The opinion of the court was delivered by: Ronald M. Whyte United States District Judge
FINDINGS OF FACT AND CONCLUSIONS OF LAW ON UNCLEAN HANDS DEFENSE
Hynix's unclean hands defense to Rambus's patent infringement claims was tried before the court on October 17 - 19 and October 24 - November 1, 2005. The essential issues were (1) whether Rambus adopted a document retention plan in order to destroy documents in advance of a planned litigation campaign against DRAM manufacturers and (2) whether in light of any such conduct, the court should dismiss Rambus's patent claims against Hynix as a sanction for unclean hands. The court now issues its Findings of Fact and Conclusions of Law.
A. The Current Litigation
1. On August 29, 2000, plaintiffs Hynix Semiconductor America, Inc., Hynix Semiconductor, Inc., Hynix Semiconductor U.K., Ltd, and Hynix Semiconductor Deutschland, GmbH (collectively "Hynix")*fn1 filed a complaint, later amended, against Rambus Inc. ("Rambus") that in part sought a declaratory judgment of non-infringement, invalidity, and unenforceability of eleven Rambus patents. In February 2001, Rambus filed counterclaims asserting that Hynix infringed those eleven patents. Hynix subsequently answered the counterclaims and asserted various defenses. Rambus subsequently amended its counterclaims to add four additional patents.
2. The patents that have been asserted by Rambus in this case and their issue dates are set out in the following table:
5,915,105 6/22/99 Integrated circuit I/O using a high performance bus interface 5,953,263 9/14/99 Synchronous memory device having a programmable register and method of controlling same 5,954,804 9/21/99 Synchronous memory device having an internal register 5,995,443 11/30/99 Synchronous memory device 6,032,214 2/29/00 Method of operating a synchronous memory device having a variable data output length 6,032,215 2/29/00 Synchronous memory device utilizing two external clocks 6,034,918 3/7/00 Method of operating a memory having a variable data output length and a programmable register 6,035,365 3/7/00 Dual clocked synchronous memory device having a delay time register and method of operating same 6,038,195 3/14/00 Synchronous memory device having a delay time register and method of operating same 6,067,592 5/23/00 System having a synchronous memory device 6,101,152 8/8/00 Method of operating a synchronous memory device 6,324,120 11/27/01 Memory device having a variable data output length 6,378,020 4/23/02 System having double data transfer rate and integrated circuit therefor 6,426,916 7/30/02 Memory device having a variable data output length and a programmable register 6,452,863 9/17/02 Method of operating a memory device having a variable data input length
3. All of the patents-in-suit are continuation, continuation-in-part, or divisional applications based on a single parent application, serial number 07/510,898 ("'898 application").
4. In January 2005, Hynix moved for leave to add the defense of unclean hands to its pleadings. In an order dated March 7, 2005, this court granted that motion. In a separate order of the same date, the court ordered that Hynix's unclean hands allegations would be considered by the court in a separate, initial phase of the trial of the parties' respective claims.
B. The Farmwald/Horowitz Patent Applications
5. 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 dynamic random access memory ("DRAM") performance. Trial Transcript (hereinafter "Trial Tr.") 600:13-601:5; 1341:15-1343:2; 1540:12-19; HTX 005.001.*fn2
6. From 1990 to the start of 2005, Geoffry Tate was the Chief Executive Officer of Rambus. Tate is presently the Chairman of the Board at Rambus. Trial Tr. 1226:9-16.
7. On April 18, 1990, Farmwald and Horowitz filed the '898 application. Trial Tr. at 364:11-365:19; 600:20-601:8; HTX 005.001.
8. The '898 application resulted in a number of continuation and divisional patent applications ("Farmwald/Horowitz family"). Rambus received its first issued United States patent resulting from the '898 application in September 1993. The patents that are at issue in this case resulted from this process. HTX 005.001.
9. Rambus retained Blakely, Sokoloff, Taylor & Zafman ("BSTZ") as outside patent counsel from approximately 1981 through sometime in 2001 or 2002 to prosecute Rambus patent applications, including many applications from the Farmwald/Horowitz family. Trial Tr. 784:14-785:2. Lester Vincent, Scot Griffin, and Roland Cortes were patent prosecutors at BSTZ who worked on the Farmwald/Horowitz family of applications. Trial Tr. 784:14-785:2; 1592:22-1593:9; 1603:14-1604:11.
