambus executives thus made a grave strategic error by failing to
realize that many lower federal court judges remained unsympathetic to
patent holder rights. They were thus surprised by the following legal
setbacks in the opening round of the Infineon case:
1. Judge vs. jury driven patent litigation process creating an adverse legal
environment for plaintiffs.
The US Supreme Court Markman II ruling stipulated that, ‘‘patent claim
construction is a matter exclusively for the trial judge, not the jury’’
(McDaniel, 2002: 20). Rambus thus exposed itself to multiple legal risks by
filing the Infineon case in the Eastern District Court of Virginia. In particular,
its attorneys were unable to anticipate the assignment of the presiding
judge. This court randomly assigned patent cases to all available judges
and had opted not to designate a single judge as a patent specialist. Less
than 1 percent of all US civil court cases involve patent litigation (Lee and
Evans, 2002). As a consequence, most Federal District Court judges lack

the expertise to preside over complex patent infringement cases. In
summary, Rambus’ attorneys thus faced an adverse legal environment
favoring defendants’ rights, since judges tended to rule in favor of
defendants’ claims that patents should be narrowly construed (Lee and
Evans, 2002).
2. The misfortune of being assigned a conservative judge.

In Rambus, Inc. v. Infineon Technologies, AG (2001), the plaintiffs’ attorneys
confronted Judge Robert L. Payne who, in his Markman rulings, rigorously
pursued a narrow interpretation of both the claims and artwork contained in

the disputed patents. A Markman hearing is a critical stage in a US patent
infringement case, whereby the judge decides on both the scope and
meaning of key terms in the patents (Ryan, 1999; Lee and Evans, 2002). In
the Infineon case, Judge Payne made several Markman rulings that severely
hindered the ability of Rambus’ attorneys to prosecute their case:
(Markman1) Judge Payne ordered that the entire discovery process be
completed before beginning the Markman hearing. In its Markman II ruling,
the US Supreme Court had encouraged district courts to conduct Markman
hearings early in the trial process so attorneys could more effectively conduct
their search presentations within the parameters defining the disputed
patent’s scope. This however did not happen in this trial. Thus, Rambus’
attorneys presented evidence in the discovery process without knowing
how the judge would interpret the scope and content of their memory patents.
(Markman2) Judge Payne relied heavily on extrinsic legal evidence
provided by technical experts to arrive at his Markman decisions. Judges in
this district court usually relied on intrinsic evidence to render such decisions
(McDaniel, 2002). Because of Judge Payne’s reliance on extrinsic evidence,
Rambus was at a disadvantage in the discovery process for presenting
evidence to influence the judge’s Markman rulings. Rambus literally had to
guess what types of witnesses and information would be useful for obtaining
favorable rulings (Final Pre-Trial Conference, 2001).
(Markman3) Judge Payne adopted a narrow interpretation of Rambus’
patent claims, ruling that Infineon’s bus technology5 was not covered by
Rambus’ RDRAM tripled multiplex bus technology. After this ruling, he thus
dismissed Rambus’ patent infringement claims. But the examination did not
stop there. Judge Payne subsequently refocused the trial on Rambus’
allegedly fraudulent activities during its JEDEC membership between 1992
and 1996.
5
Bus: a set of wires that allows communication between the main microprocessor and
memory, i.e. addressing or instructions. In the Rambus v. Infineon case, Judge Robert
Payne ruled that Infineon did not infringe Rambus’ memory patents because Infineon used
an ordinary bus in its SDRAM and DDR DRAM memory devices. He ruled that the term
‘‘bus’’ in Rambus’ patent referred to a multiplexed bus.
3. Class action lawsuits triggered by Judge Payne’s fraud ruling.

