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CLASS ACTION COMPLAINT 32319
JOHNSON & PERKINSON Dennis J. Johnson, Esq. Jacob B. Perkinson, Esq. 1690 Williston Road South Burlington, VT 05403 (802) 862-0030 FARROW, BRAMSON, BASKIN & PLUTZIK, LLP Alan R. Plutzik (CSB No. 77785) Kathryn Schofield (CSB No. 202939) 2125 Oak Grove Road, Suite 120 Walnut Creek, CA 94598 (925) 945-0200 Attorneys for Plaintiff and All Others Similarly Situated UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA --------------------------------------------------------------- MUHAMMED ZIA, on behalf of himself and all others similarly situated,
Plaintiff, RAMBUS, INC., GEOFF TATE, WILLIAM DAVIDOW, P. MICHAEL FARMWALD, MARK HOROWITZ, DAVID MOORING and GARY HARMON,
Defendants. ----------------------------------------------------------------
: : : : : : : : : : :
Civil No. CLASS ACTION COMPLAINT JURY TRIAL DEMANDED
Plaintiff Muhammed Zia, individually and on behalf of all other persons similarly
situated, by his attorneys, Johnson and Perkinson, alleges upon personal knowledge for himself and
his own acts, and upon information and belief for all other matters, based upon the investigation made
by and through his attorneys (review of public documents, press releases, news reports, and analyst
reports of Rambus, Inc. ("Rambus" or the "Company")):
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CLASS ACTION COMPLAINT
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STATEMENT OF THE CASE
1. Through an industry technology committee and subject to contractual
restrictions, defendant Rambus acquired information relating to computer technology.
2. The restrictions required Rambus to make products developed from the
information available to other companies for reasonable royalties and freely.
3. In violation of the contractual restrictions, Rambus used the information to
apply for patents for its own products; resigned from the technology committee that had provided the
technology information and obtained the contractual restrictions; and when these patents were
granted, Rambus licensed the products at high royalties.
4. As a result of the publicity and income from licensing the unlawful patents, the
stock price of defendant Rambus rose dramatically from its initial public offering, eventually, splitting
four for one, reaching a price per share after the split of almost $115, equivalent to a pre-split price of
more than $450 per share.
5. In addition, analysts for investment banking firms, not knowing that Rambus'
technology and patents violated the contractual restrictions, gave Rambus stock favorable
recommendations.
6. In litigation with one of the members of the technology committee from which
the information had been wrongfully obtained, the Court ruled, in substance, that the Rambus patents
were unenforceable. Hence, the royalties were uncollectible.
7. The officers and directors of the Company had known about its wrongful
conduct from the beginning and that its earnings were based on invalid products. When this
information was disclosed to the investing public, the price of the stock plunged.
JURISDICTION AND VENUE
8. This Court has jurisdiction over the subject matter of this action pursuant to
Section 27 of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78aa.
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CLASS ACTION COMPLAINT
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9. The claims asserted in this Complaint arise under Sections 10(b) and 20(a) of
the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated by the Securities and
Exchange Commission ("SEC"), 17 C.F.R. § 240.10b-5.
10. Venue is proper in this district because the acts, conduct, and conspiracy,
including the preparation, issuance, and dissemination of materially false and misleading information
to the investing public, occurred in substantial part in this District and Rambus principal executive
offices are in this District. The individual defendants also maintain their principal offices in this
District.
11. In connection with the acts, conduct, and other wrongs alleged in this
Complaint, the defendants, directly and indirectly, used the means and instrumentalities of interstate
commerce, including the mails, telephone communications and the facilities of interstate commerce.
THE PARTIES
12. Plaintiff purchased shares of Rambus as set forth more fully in the attached
certification.
13. Defendant Rambus is a corporation organized under the laws of the State of
Delaware; maintains its principal place of business at 4440 El Camino Real, Los Altos, California
94022; and designs and develops high performance, integrated circuit technology.
14. Rambus is an intellectual property company, designs and develops various chip
connection technologies, does not manufacture or sell any devices, and licenses its technology to
semiconductor companies which in turn manufacture the devices from Rambus technology.
15. Defendant Geoff Tate served as the President, Chief Executive Officer and a
Director of Rambus from May 1990 until December of 1999. From December 1999 until the present,
Defendant Tate has been Chief Executive Officer and a Director.
16. Defendant William Davidow has been Chairman of the Rambus Board of
Directors since March 1990.
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CLASS ACTION COMPLAINT
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17. Defendant Gary Harmon was the Senior Vice President of Finance, Chief
Financial Officer and Secretary of Rambus from March 1993 until his resignation announced in a
press release on May 10, 2001, effective at the end of the quarter.
18. Defendant David Mooring has been the President and Director of Rambus
since 1999.
19. Defendants P. Michael Farmwald and Mark Horowitz have been Directors of
Rambus since March 1990.
20. Defendants Tate, Davidow, Farmwald, Horowitz, Mooring and Harmon are
collectively described in this Complaint as the "Individual Defendants."
21. By reason of their direct and substantial management positions, responsibilities,
and controlling interests during the Class Period, the Individual Defendants were "control persons" of
Rambus within the meaning of Section 20 of the Exchange Act.