10 . The first of the patents that Rambus has asserted against Hynix in this action issued on June 22, 1999. Rambus's Answer to Second Amended Complaint and Amended Counterclaim, filed 11/25/02, at 17-19.
C. Rambus's RDRAM Technology
11. Rambus does not manufacture its own products, rather, it licenses its intellectual property to DRAM manufacturers and collects royalties. Trial Tr. 1250:25-1251:2. As a company that generates revenue from its intellectual property alone, intellectual property protection is necessarily important to Rambus.
12. In the 1996 - 1999 time frame, Intel Corporation planned to use Rambus's RDRAM (Rambus Dynamic Random Access Memory) technology in its next generation of microprocessors. Trial Tr. 1237:20-1239:1. Because Rambus does not manufacture products, it relied upon DRAM manufacturers to license Rambus's intellectual property and produce RDRAM for use in Intel's products. Trial Tr. 1251:3-6.
13. Rambus referred to the RDRAM production by licensed DRAM manufacturers as the "Direct RDRAM ramp." Trial Tr. 1238:4-8; 1330:21-24. Direct RDRAM licensees were granted a narrow license to produce RDRAM. Trial Tr. 1289:1-16. These licenses generally did not permit licensees to utilize Rambus intellectual property for purposes other than producing RDRAM pursuant to Rambus's specifications. Other uses of Rambus's technology were referred to as "non-compatible" uses, because they were non-compatible with the RDRAM specifications. Trial Tr. 1356:22-1359:24.
D. Rambus's Participation in JEDEC
14. Between 1992 to late 1995 or early 1996, Rambus was a member of the Joint Electron Device Engineering Council ("JEDEC"). Trial Tr. 786:21-795:8; 1148:11-12; 1161:12-20.
15. Richard Crisp, a program manager for Rambus, was one of Rambus's representatives to JEDEC and attended JEDEC meetings on behalf of Rambus from 1992 to late 1995. Trial Tr. 1148:8-11. Billy Garrett was Rambus's other JEDEC representative. RTX 311; RTX 312.
16. Crisp and Garrett submitted trip reports following each meeting of JEDEC they attended. Crisp took a Macintosh laptop computer with him and took notes electronically. He later distributed his JEDEC trip reports to members of the Rambus executive team and others in the sales division.
17. Between 1992 and late 1995 or early 1996, Crisp, Tate, Tony Diepenbrock (inside patent counsel) and other Rambus executives and employees were informed that Rambus's participation in JEDEC might pose enforcement problems for some of its patents based on equitable estoppel for not disclosing to JEDEC Rambus's potential patent coverage of products (non-compatible with RDRAM) conforming to JEDEC standards. Trial Tr. 1156:4-1163:22; HTX 066; HTX 078; HTX 225. Rambus was also informed of this possibility by one of its outside patent attorneys, Lester Vincent. Trial Tr. 785:3-804:7; HTX 192. This concern was discussed within Rambus. Id.
18. In 1996, Rambus initiated patent licensing negotiations with Mosys. Mosys had been founded by two of Rambus's engineers and, according to Rambus, the Mosys product shared many characteristics with Rambus's products. Trial Tr. 1382:13-1384:17.
19. Patent negotiations, which Tate stated Rambus was poorly equipped to handle (Trial Tr. 1385:13-16), resulted in MoSys taking a license from Rambus. However, Rambus determined that since patent licensing negotiations were more complex than it had originally thought, it needed to hire someone familiar with negotiation of patent licenses to handle future licensing negotiations. Trial Tr. 1385:17-24.
F. Relationship with Hynix
20. Prior to 1998, Rambus and Hynix (then Hyundai) had a licensing agreement that included an "Other DRAM" provision, which apparently allowed Hynix to make non-compatible DRAMs using Rambus Interface Technology for a 2.5% royalty. Trial Tr. 1295:19-1305:11; HTX 004.004; HTX 087.