From its conception, Rambus’ litigation strategy was reminiscent of
another legal quagmire (the Watergate cover-up) because of its
‘‘unethical’’ (Stern, 2001b) behavior at JEDEC meetings, especially
its use of a secret informer nicknamed Deep Squirrel (Stern, 2001b).
Rambus’ rivals focused their subsequent counter-Rambus legal
strategy on its ‘‘fraudulent’’ participation in JEDEC meetings,
especially its misappropriation of other members’ SDRAM trade
secrets (Stern, 2001a). In the light of this counter-evidence, the jury
in Judge Payne’s court eventually decided that Rambus was guilty
of fraud.
This verdict exposed Rambus to a flood of investor class action
suits. Under the 1995 Private Securities Litigation Reform Act (PSLRA),
Rambus had been shielded from frivolous investor lawsuits. The law
required a plaintiff’s attorney to include specific details of fraudulent
corporate actions as a necessary condition for filing a class action lawsuit
(Price Waterhouse Coopers, 2000). This fraud verdict stripped away
Rambus’ immunity from the following negative effects relating to Investor
Lawsuits (ILn):
(IL1) After the Infineon case, 15 civil cases were filed against senior
Rambus executives for insider trading. These suits alleged that Rambus
executives concealed information from investors about the firm’s fraudulent
JEDEC activities. For example, a legal firm, representing the Teachers’
Retirement System of Louisiana, was appointed lead attorney in a
consolidated class action suit against Rambus (Toiv v. Rambus Inc.,
Geoff Tate et al., 2001).
(IL2) Rambus did not disclose adequate estimates of the future class
action lawsuit costs. If Rambus were to win an appellate reversal of the
SDRAM fraud verdict, it might escape the huge litigation costs incurred
from investor lawsuits. If unsuccessful in obtaining a reversal, however,
it would have to defend itself in class action suits. The plaintiffs had
hired major law firms specializing in patent infringement cases. These
same law firms represented a formidable foe, especially after their recent
tobacco litigation victories in which they collected contingency fees
amounting to hundreds of millions of dollars. To illustrate the potential
legal whirlwind facing Rambus, consider the qualifications of William
S. Lerach, who had been recently appointed lead attorney to prosecute
Enron in a civil case (Iwata, 2002). He also filed a class action suit against
Rambus claiming fraudulent executive conduct and insider trading
(Matthew Greenblatt and Charles A. Harad v. Rambus Inc., Geoffrey R.
Tate et al., 2001). Lerach’s suit claimed that Rambus executives earned an
illicit $125 million profit through insider trading. As a small firm, Rambus
thus faced an uphill struggle against Lerach’s powerful firm, a firm that
employed two or three times more attorneys than the number of engineers
employed at Rambus.
Multiple, Uncertain Outcomes II: JEDEC Patent Disclosure Errors

For Austrian School (AS) economists such as Hayek (1968) the nature of
competition is a discovery procedure in which entrepreneurs discover new
facts that had previously been unknown to market participants. For Mises
(1966), the market process is driven by daring, imaginative speculation,
and the actions of entrepreneurs who see opportunities for pure profit in
conditions of disequilibrium (Kirzner, 1997: 71). Consistent with its ‘‘AS’’
entrepreneurial dominant logic beliefs, Rambus appealed, and the case
was sent up to the US CAFC. In the meantime, Rambus found itself circled
by potential litigants, and faced the prospect of spiraling legal costs,
multiplying suits and its reputation, indeed, its brand, indelibly tarnished.
Industry commentators at the time noted with some glee that Rambus had
lived by the sword and faced the prospect of dying by the sword.
Theoretically, one could add that Rambus was now circled by the multiple,
uncertain outcomes of its effectuation strategies.
Rambus, however, surprised its adversaries and won the case. More
than any other recent patent suit, Rambus’ eventual CAFC triumph over
Infineon dramatically changed the industry landscape that limited
competition against the four largest memory IDMs. Traditionally,
Schumpeterian winds of creative destruction were market-driven as new
products developed by entrepreneurial firms devoured market share
previously controlled by dominant mature products (Schumpeter, 1975:
82–85). However, in this era of intellectual capital strategic management, it
is increasingly likely that IP firms like Rambus will develop new forms of
legal IP to create more equitable industry rules. The pro-Rambus CAFC
ruling made the following changes and observations about JEDEC’s rules
and behavior:
1. The new CAFC ruling reversed the timeframe wherein patent
holders were legally required to disclose patents when discussing
new industry standards (Kanellos, 2003; Teel, 2003). Infineon had
argued that Rambus executives had violated JEDEC rules which
required patent holders to disclose their patents at the beginning of
discussions for adopting new SDRAM and DDR industry standards.
The appellate court decided that such disclosures were only
required at the end of these discussions just prior to members
voting on proposed new standards. Often JEDEC and related
industry groups meet over several years or more before voting on a
new DRAM standard. Thus, early disclosure rules encouraged large
memory IDMs to reverse engineer around Rambus’ patents as new
memory standards discussions dragged out for 6 years.
2. The new CAFC decision also added a potentially fatal corollary to
memory IDMs’ old dominant logic that patent laws were weak and
thus ineffective. The CAFC’s 2003 decision was actually a double
blow against IDMs’ dominant logic, since it negated the claim that
patent laws were weak, and added insult to injury by noting that
JEDEC’s disclosure rules had a ‘‘staggering lack of defining details’’

