Rambus Inc. v. Hynix Semiconductor Inc. (629 F. Supp. 2d 979, 2009)

FINDINGS OF FACT AND CONCLUSIONS OF LAW WITH RESPECT TO SAMSUNG’S COUNTS I-III AND ESTOPPEL DEFENSE

RONALD M. WHYTE, District Judge.

These Findings of Fact and Conclusions of Law concern the court trial of that portion of the dispute between Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., Samsung Semiconductor, Inc. and Samsung Austin Semiconductor, L.P. (collectively “Samsung”) and Rambus Inc. (“Rambus”) based upon the allegations set forth in Counts I-III of Samsung’s Counterclaims against Rambus in Action Nos. C-05-00334 RMW and C-05-02298 RMW. Samsung alleges that: (1) Rambus breached § 3.8 of the SDR/DDR IC and SDR/DDR Memory Module Patent License Agreement Between Rambus, Inc. and Samsung Electronics Co., Ltd. (“2000 SDR/DDR License,” “License” or “Agreement”) by failing to notify Samsung of the more favorable license rate it gave to Infineon and by refusing to provide that rate to Samsung (Count I); (2) Rambus breached § 8.5 by failing to negotiate in good faith an extension of the License (Count II); and (3) Rambus breached the covenant of duty of good faith and fair dealing implied in the License by failing to adjust the royalty rate paid by Samsung under the License to match the lower effective royalty rate provided for in the Ram-bus/Infineon License and by failing to negotiate an extension in good faith (Count III).

These Findings of Fact and Conclusions of Law also cover Samsung’s affirmative defense of equitable estoppel whereby Samsung asserts that Rambus is equitably estopped from taking actions against Samsung that are inconsistent with the Ram-bus/Infineon license.

The evidentiary portion of the trial was conducted by the court beginning on September 22, 2008 and concluding on October 1, 2008. These Findings of Fact and Conclusions of Law are based on the evidence received during that trial which included, by stipulation, the relevant evidence admitted in the prior jury trial of monopolization and related claims brought by the Hynix, Micron, and Nanya entities against Ram-bus. Hynix Semiconductor Inc. v. Rambus Inc.; Rambus Inc. v. Hynix et al.; Rambus Inc. v. Micron Technology et al., Nos. C-00-20905 RMW, C-05-00334 RMW, C-06-00244 RMW (“Coordinated Jury Trial”). The jury verdict was rendered on March 26, 2008.

FINDINGS OF FACT

A. Chronology

1. Rambus was founded in 1990 by two professors, Dr. Michael Farmwald and Dr. Mark Horowitz, who had been working together to address the increasing gap between microprocessor performance and DRAM performance. Jury Tr. at 4079:8-4081:24, 4091:9-4095:10, 5489:23-5490:3.

2. On April 18, 1990, Drs. Farmwald and Horowitz filed a patent application, serial number 07/510,898 (“the '898 application”), containing numerous claims relating to their efforts to solve this performance gap problem. Exh. 5131.

3. On April 16, 1991, Rambus filed an international patent application pursuant to the Patent Cooperation Treaty (the “PCT application”). Exh. 3583. The PCT application was published on October 31, 1991. The specification contained in the PCT application was identical to that contained in the '898 application and described, according to Rambus, the inventions that are at issue in Rambus’s infringement claims against Samsung in the above-captioned actions, id.

4. On April 7, 1992, Geoff Tate, Ram-bus’s Chief Executive Officer, provided Dr. Yong Park, Samsung’s Senior Vice President of Business Development and Product Planning, with a copy of the PCT application. Exh. 10667.

5. Rambus received its first issued U.S. patent resulting from the '898 application in September 1993. Exh. 3219. The '898 application resulted in the filing over time of numerous continuation and divisional applications. Exh. 8888. Some of the patents that resulted from this process are at issue in the above-captioned eases but the first of those patents did not issue until January 30, 2001 (U.S. Patent 6, 182,184).

6. On November 7, 1994, Rambus and Samsung began a business alliance when they entered into an agreement entitled the Semiconductor Technology License Agreement (“RDRAM Agreement”). Exh. 6110. This agreement covered certain intellectual property used in the manufacture and sale of RDRAM devices and required Samsung to pay license fees and several different percentage-of-net-sales royalties. Id. § 4.2(a).

7. In 1996, Intel announced that it planned to endorse “Rambus-2,” a next generation version of Rambus’s proprietary DRAM technology (later known as Direct RDRAM). Jury Tr. at 3000:18-3003:11.

8. In 1996 and early 1997, Rambus and Samsung renegotiated the 1994 RDRAM Agreement resulting on February 7, 1997 in the execution of Addendum No. 1 to Semiconductor Technology License Agreement to cover Rambus’s next-generation memory technology, Direct RDRAM. Trial Ex. 4201.

9. As of 2000, Rambus described its goal to establish Rambus DRAM as the dominant memory in the industry as “[o]ur # 1 priority.” Trial Ex. 4009 (Hitachi Settlement Q & A) at 6; Trial Tr. at 740:1-6 (“We wanted RDRAM to be as successful as possible in 2000” ____), 740:19-741:1 (“... that would make it the most dominant memory if it were to be the most successful ....”), 741:2-24 (“... we continued to work hard to make RDRAM successful.”).

10. At that time, Samsung was the top supplier of RDRAM memory devices and accounted for more total RDRAM sales than the next three suppliers combined. Trial Tr. at 195:2-15, 739:15-25, 740:11-18; Trial Ex. 3209 (Summary of Worldwide DRAM Sales, 1996-2006).

11. On July 25, 2000 representatives of Rambus and Samsung first met to discuss a potential license covering SDR and DDR products. Exh. 4204.

12. On August 8, 2000 Rambus initiated patent infringement litigation against Infineon Technologies, Inc. (“Infineon”) in which Infineon’s defenses included unclean hands for alleged spoliation of documents. Exh. 4264.

13. On October 27 and October 31, 2000, Rambus and Samsung respectively signed the 2000 SDR/DDR License. Exh. 4226. The SDR/DDR License had an effective date of July 1, 2000 and a five-year term extending through June 30, 2005. Id. §§ 1.1, 8.1. It included a most favored licensee provision, a provision for the audit of Samsung’s sales for royalty payment verification purposes, and an agreement to negotiate an extension or new agreement in good faith. Id. §§ 3.8, 4.1 and 8.5. In an On October 27 and October 31, 2000, Rambus and Samsung respectively signed the 2000 SDR/DDR License. Exh. 4226. The SDR/DDR License had an effective date of July 1, 2000 and a five-year term extending through June 30, 2005. Id. §§ 1.1, 8.1. It included a most favored licensee provision, a provision for the audit of Samsung’s sales for royalty payment verification purposes, and an agreement to negotiate an extension or new agreement in good faith. Id. §§ 3.8, 4.1 and 8.5. In an e-mail dated October 31, 2000 from Jay Shim, Samsung’s chief negotiator, to Neil Steinberg, Rambus’s chief negotiator, Mr. Shim advised that Samsung had executed the Agreement but that he was working on a post-execution amendment, as they had discussed, to revise the wording of Section 8.5 to address a most favorable royalty condition in an extension or new agreement. Exh. 4227.