22. The Individual Defendants had the power and influence to control Rambus, and
exercised that control to cause the Company to engage in the violations and improper practices
alleged in this Complaint.
23. Each of the defendants knew adverse non-public information about the
Company's operations and violated the federal securities laws by concealing and misrepresenting
material information.
CLASS ACTION ALLEGATIONS
24. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23 on behalf of a Class consisting of all persons and entities who purchased Rambus
common stock, between February 11, 2000 and May 9, 2001, inclusive and who suffered damages
thereby.
25. Excluded from the Class are defendants, the officers and directors of the
Company, members of their immediate families and their legal representatives, heirs, successors and
assigns, and any entity in which defendants have or had a controlling interest.
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CLASS ACTION COMPLAINT
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26. The Class is so numerous that joinder of all Class members is impracticable.
While the exact number of Class members is unknown to plaintiff and can only be ascertained from
the records maintained by Rambus or its agents, as of March 31, 2001, there were approximately
99,373,166 shares of Rambus common stock outstanding and actively traded on the NASDAQ.
27. Plaintiff's claims are typical of the claims of the members of the Class, since all
members of the Class purchased Rambus shares during the Class Period and sustained damages as a
result of defendants' wrongful conduct.
28. Rambus' shares were publicly traded under the ticker symbol "RMBS" on the
NASDAQ, an efficient, open, and well-informed market which assimilated the information about the
Company.
29. Plaintiff will fairly and adequately protect the interests of the members of the
Class, has retained counsel competent and experienced in class action and securities litigation, and has
no interests antagonistic to or in conflict with the other members of the Class.
30. To achieve a fair and efficient adjudication of this controversy, a class action is
superior to other methods. Joinder of all Class members is impracticable. The likelihood of
individual Class members prosecuting separate claims is remote because the damages suffered by
individual Class members may be relatively small and the expense and burden of individual litigation
prevents Class members from seeking individual redress. No unusual difficulties are likely to be
encountered in the management of this class action.
31. Common questions of law and fact exist for all members of the Class and
predominate over any questions applicable to individual members of the Class. Among the questions
of law and fact common to the Class are:
31.1 whether defendants violated the federal securities laws;
31.2 whether defendants participated in the conduct alleged in this
Complaint;
31.3 whether the public statements disseminated to the investing public and
to the members of the Class during the Class Period omitted or
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CLASS ACTION COMPLAINT
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misrepresented material facts about Rambus or became materially false and
misleading during the Class Period;
31.4 whether defendants had a duty to correct inaccurate or incomplete
statements when they learned they had been omitted;
31.5 whether defendants acted knowingly or recklessly when they issued
materially misleading statements or when they failed to correct these
statements upon learning that they were misleading;
31.6 whether the market prices of the Company's common shares were
artificially inflated during the Class Period by defendants' conduct; and
31.7 whether members of the Class sustained damages as a result of
improper conduct by the defendants and, if so, what the proper measure of
damages.
FACTS
32. The The performance of a computer or any electronic device is generally
constrained by the speed of its slowest element. In recent years, the element that has constrained the
personal computer the most has been its microprocessor. The microprocessor is regarded as the heart
of any computer system because it controls the system's functions and performs all the calculations
required to run various programs. Since 1980, the microprocessor has increased its speed from
5MHz (million cycles per second) to over 1 GH (billion cycles per second).
33. As microprocessors have become faster and faster, Dynamic Random Access Memory
("DRAM") has become the new component that constrains the system. DRAM is the dominant form
of memory chip employed in the semiconductor industry today. DRAM stores the instructions and
data needed by the microprocessor.
34. Since 1980, DRAM speed has only increased to 133 MHz. The growing disparity
between the increases in microprocessor speed and DRAM speed is known in the data processing
industry as the "Performance Gap."
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CLASS ACTION COMPLAINT
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35. On April 18, 1990, Rambus filed patent application No. 07/510,898 ("the '898
Application") in the United States Patent and Trademark Office based on new DRAM technology.
The patent sought to protect aspects of a new DRAM chip called the Rambus DRAM ("RDRAM").
36. RDRAM transmits three different types of information on a single bus, i.e., a
collection of wires, and transmits data at speeds of 800 MHz, almost five times faster than the prior
DRAM.
37. The Synchronous DRAM ("SDRAM") competes with the RDRAM, transmits the
same information on separate rather than a single bus, each bus dedicated to a single type of
information; and is slower but cheaper than Rambus' RDRAM technology.
38. Rambus analogizes its RDRAM to a Ferrari, and the SDRAM to a Volkswagen and
consistently labeled SDRAM technology as "inferior" and only an "incremental improvement" of
traditional DRAM technology.
39. To date, more than two dozen patents have been issued to Rambus claiming priority
for the '898 Application, and in 1990 and 1991, Rambus also filed PCT and European patent
applications claiming priority for its original '898 Application.
40. To ensure that SDRAMs and similar chip technology by other manufacturers are
compatible with each other and that an SDRAM manufacturer can sell to any computer manufacturer
(i.e. Compaq, Intel, etc.) without needing to redesign its product, the semiconductor industry adopted
uniform technical standards for the structure and functionality of SDRAM.