(Teel, 2003). The judges punctuated this point by observing that
most IDMs had systematically ignored the supposed early
disclosure rule, and had never disclosed their patent interests at
JEDEC standard-setting meetings. Thus, the new judicial ruling
affirmed Rambus’ dominant logic belief that patent laws were
strong, while publicly revealing and condemning the weak and
discriminatory state of JEDEC disclosure rules.
Creative Destruction through Predatory Patent Litigation

‘‘Electronics may have been new [in 1959] to the Valley, but lawyers were
not. Fairchild v. Baldwin would be the first in a never-ending parade of
trade-secret lawsuits that were a necessary corollary to the culture of
entrepreneurship’’ (Kaplan, 1999: 59).
At the birth of the Silicon Valley semiconductor industry, Fairchild
executives protected their new transistor technology by aggressively
initiating lawsuits against their rivals. Although industry executives tend to
forget the vital role played by lawsuits in creating their industry, this latest
judicial contest between Rambus and Infineon is just a new chapter in the
ongoing saga in which entrepreneurial companies use legal mechanisms to
survive and grow in the semiconductor industry.
Small intellectual property (SIP) firms such as Rambus play a critical
role in providing new, reusable and retargetable digital designs required in
advanced electronic devices. IDMs rely on SIP firms to provide state-of-
the-art techniques to develop next generation PCs, wireless chips and
systems on a chip. IDMs often do not possess the expertise or resources to
develop these new technologies themselves, and must therefore form and
sustain strategic alliances with SIP firms to reduce testing and validation
costs, accelerate time to market for new products, and reduce their
operation and manufacturing costs.
The failure of one such alliance, the Intel/Rambus strategic alliance,
explains why Rambus initiated its predatory patent litigation strategy
against memory IDMs, especially Infineon. Initially, the alliance with Intel
had accommodated Rambus’ aspiration to emerge as a major participant in
the global DRAM market. Intel’s cooperation promised not only to validate
RDRAM as a memory standard, but also to confirm Rambus’ status as a
premier semiconductor firm. The demise of this strategic alliance and the
prospect of ‘‘technological lockout’’ encouraged Rambus executives to
expand their patent licensing programs to SDRAM and DDR.
Rambus’ victory over Infineon in the CAFC is historic in significance for
expanding IP firms’ opportunities across technology industries. The ruling
rings in sweeping regulatory changes, which ensure a profound power-shift
within the industry. The new disclosure requirements significantly reduce a
firm’s ability to reverse engineer a rival’s patented technology. This
severely restricts IDMs’ strategic options, and renders them vulnerable to

further predatory litigation on past and current technology use. The
financial consequences of this ruling are also substantial: Rambus is
currently negotiating with Infineon, Micron and Hynix for US$1 billion
(Kanellos, 2003). Such developments are wholly consistent with Abraham
Lincoln’s observation that the patent system ‘‘added the fuel of interest to
the fire of genius’’ (Khan and Sokoloff, 2001: 244).
This litigation victory also raises the issue of how firms in the global
semiconductor industry compete. Traditionally, memory IDMs and design
firms competed on the basis of superior new products, time-to-market,
manufacturing process equipment and trade secrets (Ziedonis, 2003).

Coupled with recent legal victories by other IP-oriented firms, especially
Intergraph’s receipt of $300 million from Intel for infringing its micro-
processor patents (Graham, 2001; Hales, 2002), there is increasing
support for Hinthorne’s (1996: 254) claim that ‘‘lawyers and executives who
understand the law and structures of power in U.S.A. have a unique
capacity to protect and enhance share-owner wealth’’.
Rambus as an entrepreneurial IP firm has thus created two major forms
of IP for maximizing shareholder wealth, namely a new form of high-speed
DRAM and a new legal decision for patent disclosures at JEDEC standard-
setting meetings, which favors the SIP firm instead of memory IDM
interests. Thus, firms must compete in the DRAM industry on all the
traditional criteria, plus compete in an industry milieu in which patent
disclosure rules favor IP firms at JEDEC standard-setting meetings.
Not for the Faint-Hearted: Effectuation Rules and Predatory Patent