14. On November 7, 2000, Mr. Shim sent an “amendment proposal” to Stein-berg via email. Exh. 4230 at 1. On November 21, 2000, Mr. Steinberg sent an email responding to Mr. Shim’s proposed Amendment. Exh. 4232 at 1. Neither of these proposed amendments to the 2000 SDR/DDR License was ever signed or assented to by the parties. Trial Tr. at 248 (testimony of J. Shim).

15. In July 2001 the parties did negotiate and execute an amendment regarding renewal of their Agreement. Exh. 4240 (Amendment No. 1). As executed, this amendment imposed an obligation on Rambus to negotiate a renewal agreement “solely and exclusively” with respect to “Licensed Products,” as that term was defined under the SDR/DDR License. Exh. 4240 ¶ 1 (“This Amendment No. 1 relates solely and exclusively to SDR SDRAM, SDR SGRAM, DDR SDRAM and DDR SGRAM as defined in the Agreement .... ”). Rambus signed Amendment No. 1 on July 10, 2001, and Samsung signed on July 18, 2001. Exh. 4240. Amendment No. 1 provided, among other things, that if Rambus licensed Infineon, it could terminate the Amendment on 10 days notice. Id.

16. In December 2003, Rambus notified Samsung that Rambus would be conducting a royalty audit pursuant to Section 4.1 of the SDR/DDR License. Trial Tr. at 256:6-14.

17. By at least July 2004, Rambus pressed Samsung to begin renewal negotiations for a license that would replace or follow the expiration of the SDR/DDR License.

18. Samsung and Rambus representatives met on July 9, 2004 in Korea (Trial Tr. at 259:3-17, 945:22-946:6) but Mr. Shim’s position on behalf of Samsung was that there was “no need to rush.” Id. at 951:13-952:21.

19. On January 25, 2005, Rambus sued Hynix, Infineon, Nanya, and Inotera Memories, Inc. for infringement of certain Rambus patents. Case No. 05-00334 RMW (“'334 case”).

20. On February 20, 2005, Mr. Blumberg, Vice President of Licensing for Ram-bus and Rambus’s chief negotiator at the time, sent an offer for renewal to Mr. Shim. Trial Tr. at 950:13-22; Exh. 4263 (hereinafter the “February 20 Renewal Offer”).

21. On March 21, 2005, Rambus and Infineon executed a Settlement and License Agreement resolving the litigation between them. Exh. 4264 (Infineon Settlement and License Agreement). The settlement was favorable to Infineon because the judge presiding over the case had announced his intent to dismiss it based upon Rambus’s alleged unclean hands (spoliation of documents).

22. Samsung requested that Rambus make the Infineon royalty rate effective for Samsung under Section 3.8 of the 2000 SDR/DDR Agreement, but Rambus refused. 1014:12-18 (“Mr. Shim said he wanted the Infineon deal and you said no; isn’t that true? At that time, that is true.”).

23. On March 22, 2005 Rambus notified Samsung that it was terminating Amendment No. 1. Exh. 4265 (Letter from I. Blumberg to Samsung re: Notice of termination of Amendment No. 1 to the SDR/ DDR IC and SDR/DDR Memory Patent License Agreement (“Amendment”), dated Mar. 22, 2005) (“I am sending this notice of termination pursuant to Section 7 of the Amendment. This letter is that notice of termination and the Amendment shall terminate automatically ten days after this notice.”). Ten days thereafter, the relationship between Samsung and Rambus •with respect to SDRAM and DDR SDRAM memory devices was again governed by the 2000 SDR/DDR License.

24. On April 1, 2005 Mr. Blumberg wrote to Mr. Shim and withdrew Rambus’s February 20 Renewal Offer. Exh. 4268.

25. On May 18, 2005, Mr. Blumberg sent a further proposal to Mr. Shim. In this proposal, Blumberg suggested the parties workout a one year standstill agreement. Exh. 4271. He advised that “[cjonclusion of such an agreement before July 1 remains a top priority for Rambus.” Id. Blumberg set forth a series of specific terms for a one year standstill.

26. On June 3, 2005, Mr. Shim responded with Samsung’s standstill offer. Exh. 4273; Trial Tr. at 968:10-13. No standstill or other agreement was ever successfully negotiated.

27.On June 6, 2005 Rambus terminated the 2000 SDR/DDR Agreement citing Samsung’s “failure to comply with the auditing provisions of Section 4[J” Trial Tr. at 304:5-14; 305:5-8; Trial Ex. 4276 (Letter from J. Danforth to J. Shim, dated June 6, 2005) (“[d]espite having ample opportunity to cure since receiving written notice, Samsung still has not complied with these auditing provisions. This letter is to inform you that in view of Samsung’s continued breach and failure to cure ... Ram-bus hereby immediately terminates the SDR/DDR License Agreement.”). Ram-bus filed its First Amended Complaint in the '334 case on June 6, 2005, asserting the same patents as in the original complaint but adding Samsung as a defendant. On June 6, 2005, Rambus also sued Samsung in a separate suit alleging infringement of certain Rambus patents. Case No. 05-02298 RMW (“'2298 case”).

B. Factual Findings on Specific Claims

1. Section 3.8 of the SDR/DDR License Was Triggered by the Ram-bus/Infineon Settlement Agreement

The parties dispute whether Section 3.8 of the SDR/DDR License was triggered by the Rambus/Infineon Settlement Agreement obligating Rambus to give Samsung the benefit of a royalty rate calculated in accordance with the Rambus/Infineon Settlement Agreement which provided for Rambus to receive a lump-sum payment in installments. The court makes the following factual findings relevant to that issue.

a. Rambus represented in the 2000 SDR/DDR License its intent with respect to licensing manufacturers then in litigation with Rambus:

WHEREAS, Rambus represents that, after November 1, 2000, the royalty rates offered to any semiconductor memory manufacturer which is currently in litigation with Rambus for infringement of any Rambus Patent, as defined herein, shall be the standard royalty rates and such standard royalty rates are higher than the royalty rates set forth in Section 3.1(b) of this Agreement; and

WHEREAS, Rambus further represents that royalty rates offered after January 1, 2001 to all prospective licensees shall be such standard royalty rates.

Exh. 4226 (2000 SDR/DDR Agreement) p. 2.

b. Rambus specifically extended most favored licensee protection to Samsung in the SDR/DDR License:

3.8 If at any time during this Agreement, the royalty rate agreed to be paid or ordered to be paid by a Third Party, whether by settlement or by court or agency order, for products corresponding to SDR SDRAM, SDR SGRAM, DDR SDRAM, or DDR SGRAM is lower than that specified in Section 3.1(b) of this Agreement, Rambus shall notify Samsung, in writing, within ten (10) days of the effective date of such lower royalty rate and such lower royalty rate shall be effective for this Agreement the first day of the royalty reporting period in which written notice by Rambus is made. If the lower royalty rate is limited geographically due to a court or agency order, then Samsung’s lower royalty rate shall be similarly limited to sales in the same geographic area. Should, by agreement, subsequent order, or amendment, modification, or reversal of the court or agency order (whether on appeal or otherwise), the lower royalty rate of any litigant change, then the royalty for Samsung shall change correspondingly, but not to exceed the rates specified in Section 3.1(b).