41. The Joint Electronic Devices Engineering Council ("JEDEC") is an association of
semiconductor manufacturers and designers that jointly develop industry-wide, open technical
standards for semiconductor products, including SDRAM technology.
42. In December 1991, Rambus attended a JEDEC meeting as a non-member; officially
joined and became a voting member of JEDEC in early 1992; and through December, 1995, Rambus
attended, as a voting member, JEDEC committee meetings.
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CLASS ACTION COMPLAINT
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43. The JEDEC committee meetings were regularly held approximately four to five times
per year, including Committee Number 42.3, which was directly involved in developing open industry
standards for SDRAM technology.
44. As a condition of membership of JEDEC, the participants agreed to comply with all
operating policies and procedures of JEDEC, including those set forth in the JEDEC Manuals of
Organization and Procedure.
45. After technical presentations, JEDEC members voted on proposed standards for
particular aspects of SDRAM technology by mailing or faxing completed ballots to the committee
chairman prior to the next regularly scheduled meeting.
46. In addition to requesting each member's position, the ballots also inquired whether the
recipient was aware of any patents "related to" or "involving" the technical subject matter of the ballot
and noted that the recipient was required to inform the Committee if it knew that any intellectual
property rights existed.
47. The purpose of the ballot was twofold. First, the returned ballots were tallied and
became a vote for or against the proposed standard. Second, the returned ballots surveyed the
current patents, both issued and pending.
48. JEDEC did not adopt standards patented or the subject of a patent application; but
when that was not possible, the owners of the patents or patent applications agreed to license the
patent to manufacturers under reasonable and non-discriminatory terms or free of charge.
49. If the owner of the patent refused to provide a non-discriminatory and reasonably
priced license, JEDEC changed the standards in order to exclude the patented product from
standardized use.
50. Each ballot contained the following language: If anyone receiving this ballot is aware of patents involving this ballot, please alert the Committee accordingly during your voting response.
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CLASS ACTION COMPLAINT
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51. Under JEDEC's operating procedures, every meeting of Committee 42.3 began with a
statement by the Committee Chairman of the patent policy, including overhead slides stating the
JEDEC patent policy.
52. The October 1993 JEDEC Manual of Organization and Procedure explicitly states: The Chairperson of any JEDEC committee, subcommittee, or working group must call to the attention of all those present the requirements contained in EIA [JEDEC] Legal Guides, and call attention to the obligation of all participants to inform the meeting of any knowledge they may have of any patents, or pending patents, that might be involved in the work they were undertaking.
(JEDEC Manual of Organization and Procedure JEP 21-1 (Revision of 21-H) October 1993)
(emphasis added).
53. The JEDEC patent policy required disclosure of not only presently known patents or
patent applications, but also any patents or applications either discovered or issued after the
promulgation of a standard. Specifically, the October 1993 JEDEC Manual of Organization and
Procedure further provides that: By its terms, the EIA [JEDEC] Patent Policy applies in equal force to situations involving: 1) the discovery of patents that may be required for use of a standards subsequent to its adoption, and 2) the initial issuance of a patent after adoption of a standard. Once disclosure is made, the holder is obligated to provide the same assurances to EIA as are required in situations where patents exist or are known prior to approval of a proposed standard.
(JEDEC Manual No. 21-1 at Appendix F) (emphasis added).
54. Additionally, as part of its policy, JEDEC provided overhead slides or "viewgraphs" to
be posted at committee meetings. The viewgraphs stated: Standards that call for use of a patented item or process may not be considered by a JEDEC committee unless all of the relevant technical information covered by the patent or pending patent is known to the committee, subcommittee, or working group. In addition, the committee Chairperson must have received written notice from the patent holder or applicant that one of the following conditions prevails:
* A license shall be made available without charge to applicants
desiring to utilize the patent for the purpose of implementing the standard(s), or
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CLASS ACTION COMPLAINT
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* A license shall be available to applicants under reasonable terms and conditions that are demonstrably free of any unfair discrimination.
In either case, the terms and conditions of the license must be submitted to the EIA General Counsel for review.
An appropriate footnote shall be included in the standard identifying the patented item and describing the conditions under which the patent holder will grant a license.
(EIA/JEDEC Patent Policy Summary, JEDEC Manual No. 21-1 at 23).
55. Throughout Rambus' attendance at JEDEC committee
meetings, JEDEC's operating policies and procedures required that any attending JEDEC member
disclose any patents or pending patent applications that might involve JEDEC's work.
56. While a member of Committee 42.3, Rambus received every ballot relating to
standardization of SDRAM technology; and on information and belief, every ballot instructed Rambus
to inform the Committee if it knew about any patents "involving" or "relating" to the subject matter of
the ballot.
57. As part of its participation in Committee 42.3, Rambus submitted responses to at least
four ballots relating to SDRAM standardization.
58. On information and belief, Rambus did not alert the Committee to any of its patents or
pending applications when responding to these ballots.
59. At several JEDEC Committee 42.3 meetings attended by Rambus, ballots governing
standardization of various aspects of SDRAM technology were discussed and formally tallied, and
upon approval by the Committee formal motions were made to have the JEDEC Council adopt the
result as a JEDEC standard.