21. In July 1998, Rambus attempted to remove or amend the "Other DRAM" provision.
Id. The reasons apparently were that Rambus wanted Hyundai to increase its marketing effort and productize the RDRAM device and to be able to claim infringement by Hyundai if it continued to work on SL DRAM (Synchronous Link DRAM). Id.; Trial Tr. 1038:2-1039:22.
22. Thereafter, Hynix merged with LG Semiconductor ("LGS"). At the time of the merger, both companies had licenses with Rambus. Id. Hynix attempted to affirm the 1995 Hynix-Rambus license, asking Rambus to agree to use the royalty rate specified in the Hynix-Rambus license. Id.
23. Rambus apparently decided to treat the LGS license as governing the relationship between Rambus and the merged company. That agreement apparently did not have an "other DRAM" provision." Trial Tr. 1038:2-1039:22.
G. Rambus Formulates its Licensing and Litigation Strategy
1. Rambus Hires Joel Karp
24. Rambus hired Joel Karp in October 1997 to assess its patent portfolio, determine if chips infringed the patent portfolio, develop licensing strategies for infringing chips, and negotiate with companies that built and sold such chips. Trial Tr. 356:22-357:23; RTX 080; HTX 091. In advance of the commencement of Karp's employment, Geoff Tate, Rambus's CEO, sent an e-mail to Rambus executives describing Karp's role as "to prepare and then to negotiate to license our patents for infringing drams (and potentially other infringing ic's)." HTX 091; RTX 080.
25. Before his employment at Rambus, Karp was employed by Samsung from September 1990 through July 1997. When he left Samsung's employment, he was a senior vice president. During his employment with Samsung, Karp attended JEDEC meetings on Samsung's behalf, describing his role as "Samsung's mouthpiece." Karp met Richard Crisp, Rambus's JEDEC representative, at JEDEC meetings. Trial Tr. 136:16-25.
26. Karp had learned through his experience that the DRAM industry was very litigious. Trial Tr. 138:23-134:3.
27. While at Samsung, Karp participated in licensing and litigation activities on behalf of Samsung. Trial Tr. 138:2-22. In one action against Texas Instruments ("TI"), Karp submitted a declaration asserting that TI was subject to equitable estoppel because it was contrary to industry practice for an intellectual property owner to remain silent during the standard setting practice if its intellectual property covered the standard being considered. Trial Tr. 150:12-151:7.
28. On January 7, 1998, Tate met one-on-one with Karp. Karp was instructed to prepare a plan for licensing infringing DRAMs for presentation to the Rambus Board of Directors in early March. That strategy was to include a litigation strategy. Trial Tr. 170:2-171:12; HTX 013.020; see also HTX 395.02 (Cooley Godward attorney Peter Leal's notes from a January 13, 1998 meeting with Tate and Karp stating "Want litigation strategy by March board meeting. Six weeks from now.").
29. According to Tate's top level goals for 1998, Rambus's IT goals included positioning Rambus intellectual property for the future. Under the heading "Position Rambus for the Future Including IP," Tate's top level goals included the following:
A. Get access time register patent issued that reads on existing SDRAM
B. Broad patents in place for Direct Rambus, next generation signaling; and chip-to-chip interconnect
C. Get all infringers to license our IP with royalties > RDRAM (if it is a broad license) OR sue.
HTX 094. 2. Rambus Meets With Cooley Godward Attorneys
30. In late 1997, Karp called Diane Savage, an attorney at the law firm of Cooley Godward ("Cooley") with whom he had worked before coming to Rambus, seeking a recommendation for someone to help set up a licensing program. Trial Tr. 393:22-394:10. Attorney Savage, who was a partner in Cooley's technology transactions group, introduced Karp to her colleagues John Girvin, Dan Johnson, and Peter Leal. Trial Tr. 394:17-22; 585:16-19.
31. In January and February 1998, Karp began to meet with the Cooley lawyers to discuss issues relating to patent licensing. HTX 007; HTX 376; HTX 395. At the January 13, 1998, January 15, 1998, and February 12, 1998 meetings between Cooley attorneys and Rambus executives, Tate and Karp, the discussion about a licensing strategy included formulating a litigation strategy as a part of a licensing strategy. HTX 376, HTX 395, HTX 403.