Id. § 3.8 (Emphasis added).

c. The negotiation of the parties leading up to the execution of the SDR/DDR License shows the importance to Rambus of the License and Rambus’s unconditional assurance to Samsung of most favored licensee status.

i. During the course of the negotiations, Mr. Shim, representing Samsung, and Mr. Steinberg, representing Rambus, served as the primary negotiators of the 2000 SDR/DDR Agreement. Trial Tr. at 211:12-20, 383:14-385:5.

ii. At the parties’ July 25, 2000 meeting, Rambus told Samsung that it was “a valuable and very good partner,” and that Samsung was “in an excellent position to secure the most favorable terms” if it signed the SDR/DDR License quickly. Trial Ex. 4024 at 2-3; Trial Tr. at 205:22-206:15, 703:25-704:18.

iii. Mr. Steinberg stressed the importance of the Samsung/Rambus relationship, and he emphasized that Rambus wished to continue that relationship and grow and prosper with Samsung. Trial Tr. at 205:22-206:3.

iv. On August 10, 2000, Mr. Steinberg sent Rambus’s first draft of the License to Mr. Shim. Trial Ex. 4208 (Email from N. Steinberg to J. Shim, dated Aug. 10, 2000); Trial Tr. at 206:24-207:14.

v. The August 10, 2000 draft agreement did not contain a most favored licensee provision or recitals stating that future licensees would be offered standard royalty rates that would be higher than Samsung’s royalty rates. Trial Ex. 4209 (Drafb-SDR/DDR Patent License Agreement between Samsung and Rambus); Trial Tr. at 208:3-16.

vi. On September 13, 2000, Geoff Tate, Rambus’s Chief Executive Officer, sent an updated negotiation schedule to Samsung’s Y.W. Lee and assured him that entering the agreement “will give Samsung the best possible terms and will result in Samsung having a competitive advantage over those who have sued us rather than negotiate.” Exh. 4212 (Email from G. Tate to Y.W. Lee, dated Sept. 14, 2000).

vii. On October 6, 2000, Mr. Shim sent Samsung’s Term Sheet Proposal to Ram-bus, which contained proposals for, inter alia: (1) “[a] provision specifying that in the event the Rambus Patents are held to be unenforceable against any third party, it is agreed that they (Rambus Patents) are unenforceable against Samsung”; (2) “[a] provision specifying that in the event the Rambus Patents are held to be expressly or impliedly licensed based on Rambus’s activities as a member of JE-DEC, it is agreed that Samsung’s royalty rates shall be the lower of that agreed to in the Agreement or that ordered by a court or an agency”; and (3) “[a] Most Favorable Nations Clause in which Samsung is guaranteed to (i) the lowest possible royalty rates and fees among all licensees, and (ii) a right to amend the royalty terms of the Agreement in the event a court decision or an out-of-court settlement renders, after the execution of the Agreement, lower royalty terms than agreed to, wherein such new lower royalty terms shall apply to Samsung retroactively and Rambus shall refund the difference therein.” Exh. 4214. The Term Sheet Proposal also included a recital stating that following the execution of the Agreement with Samsung higher royalty terms would take effect for any future third party licensees. Id.; see Trial Tr. at 215:5-19 (the MFL provision was an “essential condition” to Samsung).

viii. On October 11, 2000, Rambus revised the draft agreement, adding, inter alia, most favored licensee protections and a representation that the royalty rates offered to future licensees then in litigation with Rambus would be standard royalty rates higher than those in the 2000 SDR/ DDR Agreement. Exh. 4217 (Redline comparing Oct. 11th and Oct. 16th drafts of the 2000 SDR/DDR Agreement); Trial Tr. at 428:22-429:1.

ix. On October 16, 2000, Mr. Shim requested revisions to the October 11 draft agreement, including an elaboration of the draft most favored licensee language to be in a new section 3.8 with subparts (a) through (e) that specifically addressed, inter alia: a lower “royalty paid by a Third Party, whether by settlement or by court or agency order”; either “no royalty or a royalty based on a lower royalty rate” “[s]hould a court or agency of competent jurisdiction make a determination that the Rambus Patents in suit are not enforceable or are invalid”; and a method for adjusting royalty terms “should any Third Party be granted a license on the basis of consideration other than a running royalty (for example, a lump sum).” Exh. 4215 at 4-5. Mr. Shim’s proposal did not expressly address flat royalty payments payable on a quarterly basis.

x. Later the same day, Mr. Steinberg responded without addressing the issue of “a lump-sum” royalty and stated that he had amended the most favored licensee provisions “to provide language expressing the fundamental intent of Section 3.9 that Samsung not be put at a competitive disadvantage as a result of entering into the Agreement.” Exh. 4216 at 2.

xi. Along with his e-mail, Mr. Stein-berg enclosed a draft that, among other things: (a) contained a most favored licensee provision that did not explicitly cover licenses granted in settlements or pursuant to court or agency order; and (b) contained limited most favored licensee protection related to Rambus’s participation in JEDEC. Exh. 4408 (Draft— SDR/DDR Patent License Agreement between Samsung and Rambus, dated Oct. 16, 2000); Exh. 4217 (Redline — SDR/DDR Patent License Agreement between Samsung and Rambus, dated Oct. 16, 2000).

xii. The October 16, 2000 draft agreement amended Section 3.9 to include: “If at any time during the term of this Agreement, the parties desire to discuss the royalty rate to be applied ... pursuant to this Section 3.9, the parties shall meet to negotiate in good faith with a view to determining a mutually satisfactory prospective royalty rate so that Samsung is not at a competitive disadvantage relative to any Third Party.” Exh. 4217 (Red-line — SDR/DDR Patent License Agreement between Samsung and Rambus, dated Oct. 16, 2000) (emphasis added) at 19.

xiii. The October 16, 2000 draft agreement also included an additional WHEREAS clause representation that higher standard royalty rates would be offered “to all prospective licensees” after January 1, 2001. Id. at 2.

xiv. On October 17, 2000, Mr. Tate sent an email to Mr. Y.W. Lee urging Samsung to “sign now” and stating that he believed Rambus had met most of Samsung’s requests, including “most favored royalty rate” and a “commitment that Samsung won’t be at a competitive disadvantage as a result of the outcome of pending litigation.” Exh. 4218.

xv. In his October 17 email to Samsung, Mr. Tate wrote “[a]s you know we are in court with [Hynix], Micron and Infineon. We expect to win our legal battles with them although we don’t control the schedule of the courts. When these companies choose to negotiate license terms with us we will charge them substantially higher license fees and royalty rates.” Id.

xvi. Mr. Tate also wrote to Mr. Y.W. Lee, in the October 17 email, “Samsung and Rambus have enjoyed a very positive relationship the last several years, especially since you have become directly involved with us. I know I have a high degree of personal trust in you; and I hope you as well feel that during our relationship that my actions have followed up on my commitments.” Id.