60. Throughout the period Rambus attended JEDEC committee meetings, Committee
42.3 worked to develop an industry standard for SDRAMs.
61. Various committee members made technical presentations on a variety of aspects of
SDRAM technology for inclusion in the proposed standard, including external and internal clocking,
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CLASS ACTION COMPLAINT
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mode registers, and latency; and every Committee 42.3 meeting Rambus attended included these
presentations.
62. Rambus attended at least fifteen Committee 42.3 meetings during which SDRAM
standardization was discussed extensively and attended at least one "interim meeting" between the
regularly scheduled committee meetings, during which specific issues for standardizing SDRAM
technology were addressed.
63. Using information it learned at JEDEC technical presentations and interim meetings,
Rambus amended its own patent applications to include the concepts of "programmable latency,"
"mode registers" and "low-voltage swing," which had been presented at the JEDEC technical
presentations and interim meetings.
64. Rambus intended to make its patent applications broad enough to cover SDRAM
features discussed at previous JEDEC meetings.
65. In the June 1992, business plan, Rambus CEO and President Geoff Tate stated: "We
believe that [SDRAMs] infringe on some claims in our patents; and that there are additional claims we
can file for our patents that cover features of [SDRAMs];" and after adoption of this business plan,
Rambus intended to claim ownership of the SDRAMs.
66. At a 1999 trial regarding Rambus' patents, the Rambus JEDEC representative
admitted that Rambus was in fact trying to "work on new claims for the Rambus patent pending
applications" with the "intent to make them broad enough to cover" SDRAM features discussed at
JEDEC meetings.
67. Although Rambus admitted that it was seeking to patent all SDRAM technology
during and after its JEDEC membership, Rambus was not forthright or honest with the JEDEC
commission.
68. In May 1992, the JEDEC committee chairman asked the Rambus JEDEC
representative if Rambus had any patents relating to the "two bank design," Rambus had a patent
application based on the two bank design, but the Rambus representative denied that it had one.
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69. Rambus submitted a number of patent applications that were relevant to the proposed
and/or adopted SDRAM standards and to features proposed for inclusion in the standards, e.g.,
external and internal clocking, mode registers, and latency.
70. Rambus never disclosed any patents or pending patent applications to JEDEC or its
members in 1992 or most of 1993, during which time JEDEC committee No. 42.3 (including
Rambus) considered and adopted various standards for SDRAM technology.
71. In late 1993, Rambus disclosed to JEDEC its U.S. Patent No. 5,243,703 ("the '703
patent"), which claimed priority to and had the same specification as the '898 Application.
72. The '703 patent was not directly related to any technical aspects of the SDRAM
standards being proposed at JEDEC at the time of its disclosure.
73. Rambus' disclosure of the '703 patent was the only disclosure of any of its patents or
pending patent applications during more than four years as a JEDEC member.
74. Although Rambus was obligated to disclose all its patents and pending patent
applications and knew its disclosure obligations, Rambus failed to disclose that its patent application
related directly to the JEDEC standards and features being considered for incorporation into the
standards.
75. Nor did Rambus disclose to the JEDEC members its intention to use the information it
learned at JEDEC committee meetings to prosecute future patent applications with claims targeted to
that work.
76. On May 20, 1996, the Federal Trade Commission issued an antitrust complaint against
Dell Computer Company ("Dell") for failure to disclose patents relating to the work of a standards
organization like JEDEC.
77. The Commission simultaneously issued a consent decree and order which resolved the
matter, and which prohibited Dell from enforcing the patents it improperly failed to disclose. In re
Dell Computer Corp., 121 F.T.C. 616, FTC LEXIS 291 (May 20, 1996).
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78. Less than one month after publication of the Dell consent decree, Rambus announced
its resignation from JEDEC, listed issues raised by its U.S. and foreign patents, and stated, "Rambus
has also applied for a number of additional patents in order to protect Rambus technology."
79. Rambus did not disclose any information about its pending applications, including
whether any of those applications claimed priority to the original '898 application.
80. In its letter Rambus listed some of its pending patents but did not disclose those with
claims directly relating to JEDEC's SDRAM standards.
81. Rambus specifically and intentionally failed to disclose a patent which had been issued
to it prior to the date of the letter and which related to dual clock edge operation.
82. This subject had been discussed as part of the work undertaken by JEDEC and become
a part of JEDEC's DDR DRAM standard, a standard now widely used by computer manufacturers.
83. Shortly after leaving JEDEC in 1996, Rambus announced that Intel would use its
technology in its next generation of microprocessor chips; and Intel also announced that it had
invested $850 million in memory chip makers to encourage them to implement the Rambus design.
84. On this backdrop of positive developments, in May 1997, Rambus conducted a
successful initial public offering at a price of $23.75 per share; and on its first day of trading the stock
rose to $30.25 per share as a result of positive investor sentiment about the Company.
85. In spite of Rambus' claims about the superiority of the RDRAM, microchip
manufacturers were more familiar with SDRAM, were uncertain whether the RDRAM would actually
work, were developing SDRAM technology that rivaled the speed and functionality of Rambus'
RDRAM design, and did not want to do business with Rambus because of its abusive business tactics
for licensing to manufacturers.