32. On January 13, 1998, Karp and Tate met with Cooley attorney Leal, an attorney specializing in licensing matters. On January 15, 1998, Karp and Leal met again. HTX 376, HTX 395.
33. At the January 13, 1998 meeting, the parties discussed the concept "[n]o negotiation w/out full strategy and prep." Rambus wanted to "go in and quickly proceed to either a license or litigation."
Further, Rambus was "looking for a royalty rate that tells [the DRAM industry] it costs to infringe." Rambus wanted to "[t]ry win-win first; do not prejudice g - f for litigation." HTX 395.
34. At the January 15, 1998 meeting, Karp and Leal discussed a proposed sequence for negotiating meetings with potential infringers, including roles Rambus executives and Cooley attorneys might play in negotiations and what information would be presented at each meeting, labelled in Leal's notes as the "Middle Ground, delaying meeting" and the "Pound Sand" meeting. Rambus at this time was "very, very sensitive" to costs. HTX 376.
35. On February 12, 1998, Karp met with three Cooley attorneys, Johnson, Girvin, and Leal. Leal, a licensing attorney, reported to Girvin, head of the Information Technology Patent group. Trial Tr. 586:9-16. Girvin, in turn, reported to Johnson, head of Cooley's litigation group.
36. The purpose of the February 12, 1998 meeting was to develop the licensing strategy Tate had requested at the one-on-one meeting between him and Karp. HTX 097; HTX 403. The licensing strategy envisioned optimizing Rambus's notice to potential infringers, a negotiation strategy and a litigation strategy. HTX 403.
37. As of the February 12, 1998 meeting, the Cooley attorneys were aware of Karp's draft licensing term sheet, which specified that Rambus would charge a 5% running royalty for a license to make non-compatible DRAMs. RTX 088. Karp acknowledged that these royalty rates "will probably push us into litigation quickly." HTX 097.
38. At the February 12, 1998 meeting, Johnson expressed concern about Rambus having no document control system in place.
Q: Okay. The next bullet point says "Make ourselves battle ready." Do you see that, that's the first part of it?
Q: Do you recall somebody saying words to that effect at this meeting?
A: That sounds like something I would do.
Q: And what did you mean by that phrase?
A: Very simply, Rambus was essentially an old start-up, as far as I was concerned. It had been around probably eight, nine years. They had, as best I could tell, no central document control system in place . . . and if you want to have a licensing program, if you end up filing lawsuits against anybody, putting in place a system that gets your documents organized. * * *
Q: And the last sentence in this bullet point says "Need company policy on document retention policy." Do you see that?
Q: Is this something you said at this meeting?
Q: . . . . What led you to say that to Rambus?
A: Typical start-up. As I said, they didn't have a policy, as best I could tell. I can't recall if somebody mentioned it to me at this point in time, but I'd just litigated a case where a company was, either had to spend, I can't remember if it was $60,000 or $100,000 trying to retrieve data, and the President was screaming. And they'd gone back through and recycled and they didn't have a document retention policy. They got accused of spoliation. So you get yourself a document retention policy.
Trial Tr. 1675:21-1678:20.
39. Johnson advised Rambus to gather critical company documents to start putting together an electronic database and to adopt a company policy on document retention. HTX 097. Johnson testified that he recommended adopting a document retention policy for three principal reasons. First, a document retention policy would reduce the expense of retrieving electronic data stored on obsolete or corrupted back-up media. Trial Tr. 1676:24-1677:10. Second, a document retention policy would reduce search costs in the event that Rambus was someday required to respond to subpoenas or document requests that might possibly be issued in connection with future lawsuits or investigations. Trial Tr. 1677:11-14. Third, the absence of a company-wide policy for the retention and destruction of documents might be cited by a future litigant as evidence of spoliation. Trial Tr. 1678:10-20.
40. Johnson testified that the advice he gave Rambus regarding document retention was commonplace and that he probably gave similar advice to at least eight to ten start-up companies ...