xvii. On October 21, 2000, Mr. Stein-berg sent Mr. Shim a revised agreement, executed by Rambus and dated October 20, 2000, and urged Samsung to “take[] this opportunity to gain a long term competitive advantage over several of its fiercest competitors!” Exh. 4222.

xviii. The October 20 draft agreement removed the prior most favored licensee language in Sections 3.8-3.10, and substituted broader language similar to Mr. Shim’s proposed 3.8(a) and 3.8(b). Exh. 4221 (Redline — SDR/DDR Patent License Agreement between Samsung and Ram-bus, dated Oct. 20, 2000) at 18-19.

xix. On October 27, 2000, Mr. Stein-berg sent an executed copy of the final agreement to Mr. Shim. Exh. 4224.

xx. On October 31, 2000, the Agreement was fully executed by Jon Kang, Vice President of Samsung Electronics, Co., Ltd. Exh. 4226.

xxi. On November 2, 2000 Mr. Tate assured Samsung that it “now has the best deals on both RDRAM and SDRAM/DDR SDRAM.” Exh. 4229.

xxii. The negotiating history of the final contract language in Section 3.8 demonstrates that the parties intended to cover different types of royalty rates, including a flat, periodic royalty (e.g., an amount per calendar quarter). This is evident from, among other things, the parties’ discussion that Samsung would not suffer competitive harm if it accepted a license, that all licensees would receive standard “royalty rates,” and that the most favored licensee provisions would also cover any “royalty rate,” even if it arose from a litigation settlement. Trial Tr. at 228:14-229:23.

d. Rambus’s argues that the terms of Amendment No. 1 executed in July 2001 supports its argument that the parties only intended section 3.8 to cover “running royalties” and did not intend to cover “a lump sum” as provided in the Rambus/Infineon settlement because the parties expressly addressed “a lump sum” in the context of Amendment No. l’s provision regarding a duty to negotiate a license renewal. Exh. 4240. The argument is not persuasive. The 2001 Amendment was negotiated under different circumstances and at a different time, and it does not address the meaning of “royalty rate” (including in the context of the most favored licensee provision) or its application to flat payments, each one of which is payable on a quarterly basis. More importantly, the extrinsic evidence unequivocally shows that Rambus assured Samsung that no third party would get a better deal on the use of Rambus’s DDR/SDR technology than Samsung as Rambus desperately wanted and needed a deal with Samsung.

e. Other extrinsic evidence supports Rambus’s intent to provide broad most favored licensee protection to Samsung.

i. The customary meaning of the term “royalty rate” in patent licenses includes various types of royalty payment structures, including a percentage of net sales, a periodic, flat payment or variable flat payment per unit of time [REDACTED]..

ii. When comparing licensing terms, it is common in a wide variety of industries, including with respect to patent licensing, to compare a running royalty with a periodic, lump-sum royalty by calculating an effective royalty rate or by simply comparing the lump sum amounts due on a quarterly basis for various types of royalty structures. Trial Tr. at 193:21— 194:7,614:3-616:3.

in. [REDACTED]

iv. [REDACTED]

v. [REDACTED]

vi. In their joint press release created pursuant to the terms of the Infineon Settlement and License Agreement, the parties described the quarterly payments agreed to be paid by Infineon as the consideration granted “in exchange” for the license grant to Infineon, and described the various dismissals and releases as “in addition to” these payments. Id.

vii. Rambus admitted in various filings with the Securities and Exchange Commission that the Infineon Settlement and License Agreement contained a royalty rate in the form of Infineon’s quarterly payment obligation. Exh. 4450 (Rambus Inc. S.E.C. Form S-3/A, dated May 11, 2005) at 7 (“[A]ll licenses provide that Infineon will be treated as a ‘most-favored customer’ of ours which could result in Infineon’s U.S. $5.85 million quarterly payment being reduced if future Rambus licensees receive a lower royalty rate.”); id. at 11 (“Failure to achieve positive results in litigation will also result in a failure to trigger certain contractual provisions which would convert certain flat rate royalty arrangements to per unit royalties. Any or all of these adverse results could cause a substantial decline in our revenues.”); id. at 13 (“... require Infineon to pay us up to an additional $100 Million in royalty payments.”); Exh. 4451 (Rambus Inc. S.E.C. Form 10-Q, dated May 9, 2006) at 39 (“Our license with Infineon, which was part of our settlement, provides for the extension of certain benefits under that license to a successor in interest that, under certain conditions, acquires all of Infineon’s DRAM operations. If such an acquisition were to occur, such successor would be entitled to the extension of such benefits, including the ability to pay a royalty calculated by multiplying the Infineon rate by the percentage increase in DRAM volume represented by the successor company’s combined operations. Such an extension of benefits could also make it more difficult for us to obtain the royalty rates we believe are appropriate from the market as a whole. Such an extension of benefits would, in addition, also operate to extend a release of claims to such successor, thus reducing the number of companies to which we believe we are entitled to look for compensation for the antitrust injury alleged by us in our pending San Francisco antitrust action.”); id. at 46 (“... require Infineon to pay us up to an additional $100 Million in royalty payments.”) and 47 (“... Infineon will be required to make additional royalty payments to us which may aggregate up to $100.0 million.”).

g. Samsung’s initial royalty rates, which were expressly subject to section 3.8 of the SDR/DDR License, were calculated by multiplying Samsung’s net sales of Licensed Products by certain percentages (which ranged from .75% to 3.5% for SDR or DDR SDRAM). Exh. 4226 at § 3.1. Notably, Samsung’s royalty payments were due on a calendar quarter basis and therefore could be readily compared to different types of royalty structures that were likewise due on a quarterly basis. Id. at § 4.2; Trial Tr. at 614:3-616:3. [REDACTED]

h. [REDACTED]

i. [REDACTED]

j. [REDACTED]

k. Samsung requested that Rambus make the Infineon royalty rate effective under Section 3.8 of the 2000 SDR/DDR Agreement, but Rambus refused. Exh. 4268 (Letter from I. Blumberg to J. Shim, dated Apr. 1, 2005) at 2; Trial Tr. at 961:2-6 (“I told Mr. Shim that the Infineon Agreement involved a lump sum payment and that there was no royalty rate that would be comparable in any way or that would trigger Section 3.8 of that 2000 Agreement”), 1014:12-18 (“Mr. Shim said he wanted the Infineon deal and you said no; isn’t that true? At that time, that is true.”), 1021:2-8 (“I explained that there weren’t any rates involved.”).

1. Rambus informed Samsung that the Infineon Settlement and License Agreement did not contain a “royalty rate” because Infineon had agreed to pay a flat, quarterly payment as opposed to a valuable payment based on a percentage of net sales. Trial Tr. at 961:2-6,1021:2-8.

m.The evidence clearly establishes by more than a preponderance of the evidence that Section 3.8 of the SDR/DDR License was triggered by the Rambus/Infineon Settlement Agreement and that Rambus failed to fulfill its obligations to Samsung under Section 3.8.