86. By 1999, companies were beginning to invest in double rate ("DDR") SDRAM; and
the DDR SDRAM and DDR-2 SDRAM, a similar design, were beginning to reach RDRAM speeds
and memory capacities at a cheaper implementation cost.
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87. In 1999, when the Rambus patents began to be issued, Rambus began to seek and
obtain licensing fees and agreements from microprocessor companies employing RDRAM, SDRAM,
and DDR technology.
88. Wall Street applauded Rambus' patent strategy, and Morgan Stanley analyst Mark
Edelstone raved to the Wall Street journal in March that "Rambus has the long-term potential to
become the most powerful intellectual property company on the planet."
89. Afraid of the litigation costs and without knowing that Rambus had obtained its
patented technology improperly, microprocessor-makers representing nearly half the market,
including Hitachi, Toshiba, NEC, Oki Electric Industry, Elpida Memory and Samsung Electronics,
agreed to pay license fees to Rambus.
90. Between 1997 and January 2000, Rambus stock fluctuated between sixty and ninety
dollars per share.
91. In the last quarter of Fiscal Year 2000, Rambus started collecting revenues from
SDRAM and DDR technologies; on June 14, 2000, the stock was trading at $229.81; on June 15,
2000, Rambus announced a 4:1 stock split and its first SDRAM license agreement; and eight days
later, on June 23, 2000, its post split market price reached $114.68 – equivalent to a pre-split price of
more than $450.00 per share.
92. In June 2000, Hitachi settled its lawsuit with Rambus and agreed to pay licensing fees
for use of SDRAM and DDR technologies.
93. After the Hitachi agreement, Rambus shares traded at $127, and the Company's
market capitalization reached thirteen billion dollars.
94. Income from SDRAM licensing agreements are reported as royalties. Historically,
Rambus derived 20% of its income from royalties; for the period ending March 31, 2000, its income
included 22% from royalties; for the next period, it derived 37% of its revenues from royalties; for
following period, it derived 74% of its revenues from royalties.
95. On October 17, 2000, Intel announced that it would make versions of its chips that
were SDRAM compatible, rather than solely RDRAM compatible.
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96. Intel's Chief Operating Officer stated to the Financial Times "We made a big bet on
Rambus, and it did not work out. It was a mistake to be dependent on a third party for a technology
that gates your performance." After a slight dip at the end of October, Rambus shares rebounded and
traded at $65 by mid November.
97. On August 8, 2000, Rambus sued Infineon Technologies AG ("Infineon") for patent
violations, claiming that Infineon used SDRAM technology without paying a licensing fee to Rambus.
98. Infineon counterclaimed that the patents were invalid and for fraud based on Rambus'
improper conduct during the JEDEC committee meetings.
99. On February 16, 2001, Electronic News published an article entitled, “Documents
Reveal Rambus’ Secret Scheme.” The article notes that documents had been uncovered in the legal
proceedings between Rambus and other DRAM makers that, “… could bolster claims that Rambus
Inc. deliberately broke the rules of the Joint Electron Device Engineering Council (JEDEC) as part of
a secret plan to take over the global DRAM intellectual property business.” The information in the
article suggested that Rambus might have engaged in wrongful conduct in connection with its DRAM
patents. Before this article appeared, Rambus stock was trading at a price of approximately $50 per
share. Rambus’ stock price declined 5 points the following business day, and ultimately fell to
$37.80/share on February 22, 2001. Rambus’ stock price never again climbed as high as $50/share.
100. Micron Technologies, Inc. and Hyundai Electronics, Co., Ltd. filed similar suits
alleging patent invalidity and fraud by Rambus. From March 1 until March 14, Rambus stock
fluctuated between $37 and $42.
101. On March 15, the Judge in the Infineon case defined the Rambus patent in a way that
made infringement of Rambus' patent by Infineon almost impossible. Rambus stock fell to $24.09,
and by March 16, Rambus stock had sunk to $15.80.
102. On May 9, 2001, the jury in the Infineon case found that Rambus had committed
actual and constructive fraud by its conduct related to JEDEC SDRAM and DDR SDRAM. When
this information was disclosed, Rambus' stock price traded at $12.59.
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103. Because Rambus designs and licenses products rather than manufactures and sells any
specific device, Rambus relies heavily on its patents; and when its patents became invalid it no longer
was a viable company and had no valid product.
DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS AND OMISSIONS
104. Rambus did not disclose in any SEC filing that its patents incorporated JEDEC
standards, that it had breached its agreement and committed fraud by incorporating JEDEC standards
into its patents, or that many of its patents were invalid. Rambus intentionally omitted to state
material facts that would make its affirmative statements not misleading in an effort to increase its
stock price. The undisclosed information was so material that the failure to disclose it rendered
Rambus’s SEC filings during this period false and misleading.
105. Rambus knew that its patents incorporated the same standards as the JEDEC
standards. Rambus knew this because:
105.1 as early as 1992, Rambus planned to try to patent all SDRAM technology
even though Rambus viewed its own product as far superior;
105.2 Rambus sought broad patent applications in order to cover the SDRAM
standards; and
105.3 Rambus purposely amended its patent applications after JEDEC technical
presentations and interim meetings, to include the information.