Litigation Strategy in Technology Sectors
This case study discusses the antecedents and outcomes of predatory
semiconductor patent litigation. It extends Hinthorne’s (1996) analysis by
focusing on dominant logic and effectuation rules as driving forces to
explain why and how a semiconductor IP firm used a predatory litigation
strategy to dramatically alter industry patent disclosure rules.
Entrepreneurial strategies using effectuation rules often produce
multiple, uncertain outcomes (Sarasvathy, 2001). As we have seen,
Rambus’ use of effectuation rules in its strategic decision making was an
anathema to larger IDMs’ preference for causal rules, and led to outcomes
that were neither anticipated, nor planned for. The first of these outcomes
was the ‘‘backfiring’’ of the predatory litigation strategy, such that Rambus
itself was accused of fraud in its dealings with JEDEC, and subject to a
class action by shareholders. The second of these outcomes was not so
much in the overall victory against Infineon (which observers thought
unlikely), but in the details of the judicial rulings. The most far-reaching
ruling was the reversal of the timeframe wherein patent holders were
legally required to disclose patents when discussing new industry
standards. This alone changed the relationship between patents and
bundled technologies, and shifted the balance of power in SIP firms’

favor. By pursuing effectuation rules rather than causal rules, Rambus in
one dispute thus risked everything (unintentionally), and almost lost.
Through doing so, however, it eventually (and again unintentionally) shifted
the very rules of engagement—industry regulations—in its favor. One
uncertain outcome almost destroyed the company; another elevated it to
central significance with the industry. The two most significant develop-
ments in the prosecution of its strategy could not have been anticipated or
prepared for.
These extreme contingencies were never accurately disclosed to
shareholders, and this caused additional problems for Rambus en route to

its eventual victory. Frustrated shareholders, who saw the value of their
Rambus shares collapse from $80 to below $10 after Judge Payne’s ruling,
themselves filed class action suits against Rambus executives, claiming
that senior managers had intentionally deceived shareholders about the
validity of their memory patents, and the risks of pursuing litigation.
This case study offers an alternative understanding of the firm’s
strategic motivation, reasoning and goals. Cognitive bias rather than moral
failure is the key in explaining Rambus executives’ strategic behavior and
litigation activities. The strong entrepreneurial spirit combined with the
premises sustaining the firm’s dominant logic led Rambus executives to be
‘‘bullish’’ about the prospects and costs of their litigation strategy, and
confident that their strategy of predatory patent litigation was the way
forward. The executives were thus more guilty of acting with dominant-logic
fuelled optimism, than of a moral intent to commit fraud. As decision
makers, executives are prone to treat problems as unique, thus ignoring
past industry statistics and patent litigation costs, as well as multiple future
opportunities for failure (Kahneman and Lovallo, 1993). Rambus’ dis-
closures to shareholders were one-sided and incomplete because Rambus
executives’ forecasts of future successful litigation outcomes were rooted
in future plans and scenarios, rather than in past results; and thus were
optimistic. This is a common cognitive bias, described as an isolation error
(Kahneman and Lovallo, 1993). In the case of Rambus, this isolation error
did not however cause a fatal error of strategic judgment.
In conclusion, we see how Rambus’ dominant logic and its effectuation
activities inevitably caused judicial conflict, and upheaval in the semi-
conductor industry. Its litigatory activities were not just self-interested acts
for financial gain, but were also contests about the very nature of business
in the semiconductor industry and other technology sectors. The beliefs
that underpinned and sustained the company throughout the 1990s, once
seen to be unorthodox and disruptive have now been sanctioned by legal
precedent, and its larger rivals must now learn to operate in a new
semiconductor industry defined in large part by a company once seen as
peripheral. As Rambus’ battle-weary shareholders will attest (Lopez, 2000;
Pitcairn, 2001), the titanic struggle over the rules of the technology sector
has not been for the faint-hearted. At the end of the day, however, the
creative destruction initiated and prosecuted by the company has

undoubtedly worked in the company’s favor, while enhancing the potential
and scope for IP firms in the technology sector generally.
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Appendix
Table 1. The negative consequences of Rambus’ patent litigation
Issue Rambus’ legal activity Financial/legal costs
1. Wall street shares 1a. Filing civil lawsuits against 1a. Dan Niles semiconductor
coverage Infineon, Micron and Hynix in Virginiaanalyst at Lehman Brothers in
and Delaware federal San Francisco stated: ‘‘I think
circuit courts. these lawsuits were based
1b. Rambus analysts predicted upon desperation.’’ Lehman