2. The 2000 SDR/DDR License Did Not Cover DDR2 SDRAM and Subsequent Product Generations

Rambus and Samsung dispute whether the SDR/DDR License granted Samsung a license under certain Rambus patent claims to make and sell DDR2 SDRAM, GDDR3 SDRAM, and subsequent generations of products. The court finds as follows with respect to that dispute.

a. The SDR/DDR License granted Samsung a license under certain Rambus patent claims to make and sell a specifically defined set of “Licensed Products.” Exh. 4226, § 1.2. The term “Licensed Product” is defined under the License:

1.7 “DDR SDRAM(s)” means the following current double data rate synchronous dynamic random access memory devices of Samsung, part numbers K4H280438B, K4H280838B, K4H281638B, K4H560438B, K4H560838B, K4H561638B, K4D62323HA, and K4D26328M. A copy of Samsung’s data sheet for each of the above-identified part numbers will be provided by Samsung no later than November 24, 2000, made Exhibit 3 to this Agreement, and hereinafter referred to as “DDR SDRAM Data Sheets.” “DDR SDRAM” further includes any double data rate synchronous dynamic random access memory device having (1) the primary function of information storage and (2) a specification (as set forth in the data sheet for the device) identical to any specification found in any one of the DDR SDRAM Data Sheets. “DDR SDRAM” additionally includes any future double data rate synchronous dynamic random access memory device which is identical to any device identified by the above part numbers but may have [1] a different package type, [2] different die size, [3] different burst type, [4] different clock frequency, [5] different programmable latency, [6] different programmable burst length, [7] different memory storage capacity, [8] different number of input/output pins, [9] different timing values for existing parameters (for example, set-up/hold times and propagation delays), [10] different power consumption, and/or [11] different number of banks (as those terms are used in the attached DDR SDRAM Data Sheets) from those set forth in the DDR SDRAM Data Sheets. The parties agree that, if, at the discretion of the customer, a given device has the capability to operate as a(l) SDR SDRAM or SDR SGRAM and (2) DDR SDRAM or DDR SGRAM, that device, for purposes of this agreement, shall be deemed to be DDR SDRAM. The parties agree that each device of the above-identified part numbers is defined exclusively by its attached DDR SDRAM Data Sheet.

1.8 “DDR SGRAM(s)” means the following current double data rate synchronous graphics random access memory devices of Samsung, part number K4D623237M. A copy of Samsung’s data sheet for the above-identified part number will be provided by Samsung no later than November 24, 2000, made Exhibit 4 to this Agreement, and hereinafter referred to as “DDR SGRAM Data sheet.” “DDR SGRAM” further includes any future double data rate synchronous dynamic random access memory device having (1) the primary function of information storage and (2) a specification (as set forth in the data sheet for the device) identical to any specification found in the DDR SGRAM Data Sheet. “DDR SGRAM” additionally includes any future double data rate synchronous dynamic random access memory device which is identical to any device identified by the above part numbers but may have [1] a different package type, [2] different die size, [3] different burst type, [4] different clock frequency, [5] different programmable latency, [6] different programmable burst length, [7] different memory storage capacity, [8] different number of input/output pins, [9] different timing values for existing timing parameters (for example, set-up/hold times and propagation delays), [10] different power consumption, and/or [11] different number of banks (as those terms are used in the attached DDR SGRAM Data Sheet) from those set forth in the DDR SGRAM Data Sheet. The parties agree that the device of the above-identified part number is defined exclusively by its attached DDR SGRAM Data Sheet.

Id. §§ 1.7,1.8.

b. Section 1.7 of the SDR/DDR License defines the term “DDR SDRAM.” Exh. 4226 § 1.7. DDR SDRAM is defined to include eight specific Samsung products, which are identified by their part numbers, “K4H280438B, K4H280838B, K4H2281638B, K4H560438B, K4H560838B, K4H561638B, K4D62323HA, and K4D263238M.” Id.

c. The definition of DDR SDRAM also includes:

any future double data rate synchronous dynamic random access memory device which is identical to any device identified by the above part numbers but may have a different package type, different die size, different burst type, different clock frequency, different programmable latency, different programmable burst length, different memory storage capacity, different number of inpuVoutput pins, different timing values for existing timing parameters (for example, set-up/ hold times and propagation delays), different power consumption, and/or different number of banks (as those terms are used in the attached DDR SDRAM Data Sheets) from those set forth in the DDR SDRAM Data Sheets.

Id.

d. Thus, the term “Licensed Products” in the SDR/DDR License encompasses future DDR memory devices only if they are identical to the specific Samsung parts identified by part number in Section 1.7 or differ only in a way described in the eleven allowed differences enumerated in Section 1.7.

e. During negotiation of the SDR/DDR License Rambus’s proposals only covered narrow sets of specifically identified products. V103 (5/14/2008 Depo. of Charles Donohoe at 75:16-20); V102 (2/6/2001 Depo. of Charles Donohoe at 37:8-12, 99:16-100:9) (noting that Rambus “wanted only certain specifically identifiable products to be covered by the agreement”).

f. Rambus created the initial draft of the SDR/DDR License and sent it to Samsung on August 10, 2000. Exhs. 4208, 4209. Section 1.7 was included in this original draft of the SDR/DDR License in essentially the same form in which it appeared in the final executed SDR/DDR License. Exh. 4209 at 4-5.

g. Samsung wanted the license agreement to cover “all products” and to obtain a “complete peace accord with Rambus” so that it did not require “a continuing series of negotiations as new products [came] on the market.” V102 (2/6/2001 Depo. of Charles Donohoe at 99:16-100:9); V103 (5/14/2008 Depo. of Charles Donohoe at 75:21-76:9). Rambus would not give Samsung a total “peace accord.” Instead, Rambus told Samsung that it did not want the license “to cover future DRAM generations.” V103 (5/14/2008 Depo. of Charles Donohoe at 75:16-20). Samsung’s negotiators knew that DDR2 devices were not commercially available at the time the SDR/DDR License was negotiated. Trial Tr. at 222-23 (testimony of J. Shim). In fact, Samsung did not begin manufacturing DDR2 devices until two to three years after the SDR/DDR License was executed. Id. at 223 (testimony of J. Shim).

h. Even though Samsung’s attorneys knew that the company was developing what would later become DDR2 devices at the time they negotiated the SDR/DDR License in 2000, and even though they knew that Rambus “did not want [the agreement] to cover future DRAM generations,” they never discussed “technical details” with Rambus during the course of the negotiations. Trial Tr. at 357, 361 (testimony of J. Shim).

i. During the negotiations, Samsung tried to obtain broader language in Section 1.7. On October 16, 2000, Mr. Shim requested a revision of Section 1.7 and other clauses defining the products licensed under the SDR/DDR License. Exh. 4215. With respect to the licensing of future DDR SDRAM devices, Mr. Shim asked for the license to include products “substantially similar” to the devices that were identified by specific Samsung part numbers, and to substitute this broader phrase in place of the existing language, which licensed only future products “identical” to the specific products identified by part number, except for eleven allowed and enumerated differences. Exh. 4215 at 3.

j. Rambus did “not budge” on its proposed definition of the products that would be covered under the SDR/DDR License and did not want the Agreement to cover future products if Samsung “changed the products down the road.” V102 (2/6/2001 Depo. of Charles Donohoe at 100:3-9).