106. Rambus knew or should have known, or recklessly disregarded that it breached its
duty to JEDEC and had in fact defrauded JEDEC by incorporating the JEDEC standards into its
patent. Rambus knew or should have known or recklessly disregarded that it had defrauded JEDEC
because:
106.1 Even though Rambus had a patent pending on the "two bank" design, it
denied having such a patent when specifically asked by the JEDEC chair;
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106.2 Rambus attended numerous Committee meetings that specifically stated that
Rambus must disclose this information;
106.3 In the letter terminating its Committee 42.3 membership, Rambus specifically
did not list any patent that included JEDEC standards, but did list patents that
did not include JEDEC standards; and
106.4 Rambus waited several years until the standards had been adopted before
asserting its patents against manufacturers of SDRAMs.
107. Rambus knew, or recklessly disregarded, that its patents were invalid or could be
invalidated because of the incorporation of JEDEC standards into their issued patents. Rambus knew
this because:
107.1 Rambus knew that it had incorporated JEDEC standards;
107.2 Rambus knew that it had defrauded JEDEC;
107.3 Rambus knew that the FTC had previously invalidated a patent on a company
that had similarly incorporated joint standards into its patents in a fraudulent
manner.
108. Rambus and the Individual Defendants failed to disclose that an increasing amount of
the Company's revenues and profits came from patent royalties and licensing fees obtained on the
basis of patents obtained by fraud and that this source of income might end at any time the improper
conduct became public.
109. Even though Defendants knew that the patents were invalid, Rambus’ Form 10-Q filed
on February 11, 2000 for the quarter ending December 31, 1999 announced that Rambus had filed a
lawsuit against Hitachi in January, 2000 for patent infringement regarding “non-RDRAM-compatible
products.” This statement was materially misleading because defendants knew that the patent was
unenforceable at the time, but failed to include a statement to that effect.
110. Defendants repeated the materially misleading statement about the Hitachi lawsuit in
its May 11, 2000 Form 10-Q for the quarter ending March 31, 2000.
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111. One June 15, 2000, the same day as the stock split took effect, Rambus issued a press
release announcing it had signed its first SDRAM license agreement with Toshiba. This statement
was materially misleading because, unknown to Toshiba and the investing public, the basis of the
agreement, the SDRAM and DDR SDRAM patents, were acquired through fraud, making the
agreement unenforceable. Defendants knew the agreements were unenforceable but did not disclose
that fact.
112. On August 9, 2000, Rambus filed its Form 10-Q for the quarter ending June 30, 2000,
announcing it had signed its first contracts covering SDRAMS and DDR SDRAM technology. This
statement was materially misleading because the defendants did not disclose that their attempts to
acquire the license agreements were through fraud. Defendants knew at the time that they made the
announcement that the license agreements were ultimately unenforceable because of the invalid
patents, but did not disclose that fact..
113. The August 9, 2000 Form 10-Q also announced that it settled the Hitachi litigation in
June, 2000: “As a result, Hitachi has been licensed to use Rambus intellectual property covering
fundamental aspects of high-speed memory interfaces which are currently being implemented in
Hitachi's SDRAM, Double Data Rate (DDR) SDRAM memory, and Hitachi's controllers which
directly interface with these types of memory. The license agreement calls for an up-front payment
and quarterly royalties, which will be reflected in the Company's financial statements upon
commencement of receipt of such payments beginning in the fourth quarter of fiscal 2000.” This
statement was materially misleading because the defendants did not disclose that Rambus’ “high speed
memory interface” had fraudulently and recklessly incorporated JEDEC standards, and that the
licenses which were generating royalties were based on fraudulently and wrongfully obtained patents.
114. On November 30, 2000, Rambus filed its Form 10-K for the fiscal year ending
September 30, 2000. The 10-K announced that Rambus had SDRAM licenses with Hitachi, NEC,
Oki, Toshiba, Elpida and Samsung. Rambus reported royalties from the SDRAM licensing
agreements for the first time. The 10-K also stated:
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The Company believes that its success in establishing a new high-speed
memory interface has been due in part to the systems approach it has taken to solving the application needs of companies in home video console, PC and other electronic systems businesses. However, the Company believes competitors have begun to take a similar approach. The Company believes that its principal competition will come from its RDRAM-compatible licensees and prospective licensees, many of which are evaluating and developing products based on alternative technologies. Some DRAM suppliers have begun to produce DDR SDRAMs, aimed at doubling the memory bandwidth from SDRAMs without increasing the clock frequency. While Rambus has been successful in negotiating SDRAM-compatible licenses with some DRAM manufacturers which include the payment of royalties on DDR, other manufacturers have not agreed to a license and are in litigation with the Company.
As the Company has extended its licensing program to SDRAM-compatible
products, it has increasingly become involved in litigation either instigated by the Company or by the potential licensee. As of September 30, 2000, the Company was in litigation with three such potential SDRAM-compatible licensees [, Infineon, Micron and Hyundai]. In each of these cases, the Company has claimed infringement of its patents whereas the potential licensees have generally sought damages and a determination that the Rambus patents at suit are invalid and not infringed. While the Company's objective in all these cases is to achieve settlements resulting in SDRAM-compatible licenses, there can be no assurance that such settlements will take place, that the Company will prevail if there is no settlement or that additional litigation will not result from future efforts by the Company to obtain additional SDRAM-compatible licenses.