that if successful in its suits, its dropped its coverage of
annual sales revenue would Rambus stock in May 2001
increase from $72 million to (Wade 2001).
$1 billion in IDM royalties.
2. Fraud conviction 2a. Between 1999 and 2001 2a. Jury award of $3.5 million
for illegally eight major DRAM firms in Virginia District Court as a
concealing its agreed to pay SDRAM penalty for fraudulently
SDRAM patents royalties to Rambus. deceiving JEDEC.
from JEDEC Subsequently, this award was
standard-setting automatically reduced to
deliberations $350,000 under a punitive
damage cap.
2b. The three largest memory 2b. Judge Payne ordered
IDM (Infineon, Micron, Hynix) Rambus to pay Infineon $7.1
filed counter suits against Rambus million for legal fees. In
based on Judge Payne’s fraud essence, Payne’s award
ruling. amounted to a ‘‘pay for play’’
penalty that many US lawyers
advocate to reduce frivolous
patent infringement suits.
3. High legal fees 3a. In 2001 Rambus spent between 3a. Legal fees ‘‘devoured a
$1 million and $2.5 million per monthscary 23% of Rambus’
on these suits. revenues’’ in April–June 2001
(Varchaver 2001).
3b. Rambus’ quarterly legal costs 3b. Rambus had $153 million
increased from $660,000 in cash reserves and was able
in Q2 of 2000 to $7.3 million to absorb increased legal fees.
in Q2 of 2001. However, the increased legal
fees seriously reduced
Rambus’ reported EPS.
4. Threat of Federal 4a. Rambus faced the possibility 4a. High legal costs for FTC
Trade of appearing before a FTC hearings.
Commission hearing on the charge that 4b. 1996, FTC charged Dell
(FTC) probe nondisclosure of its SDRAM with hiding patents from a
patents during 1992–96 JEDEC standards-setting body and
hearings constituted a restraint of ordered Dell to surrender
trade—violating US antitrust laws. these patents.

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Industry and Innovation

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‘‘Get Rich, or Die Trying’’:

RICHARD TANSEY*, MARK NEAL** & RAY CARROLL{

ABSTRACT Patent litigation is a visible and widespread feature of the semiconductor

KEY WORDS: Patent litigation, Rambus, semiconductor industry

In the landmark 2003 Rambus v. Infineon case (Lemley, 2002; Alban,

Correspondence Address: Richard Tansey, Department of Management, Marketing and

disclosure at an industry standard-setting organization (SSO). Until then,

favor of small IP firms. A seemingly peripheral smaller company thus

outcome of a dominant logic sustained by effectuation principles.

Rambus’ High-Risk Predatory Attack on the Semiconductor

DRAM firms were also conservative when it came to IP strategy,

situations where the possible targets of litigation themselves wielded

litigation, predatory litigation can be used to achieve early settlement.

Rambus and Predatory Patent Litigation Strategy

radically new high-speed specialty DRAM for next generation memory

eyed’’ in that they ignore or underplay the impact of early SSO

being damaging, predatory patent litigation creates new institutional

From Closed to Open Business Innovation Models in the Global

Ziedonis, 2001). Patents were thus employed strategically to erect entry

used licensing to ‘‘leap-frog’’ incumbents who were locked into current

1. The judicial enforcement of patent laws was weak. US patent

Rambus’ Rival Dominant Logic for Open Innovation IP Licensing

corporate behavior as a form of ‘‘strategic stretch’’. By leveraging a firm’s

licensing IP within the global semiconductor industry:

markets (Chesbrough, 2003). Dominant DRAM manufacturers

rule that all participants must disclose their proprietary patent

To explore these issues the following section examines this now-famous

The Origins of the Infineon–Rambus Dispute: A Strategic Response

semiconductor columnist described this strategy as the ‘‘new-millennium

Multiple, Uncertain Outcomes I: The Strategy Rebounds

In the ‘‘complex, high-stakes’’ conditions of the semiconductor industry

The initiation of the IDM litigation campaign was based on two

Evans, 2002). As a consequence, most Federal District Court judges lack

2. The misfortune of being assigned a conservative judge.

pursued a narrow interpretation of both the claims and artwork contained in

3. Class action lawsuits triggered by Judge Payne’s fraud ruling.

Multiple, Uncertain Outcomes II: JEDEC Patent Disclosure Errors

JEDEC’s disclosure rules had a ‘‘staggering lack of defining details’’

Creative Destruction through Predatory Patent Litigation

severely restricts IDMs’ strategic options, and renders them vulnerable to

manufacturing process equipment and trade secrets (Ziedonis, 2003).

Not for the Faint-Hearted: Effectuation Rules and Predatory Patent

bundled technologies, and shifted the balance of power in SIP firms’

shareholders, and this caused additional problems for Rambus en route to

creative destruction initiated and prosecuted by the company has

Technology Management, 25(1/2), pp. 181–199.

United States, Journal of Economic Perspectives, 15(3), pp. 233–246.

Table 1. The negative consequences of Rambus’ patent litigation

Issue Rambus’ legal activity Financial/legal costs

1b. Rambus analysts predicted upon desperation.’’ Lehman

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