k. On October 16, 2000, Mr. Steinberg sent an email stating Rambus’s position that it was unwilling to amend the language of Section 1.7’s limitation on future DDR memory devices. Exh. 4216. His email explained that the existing provisions, including Section 1.7, “adequately cover devices which may have evolutionary (as opposed to revolutionary) differences from the devices specified by part number.” Exh. 4216 at 1. Mr. Steinberg noted that any coverage of evolutionary devices was limited to the eleven allowed differences in Section 1.7, as drafted, ie. if they were “identical to an identified device except for different package type, different die size, etc.” Id.

l. On October 27, 2000, Mr. Steinberg executed the SDR/DDR License on behalf of Rambus. On October 31, 2000, Jon Kang executed the SDR/DDR License on behalf of Samsung. Exh. 4226 at 28.

m. Section 1.7 of the final executed agreement was unchanged in all material terms from the draft originally circulated by Mr. Steinberg on August 10, 2000. Compare Exh. 4209 at 4-5, with Exh. 4226 at 5-6. Trial Tr. at 363 (testimony of J. Shim) (agreeing that the substantive language of Section 1.7 “was never modified from the original draft”).

n. Although Mr. Steinberg told Mr. Shim that the language of Section 1.7 should “adequately cover devices which may have evolutionary (as opposed to revolutionary) differences from the devices specified by part number,” the parties did not change the definition of the products covered or even discuss what either meant by “evolutionary.”

o. The SDR/DDR License defines licensed memory devices and their various features by reference to “Samsung Data Sheets.” Exh. 4226, §§ 1.5-1.8, 1.11. Thus, for purposes of determining whether a “future double data rate synchronous dynamic random access memory device” constitutes one of the “Licensed Products” within the meaning of the agreement, the differences between the devices listed by part number and any such future memory devices are appropriately determined by reference to their respective data sheets. Id. § 1.7; Trial Tr. at 854 (testimony of Sanjay Banerjee) (noting that “you have to read all these [eleven] categories in the context of the earlier sentence, which is the specifications of the DDR data sheet”).

p. DDR2 memory devices are not “identical” to any DDR memory devices. Trial Tr. at 529 (testimony of Carl Sechen); id. at 811-12 (testimony of Sanjay Banerjee).

q. Samsung’s data sheets for its DDR2 memory devices are not “identical” to the Samsung data sheets for any of the DDR memory devices listed by part number in Section 1.7. Compare Exh. 4310 (64MB DDR), Exh. 4306 (256MB DDR) and Exh. 10265 (512MB DDR), with Exh. 10248 (512MB DDR2), Exh. 4351 (512MB DDR2), and Exh. 10316 (1GB DDR2). Trial Tr. at 529, 539-40 (testimony of Carl Sechen); id. at 821-22, 832-33, 836-37, 842-44, 846 (testimony of Sanjay Banerjee).

r. DDR2 is an “enhancement” over DDR memory devices, and DDR2 memory devices contain a number of features, some of which are discussed in greater detail below, that make them “substantially different” from the previous generation of DDR memory devices. Trial Tr. at 468 (testimony of Carl Sechen); id. at 812-13 (testimony of Sanjay Banerjee). The various enhancements included in DDR2 allowed memory devices to achieve a significantly higher speed. Trial Tr. at 468 (testimony of Carl Sechen); id. at 812-13 (testimony of Sanjay Banerjee).

s. DDR2 memory devices include features, including several features identified as “key features” in Samsung’s data sheets, that do not exist in DDR memory devices. Such “key features” that are in DDR2 but are not in DDR include: (1) ondie termination, (2) off-chip driver calibration, (3) differential data strobe; (4) posted CAS; and (5) programmable write latency. E.g., Exh. 4351 at 3; Exh. 10248 at 3; Exh. 10316 at 4.

t. All five of these features identified as “key features” appear in Samsung’s DDR2 data sheets; none of these five features appears in Samsung’s DDR data sheets. Compare Exh. 10265 at 4(DDR), with Exh. 10248 at 3 (DDR2); Trial Tr. at 529 (testimony of Carl Sechen). At least three, ondie termination, off-chip driver calibration and differential data strobe do not qualify as allowed differences under the definitions of “DDR SDRAM” or “DDR SGRAM” under Sections 1.7 and 1.8 of the 2000 SDR/DDR License.

i. Ondie termination is a new feature in DDR2. Trial Tr. at 479 (testimony of Carl Sechen); id. at 812-18, 821-22 (testimony of Sanjay Banerjee). This difference between DDR2 and DDR is reflected in the Samsung Data Sheets. Compare Exh. 10265 at 4(DDR), with Exh. 10248 at 3 (DDR2). Exh. 10248 at 9 (DDR2 data sheet reflects addition of ODT pin), Exh. 10248 at 20-21 (DDR2 data sheet reflects addition of new ODT-related timing parameters); Exh. 10004 at 12-15; Trial Tr. at 821-24, 828 (testimony of Sanjay Banerjee). Ondie termination reduces the “signal reflections” that are created when data is transmitted along the bus at very high rates. Exh. 4293 at 1. Without ondie termination, these signal reflections create “electrical discontinuities” that interfere with “signal integrity” and make processing information accurately difficult for the memory device. Id. at 1. With ondie termination, however, “[ejnhanced signal performance allows for higher data rates.” Id. at 6. In other words, because ondie termination makes the signal transmitting the data clearer and therefore easier to read, it allows the system to process the data more quickly. Id. Although ondie termination enables or allows a memory device to operate more quickly, it does not necessarily require it to do so. Trial Tr. at 514-15 (testimony of Carl Sechen); id. at 817 (testimony of Sanjay Banerjee). The addition of ondie termination requires changes in the circuitry and is more involved than simply changing the clock frequency. Id. at 514-15, 525 (testimony of Carl Sechen). Either with or without on-die termination, a memory device can operate with a clock frequency of 200 megahertz (corresponding to a data rate of 400 megahertz). Compare Exh. 10265 at 4 (DDR device operating with clock frequency of 200 megahertz) with Exh. 10248 at 3 (DDR2 device operating with clock frequency of 200 megahertz). Trial Tr. at 514-15 (testimony of Carl Sechen). Conversely, the clock frequency of a memory device can change without the addition of ondie termination. Exh. 4310 at 1 (64 MB DDR at 100, 125, 143, and 166 megahertz); Exh. 10265 at (512MB DDR at 333 and 400 megahertz); Trial Tr. at 807 (testimony of Sanjay Banerjee). Ondie termination requires new timing parameters, improves the integrity of the signal, and reduces the number of errors in reading data. Trial Tr. at 818 (testimony of Sanjay Banerjee). Because ondie termination is a change from DDR technology that goes beyond a mere difference in clock frequency — and beyond any other variation permitted under Section 1.7 — any device containing on-die termination, such as DDR2, is not a “Licensed Product” under the SDR/DDR License. Exh. 4226 § 1.7.