SDRAM-compatible licenses also generally provide for the payment of license
fees as well as quarterly royalties. However, there are no upgrades, enhancements or other customer support provided for these licenses. The license fees, which generally are millions of dollars, include compensation for use of Rambus patents from the time the Company notifies the licensee of potential infringement. Accordingly, Rambus classifies these fees as royalty revenues which are recognized ratably over the five-year contract period. The excess of SDRAM-compatible license fees received over royalty revenue recognized is shown on the Company's balance sheet as deferred revenue. As of September 30, 2000, the Company's deferred revenue from both RDRAM-compatible and SDRAM-compatible licenses was $48.3 million, substantially all of which is scheduled to be recognized in varying amounts over the next five years.
Royalties, which are generally a percentage of the revenues received by
licensees on their sales of licensed ICs, are normally payable quarterly by a Rambus licensee on sales occurring during the life of the Rambus patents being licensed in the case of RDRAM-compatible licenses, and over a five year contract period in the case of SDRAM-compatible licenses. Rambus recognizes royalties from a licensee in the quarter in which it receives the report detailing shipments of Rambus ICs by such
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licensee in the prior quarter. . . . In the case of SDRAM-compatible licenses, the royalty rates for SDRAMs and associated controllers are generally less than the comparable RDRAM-compatible rates, and for DDR and associated controllers the rates are generally higher.
SDRAM-compatible licenses also generally provide for the payment of license
fees. However, there are no upgrades, enhancements or other customer support provided for these licenses. The license fees include compensation for use of Rambus patents from the time the Company notifies the licensee of potential infringement. Accordingly, the Company classifies these fees as royalty revenues which are recognized ratably over the five-year contract period. . . . The Company recognizes royalties upon notification of sale by its licensees. The terms of the royalty agreements generally require licensees to give notification to the Company and to pay royalties within 60 days of the end of the quarter during which the sales take place.
115. The Form 10-K announced that total revenues for the fiscal year were $72.3 million,
of which 45% ($32.6 million) was from royalties. This was a 307% increase over the royalties
received from the previous year, and included the first ever royalties from the SDRAM and DDR
SDRAM licenses. For the fourth quarter of fiscal years 2000, the first quarter Rambus posted
revenues from the SDRAM and DDRAM licenses, Rambus posted $19.9 in royalties, tripling the
royalties from the previous quarter.
116. All of the above statements on the Form 10-K were materially misleading. The
defendants knew at the time the statements were made but did not disclose that Rambus SDRAM and
DDRAM patents were acquired through fraud, and therefore that the licensing agreements were
unenforceable. Therefore, the resulting royalties and deferred income were improperly recognized.
117. On February 5, 2001, Rambus filed its Form 10-Q for the quarter ending December
31, 2000. Rambus announced in the 10-Q $26.8 million in royalties, of $34.7 million in total
revenues. Total revenues increased 190.5% for the quarter over the previous quarter, with royalties
over 10 times what they were the year before. The increase in royalties was due primarily to the
seven SDRAM-compatible licensees.
SDRAM-compatible licenses also generally provide for the payment of license fees as well as quarterly royalties. However, since these licenses are only for use of the Company's patents, there are no upgrades, enhancements or other customer support provided. The license fees, which generally are millions of dollars, include compensation for use of Rambus patents from the time the Company notifies the
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licensee of potential infringement. Accordingly, Rambus classifies these fees as royalty revenues, which are recognized ratably over the five-year contract period. The excess of SDRAM-compatible license fees received over royalty revenue recognized is shown on the Company's balance sheet as deferred revenue. As of December 31, 2000, the Company's deferred revenue from both RDRAM-compatible and SDRAM-compatible licenses was $46.2 million, substantially all of which is scheduled to be recognized in varying amounts over the next five years.
118. All of the above statements on the February 5, 2001 Form 10-Q were materially
misleading. The defendants knew at the time the statements were made, but did not disclose, that
Rambus SDRAM and DDRAM patents were acquired through fraud, and therefore that the licensing
agreements were unenforceable. Therefore, the resulting royalties and deferred income were
improperly recognized.
119. On May 4, 2001, Rambus filed its Form 10-Q for the quarter ending March 31, 2001.
For the three months ending March 31, royalty revenues were $23.7 million (six times that reported in
the comparable period of fiscal 2000), with total revenues of $31.2 million. For the first half of the
2001 fiscal year, royalties were $50.5 million (eight times that reported in the comparable period of
fiscal 2000). The second of the Company's two royalty sources, royalties from licensees for
the use of Rambus patents in SDRAMs, DDR SDRAMs and logic products which directly control these memories (SDRAM-compatible ICs), also contributed significantly to the overall increases in royalties and total revenues. The Company recognized its first ever royalties from SDRAM-compatible ICs in the fourth quarter of fiscal 2000. Included in the second quarter of fiscal 2001 are royalties from the Company's first logic-only licensee for SDRAM-compatible controllers, Matsushita Electronics Corporation, known worldwide for its Panasonic brand products. ASPs for SDRAM-compatible ICs have declined sharply in recent periods and the Company expects this trend to continue and even to accelerate.