ii. Off-chip driver calibration is a new feature in DDR2. Trial Tr. at 479 (testimony of Carl Sechen); id. at 829-34 (testimony of Sanjay Banerjee). This difference between DDR2 and DDR is reflected in the Samsung data sheets. Compare Exh. 10265 at 4, with Exh. 10248 at 3; Exh. 10248 at 14 (DDR2 data sheet reflects addition of OCD and default characteristics); id. at 21 (DDR2 data sheet reflects addition of new OCD-related timing parameter); Exh. 10004 at 9-11; Trial Tr. at 832-33 (testimony of Sanjay Banerjee). Off-chip driver calibration increases the size of the “data eye” in a memory device, i.e. the time window during which a data bit can be read accurately (as either 0 or 1). Exh. 4295 at 1. Without off-chip driver calibration, variations in process, voltage, and temperature can narrow the window during which the data is valid. Id. at 1. This narrowing of the data eye can “impact signal integrity,” making it difficult for the data to be read correctly. Id. at 2. Off-chip driver calibration helps to keep the data eye “wide” and “tall” and thereby maintain the “quality of the signaling environment.” Id. at 1. It also helps to compensate for “variations” caused by the “manufacturing and assembly processes.” Id. at 3. Because the signal is clearer and the data eye more stable, the system can operate at “higher communication speeds.” Id. Off-chip driver calibration does enable or allow a memory device to operate more quickly but does not require it to do so. Trial Tr. at 514-15 (testimony of Carl Sechen); id. at 831 (testimony of Sanjay Banerjee). The addition of off-chip driver calibration necessitates a change in the memory device’s circuitry. Id. at 514-15, 525 (testimony of Carl Sechen). The addition of off-chip driver calibration is more than just a change in frequency. In fact, either with or without off-chip driver calibration, a memory device can operate with a clock frequency of 200 megahertz (corresponding to a data rate of 400 megahertz). Compare Exh. 10265 at 4 (DDR device operating with clock frequency of 200 megahertz) with Exh. 10248 at 3 (DDR2 device operating with clock frequency of 200 megahertz). Trial Tr. at 514-15 (testimony of Carl Sechen). Conversely, the clock frequency of a memory device can change without the addition of off-chip driver calibration. Exh. 4310 at 1 (64 MB DDR at 100, 125, 143, and 166 megahertz); Exh. 10265 at (512MB DDR at 333 and 400 megahertz); Trial Tr. at 807 (testimony of Sanjay Banerjee). The addition of off-chip driver calibration requires new timing parameters, creates a more “robust” signal, and as a result “produces fewer errors in the data.” Id. at 831-33 (testimony of Sanjay Banerjee). Exh. 10248 at 14 (DDR2 data sheet reflects addition of OCD and default characteristics); id. at 21 (DDR2 data sheet reflects addition of new OCD-related timing parameter); Exh. 10004 at 9-11. Because off-chip driver calibration is a change from DDR technology that goes beyond a mere difference in clock frequency — and beyond any other variation identified in Section 1.7 — any device containing off-chip driver calibration, such as DDR2, is not a “Licensed Product” under the SDR/DDR License.

iii. A differential data strobe is a new feature in DDR2. Trial Tr. at 479 (testimony of Carl Sechen); id. at 834-37 (testimony of Sanjay Banerjee). This difference between DDR2 and DDR is reflected in the Samsung data sheets. Compare Exh. 10265 at 4, with Exh. 10248 at 3; Exh. 10248 at 23; Trial Tr. at 836-37 (testimony of Sanjay Banerjee). A differential data strobe allows the memory device to read data bits (as either 0 or 1) at a “precise instance of time.” Id. at 834. Without a differential data strobe, the memory device must rely on only a “single data strobe” and a timing reference (provided by the crossings of that data strobe with a voltage reference) which could “vary in the time domain.” Id. This sort of variance gives rise to a problem known as “timing skew,” meaning that there is uncertainty about when to “read in or write the data.” Id. at 834-35. By contrast, with a differential data strobe, there are two “intersecting voltage wave forms.” Id. at 835. The crossing points of these wave forms are less subject to timing skew and, therefore, provide a more exact “triggering” mechanism for the memory device to read or write the data. Id. at 835-36. The benefit of a differential data strobe is a wider “data eye” and greater accuracy. Id. at 836. A differential data strobe enables or allows a memory device to operate more quickly but does not require it to do so. Trial Tr. at 514-15 (testimony of Carl Sechen); id. at 835 (testimony of Sanjay Banerjee). It is not possible to add a differential data strobe simply by changing the clock frequency. Id. (testimony of Carl Sechen). Cf. id. at 525 (testimony of Carl Sechen). Either with or without a differential data strobe, a memory device can operate with a clock frequency of 200 megahertz (corresponding to a data rate of 400 megahertz). Compare Exh. 10265 at 4 (DDR device operating with clock frequency of 200 megahertz) with Exh. 10248 at 3 (DDR2 device operating with clock frequency of 200 megahertz). Trial Tr. at 514-15 (testimony of Carl Sechen). On the other hand, the clock frequency of a memory device can change without the addition of a differential data strobe. Exh. 4310 at 1 (64 MB DDR at 100, 125, 143, and 166 megahertz); Exh. 10265 at (512MB DDR at 333 and 400 megahertz); Trial Tr. at 807 (testimony of Sanjay Banerjee). Furthermore, a differential data strobe gives rise to differences other than a potential change in clock frequency. In addition to enabling a potential increase in speed, the addition of a differential data strobe creates a more “certain” timing mechanism, creates a larger “data eye,” a more “robust” signal, and as a result creates a more accurate process for “reading and writing data.” Trial Tr. at 835-36 (testimony of Sanjay Banerjee). Because a differential data strobe is a change from DDR technology that goes beyond a mere difference in clock frequency' — and beyond any other variation identified in Section 1.7 — any device containing a differential data strobe, such as DDR2, is not a “Licensed Product” under the SDR/DDR License.

u. Two of the new features in Samsung’s DDR2 products, posted CAS and programmable write latency, do appear to fall within the allowed category of a device with “different programmable latency.”

i. The Posted CAS enhancement in Samsung’s DDR2, DDR3, and GDDR2 products is characterized by the inclusion of an additive latency to the CAS delay to make the command and data bus efficient for sustainable bandwidths. Trial Tr. at 502:12-503:11, 837:9-23. Using this approach, commands are issued externally but are held internally by the device prior to execution, for the duration of the additive latency, in order to improve system scheduling. Specifically, this method helps avoid collision on the command bus and gaps in data input/output bursts, which improves delays. Additive latency is variable and is programmable. Trial Tr. at 503:19-504:7, 837:24-838:14. Posted CAS appears to fit into the allowed difference of “different programmable latency.” Trial Tr. at 504:24-505:10.

ii. Programmable write latency is a new feature in DDR2. Trial Tr. at 479 (testimony of Carl Sechen); id. at 844^46 (testimony of Sanjay Banerjee). Programmable write latency permits programmable adjustments to the amount of time between when the memory device receives a write command and when it receives the data to be written. Trial Tr. at 844 (testimony of Sanjay Banerjee). In particular, programmable write latency was an improvement on the “inflexible” DDR device, which fixed the write latency at “one clock cycle.” Id. The extra flexibility provided by programmable write latency helps the memory device avoid “collisions or gaps” in the data to be written to the memory. Id. at 845-46. Among other things, programmable write latency enables a memory device to operate more quickly but does not require it to do so. Id. at 531 (testimony of Carl Sechen). Although a close question, programmable write latency appears to fall into the allowed difference category of a “different programmable latency” within the meaning of § 1.7. Rambus’s argument that in the context of the license agreement “different programmable latency” refers to different values for CAS latency, a parameter that was already programmable in DDR, has some appeal. However, the parties did not limit the difference of “programmable latency” to parameters already programmable in DDR.

u. Ondie termination, off-chip calibration and differential strobe are not unrelated to clock frequency. As with many improvements to DRAM technology, the “overriding objective” of these new features is to enable or allow the memory device to go faster. Trial Tr. 523-24; 812-13. However, as noted above, a DDR SDRAM with one or more of these enhancements is more than merely a DDR SDRAM which may have a different clock frequency. The DDR2 products are not within the scope of the SDR/DDR License.

3. Rambus Was Not Entitled to Terminate the 2000 SDR/DDR License on the Purported Basis that Samsung Breached its Audit Obligation

The parties dispute whether Rambus properly terminated the 2000 SDR/DDR License on the basis that Samsung failed to comply with the audit requirements of the 2000 SDR/DDR License. The court makes the following findings of fact relevant to that issue.

a. The 2000 SDR/DDR Agreement contains an audit provision which permits Rambus, through its designated independent accounting or licensing audit firm, to audit Samsung’s records and information bearing upon the amount of royalties payable to Rambus under the 2000 SDR/DDR Agreement. Exh. 4226 (2000 SDR/DDR Agreement) § 4.1.

b. Specifically, Section 4.1 of the 2000 SDR/DDR Agreement reads:

With respect to the royalties set forth herein, Samsung shall keep complete and accurate records. These records shall be retained for a period of at least three (3) years from the date of payment, notwithstanding the expiration or other termination of this Agreement. Rambus, through its designated' independent accounting or licensing audit firm, shall have the right to examine and audit, not more than once a year unless the preceding audit revealed an underpayment exceeding five percent (5%) of the total royalties due for the period under audit, and during normal business hours, all such records and such other records and accounts as may contain, under recognized accounting practices, information bearing upon the amount of royalties payable to Rambus under this Agreement. In no event will Rambus audit any given reporting period more than once. Prompt adjustment shall be made by Samsung to compensate for any errors and/or omissions disclosed by such examination or audit which result in an underpayment of royalties hereunder, together with interest thereon, from the date the payment was due at the 1 year U.S. Treasury bill (hereinafter “T-bill”) rate, as published in the Wall Street Journal (Western Edition) on the date on which the royalty was due, plus five percent (5%) per annum (or the maximum allowed by applicable law, if less). Should the amount of any such error and/or omission exceed five percent (5%) of the total royalties due for the period under audit, then upon request by Rambus, Samsung shall pay for the cost of the audit. If any three (3) consecutive audits reveal underpayments of royalties in excess of five percent (5%), Rambus shall be entitled to immediately terminate this Agreement on notice to Samsung at any time within ninety (90) days after such third such audit. Should such audit disclose an overpayment of royalties hereunder, such overpayment shall be taken as a credit against future royalties, and in the event that there are no future royalties, Rambus shall issue a refund thereof.

Exh. 4226 (2000 SDR/DDR Agreement) at 19 (emphasis added).

c. In December 2003 Rambus requested an audit of Samsung under both Section 4.1 of the 2000 SDR/DDR Agreement and Section 4.3(a) of the 1994 RDRAM Agreement. Trial Tr. at 256:8-14.

d. Rambus selected Ernst & Young to perform the Samsung audit. Trial Tr. at 857:22-24. Nigel Shepherd of Ernst & Young’s San Jose, California offices led the Samsung audit. Trial Tr. at 857:19-21.

e. Because the inspection of Samsung’s records took place in Korea, and because Mr. Shepherd does not read or speak Korean, Mr. Shepherd did not personally participate in performing the Samsung audit. Trial Tr. at 877:20-878:5, 878:16-879:17, 881:12-25, 882:1-7, 882:24-25.

f. Mr. Shepherd had a Korean team consisting of Simon Yoo and In-Sang Yoo from Ernst & Young’s Korean affiliate, Younghwa Accounting Firm, who performed the actual audit work done at Samsung’s Korean offices. Trial Tr. at 256:25-257:10, 878:6-12, 888:11-889:12.

g. During the audit, Samsung’s primary contact was Ernst & Young’s Korean affiliate, Younghwa Accounting Firm. Trial Tr. at 257:10-15. Mr. Shepherd learned about the on-site audit visits and communications between Younghwa Accounting Firm and Samsung through his telephone and e-mail communications with Simon Yoo and In-Sang Yoo of Younghwa Accounting Firm. Mr. Shepherd communicated his understanding regarding the progress of the audit to William Deley, his primary contact at Rambus. Trial Tr. at 858:12-13, 883:7-10.

h. On July 9, 2004, Rambus made a presentation to Samsung in which it claimed that “[l]ack of data has now delayed this audit 7+ months” and that “[s]uch delay is a breach of our RDRAM, SDRAM, and DDR licenses.” Exh. 4251 (Samsung-Rambus Legal Update Presentation, dated July 9, 2004). In this presentation, as part of the “Proposed Next Steps — Closure,” Rambus requested that Samsung provide audit data from October 1, 2000 through March 31, 2004. Exh. 4251 (Samsung-Rambus Legal Update Presentation, dated July 9, 2004) at 14.

i. Mr. Shepard participated in two conference calls with Samsung and Rambus in July 2004. Trial Tr. at 905:13-15. These conference calls took place after the July 9, 2004 meeting between Samsung and Rambus. Exh. 10228 (Memorandum from N. Shepherd to File re: Samsung Rambus Conference Call, dated Nov. 23, 2004) (the “Background” provided in N. Shepherd’s November 23, 2004 memorandum to file states, “[t]he purpose of the call was to follow up on the four issues raised at the July 15, 2004 conference call and subsequently documented in the memorandum dated 7_28_04.”). Mr. Shepherd’s November 23, 2004 Memorandum to File states, “[currently, the audit period has covered 1/1/2001 through to 12/31/2003 following discussions with E & Y and Samsung.” Exh. 10228 (Memorandum from N. Shepherd to File re: Samsung Rambus Conference Call, dated Nov. 23, 2004).

j. The Amendment No. 1 to the 2000 SDR/DDR Agreement dictated the royalties that Samsung owed to Rambus from January 1, 2001 through April 1, 2005. Exh. 4240 (2001 Amendment); Trial Tr. at 249:22-250:2. Under Amendment No. 1, Samsung paid Rambus a “lump sum royalty” of $3,800,000 in satisfaction of all of its royalty obligations for the first quarter of 2001 for both memory and memory controller sales. Exh. 4240 (Amendment No. 1) § 2. Samsung thereafter paid a “fixed, lump sum royalty” of $2,000,000 every quarter “in lieu of the roya