120. All of the above statements on the February 5, 2001 Form 10-Q were materially
misleading. The defendants knew at the time the statements were made that Rambus SDRAM and
DDRAM patents were acquired through fraud, and therefore that the licensing agreements were
unenforceable. Therefore, the resulting royalties and deferred income were improperly recognized.
COUNT I
FOR VIOLATIONS OF SECTIONS 10(b) AND 20(a)
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OF THE EXCHANGE ACT AND SEC RULE 10b-5
121. Plaintiff realleges and incorporates by reference each and every allegation contained
above.
122. This Count is asserted against all defendants and is based upon Section 10(b) of the
Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder.
123. Throughout the Class Period, defendants individually and in concert, directly and
indirectly, and using the means or instrumentalities of interstate commerce or the mails, engaged in a
continuous course of conduct to conceal the invalidity of Rambus' SDRAM patents.
124. Defendants employed devices, schemes, and artifices to defraud, and engaged in acts,
practices, and a course of conduct designed to conceal the invalidity of Rambus' SDRAM patents and
the adverse effects of widespread and freely available use of SDRAM technology on RDRAM
technology and Rambus common stock.
125. Such actions included the making of untrue statements of material facts and omitting
to state material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading, and engaged in transactions, practices, and courses of
business which operated as a fraud and deceit upon the purchasers of Rambus common stock during
the Class Period.
126. The purpose and effect of defendants' scheme, plan, and unlawful course of conduct
was, among other things, to induce plaintiff and the other members of the Class to purchase Rambus
common stock at artificially inflated prices.
127. Defendants are liable for each of the fraudulently misleading statements set forth above
in that they directly or indirectly issued such statements.
128. The Individual Defendants, as officers and/or directors of Rambus during the Class
Period, are liable as direct participants in the wrongs.
129. As officers and/or directors of a publicly traded corporation, the Individual Defendants
had a duty to disseminate accurate and truthful information promptly with respect to the operations
and financial results of Rambus, and to correct any previously issued statements that had become
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materially misleading or untrue, so that the market price of the Rambus shares would be based on
truthful and accurate information.
130. Through their positions of control and authority as officers and/or directors of
Rambus, the Individual Defendants were able to and did control, directly or indirectly, the content of
the financial statements and public statements disseminated by and through Rambus.
131. With knowledge of the falsity and/or misleading nature of the statements contained
herein, and in reckless disregard of the true financial condition and prospects of the Company, the
Individual Defendants caused these public statements to contain material misstatements and omissions
of material facts as alleged above, in violation of the federal securities laws.
132. Had plaintiff and the other members of the Class known the truth, they would have not
purchased shares of Rambus stock or would not have purchased them at the inflated prices.
133. Plaintiff and the other members of the Class have suffered substantial damages as a
result of the wrongs alleged above in an amount to be proved at trial.
134. By reason of the foregoing, defendants have violated section 10(b) of the Exchange
Act and Rule 10b-5 promulgated thereunder.
COUNT II AGAINST THE INDIVIDUAL DEFENDANTS FOR VIOLATIONS OF § 20(a) OF THE EXCHANGE ACT WITH RESPECT TO THE § 10(b) VIOLATIONS
135. This Count is asserted against the Individual Defendants as control persons of
Rambus, and is based upon Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a).
136. The Individual Defendants had the power and influence to control and did cause
Rambus to engage in the unlawful acts and conduct alleged above.
137. Because of their executive, managerial, and/or directorial positions, the Individual
Defendants had access to non-public information as alleged herein, and acted to conceal and/or
omitted to disclose such information from plaintiff and the other members of the Class.
138. By reason of the conduct alleged in Count I of the Complaint, the Individual
Defendants are liable for the wrongful conduct as alleged herein, and are liable to plaintiff and to
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members of the Class for the substantial damages they suffered in connection with their purchase of
Rambus common stock during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, plaintiff on behalf of himself and the Class prays for judgment as follows:
A. Declaring this action to be a proper class action maintainable pursuant to Rule 23 of
the Federal Rules of Civil Procedure and the plaintiff to be the proper class representative;
B. Awarding plaintiff and the Class compensatory damages, together with appropriate
prejudgment interest at the maximum rate allowable by law;
C. Awarding plaintiff and the Class their costs and expenses for this litigation including
reasonable attorneys' fees and other disbursements; and
D. Granting such other and further relief as this Court deems to be just and proper.
JURY TRIAL DEMANDED
Plaintiff respectfully demands a trial by jury.
Dated: August __, 2001 FARROW, BRAMSON, BASKIN
& PLUTZIK, LLP
____________________________________ Alan R. Plutzik (CSB No. 77785) Kathryn Schofield (CSB No. 202939) 2125 Oak Grove Road, Suite 120 Walnut Creek, CA 94598 (925) 945-0200
OF COUNSEL:
JOHNSON & PERKINSON Dennis J. Johnson Jacob B. Perkinson, Esquire 1690 Williston Road South Burlington, VT 05403 (802) 862-0030
