Rambus FTC Liability Decision Conference Call, 08-02-2006

Operator:  Good day, everyone, and welcome to the Rambus FTC decision call.
Today's call is being recorded.  At this time, I would like to turn the call
over to Mr. Satish Rishi.  Please go ahead.

Satish Rishi:  Thank you, Operator.  And welcome to this morning's conference
call to give you an update on the Federal Trade Commission's decision that we
understand will be made public later today.  I'm Satish Rishi, Chief Financial
Officer, and with me today are Harold Hughes, our President and CEO; John
Danforth, our Se -- Senior Legal Advisor; Bob Kramer, our acting General
Counsel; and Sharon Holt, Senior VP of Sales, Licensing and Marketing.  A
replay of this conference call will be available for the next week at (888)
203-1112.  You can hear the replay by dialing the toll-free number and then
entering ID 7161545 when you hear the prompt.  In addition, we are
simultaneously webcasting this call, and a replay can be accessed on our web
site beginning today at 8AM Pacific Time.  Before we begin, I need to advise
you that the discussion today will contain forward-looking statements
regarding our financial prospects, pending litigation, and demand for our
products, among other things.  These statements are subject to risks and
uncertainties which are more fully described in the documents that we've filed
with the SEC, including our 8Ks, 10Qs, and 10Ks, and these forward-looking
statements may differ materially from our actual results.  Now, I'll turn the
call over to John.  John?

John Danforth:  Thank you, Satish.  Good morning.  

We've been informed that a few minutes ago, the Federal Trade Commission
released an opinion on its web site that reserves the issue of remedy but that
sig -- finds significant areas of liability with respect to the allegations in
the FTC's June 2002 complaint against Rambus.  That June 2002 complaint dealt
with Rambus's alleged misconduct during standard-setting activities from 1999
through 1996.  I will return to the open issue of remedy at the close of my
comments.

We wanted, however, to address the liability finding that came out today, to
the extent that we can, before the market opens today.  The company has not
yet received a copy of the FTC's opinions -- opinion, but our outside lawyers
have, and here is our current understanding of what it says.  First, the FTC
treats a technological feature found in DRAM and its functional equivalent as
a technological market.  With respect to 4 of what the FTC calls,
"technological markets," corresponding to:

1. Programmable CAS [column access strobe] latency [access time] 2. Variable
block size 3. On-chip PLL [phase lock loop] / DLL [delay lock loop], and 4.
Dual-edge clocking [DDR, double data rate, clocking].

The commission will be entering liability finding that in essence conclude
that Rambus engaged in what the commission calls, "deceptive conduct," and
that JEDEC may have selected different technologies for its DRAM standards but
for that conduct.  We find -- We understand that the FTC's liability findings
that are going to be made -- that have been made public today do not extend
to DDR2 or to other later developed memory types of -- although, as I've
said, we at the company have not yet received the full opinion.  The
substantive basis for the commission's opinion today was, apparently,
Section 2 of the Sherman Act.  In addition, the commission apparently
relied on its experience in false advertising cases brought under Section 5
of the FTC Act to help it determine what it could or should treat as
deceptive conduct in the context of a standard setting body.  In essence,
the commission emphasized the unique context of standard setting
organizations and, crediting the stated expectations of JEDEC members, said
that, under the circumstances, Rambus should have disclosed its potential
patent interests to JEDEC while it was a member.  We are, of course,
disappointed that any form of liability was found on the record submitted
to the FTC during and following our 2003 trial.  We believe that the Chief
ALJ [administrative law judge] of the FTC who heard that 3 month trial, got
it right in its January 2004 opinion, and we believe it highly likely at
this point that, depending on whatever remedy the commission ultimately
orders, we will be taking an appeal from the liability that has been found.

That takes me to the open question to which I said I would return, the
question of what remedy the FTC will impose.  The commission has expressly
left the remedy question open and asked for further briefing on that question.
Briefs on this open remedy issue from both sides are due on September 15th,
with reply briefs due on September 29th, and we expect there will be a further
hearing thereafter.  We believe that we can show that our rates are
reasonable, and we look forward to making that case and addressing more fully
the remedy issue.  We do not know if this process will include the setting of
rates by the FTC or its deliga -- designee or how long such a process might
take.  In the meantime, however, we believe we can continue with our
litigation and licensing activities.  For example, we understand there will be
memory types and technologies not affected by the FTC's liability ruling.  In
addition, we do not understand the commission to have intended to interfere
with our ongoing litigation, including trials set against Hynix in August and
Micron in October.  Also, we do not expect the FTC decision today or the
remedy it enters in the future will have an impact on our state court
antitrust case, which we continue to expect will be set for trial in 2007 or
'08.  And now, Satish?

Satish Rishi:  Thanks, John.  Operator, we're ready for the Q&A.

Operator:  Ladies and gentlemen, at this time, if you would like to ask a
question, please press the * and 1 on your touchtone phone.  Should you wish
to be removed from the queue, press the # key.  Once again, at this time, to
ask a question, please press the * and 1 on your touchtone phone.  We will
pause one moment to allow questions to queue.  First, we will go to Daniel
Amir from WR Hambrecht.  Go ahead, please.

Daniel Amir:  Morning.  I guess -- a couple questions.  First of all, I mean,
I guess -- what's the thought process here of the FTC?  I mean, clearly, they
ignored the '04 decision which was a very detailed decision, and this looks
like a major setback for you guys.  And, second, I -- where do you go from
here?  What's kinda the best case scenario?  What's kinda worst case scenario
that you see playing out from a timeline perspective here in the next 6 months
just by, you know, previous experience of and previous court hearings dealing
with the FTC?

John Danforth:  Sure.  Daniel, let me take that in -- really there's 3 parts.
Let me take what I think is the middle part first.  I don't know.  We are
obviously disappointed.  We think that the '0 -- the 2004 opinion was
absolutely correct and relied on extensive evidence.  Whether or not, though,
this is a major setback for us, I think, is gonna ultimately depend on the
remedy phase which is yet to come, and, so, we think we have developed a
record and can further develop a record to show that the rates we've been
charging are reasonable, but that still is to come.  Secondly, Daniel, you
asked, I think -- what -- no, no, no -- the second thing you asked about was
the mindset of the FTC, and like any good lawyer, I'm gonna tell you I can't
speculate as to the mindset of someone else.  I can tell you this:  We haven't
seen the opinion yet.  We understand that it does not directly address to a
great extent the evidence that was amassed by the Administrative Law Judge in
his opinion, and yet, what you need to understand, I think, and I think what
the FTC understands, and we should all understand, is that the Administrative
Law Judge's decision, although vacated in terms of whether or not it is the
operative document for the FTC, is still part of the record and will, under
the Schering-Plough case, recently decided by the 11th Circuit with cert
denied by the Supreme Court -- under -- under that case, the ALJ's opinion
remains part of the record, and his findings will be part of what an appellate
court evaluates in deciding whether or not there's an appropriate basis for
this decision.  Now, going forward -- I think that's your question is what's
our game plan going forward?  We will be vigorously briefing and arguing the
remedy phase of this, and we will, of course, be looking closely at the
opinion to determine whether on the liability issues, putting aside the -- the
remedy issue, on the liability issues, what the issues are that we can bring
up on appeal.  We expect we will bring an appeal.

Daniel Amir:  So, basically, you'd wait until, I mean, the September 29th
would be a reply and then what?  A decision is usually done shortly after that
on a remedy?

John Danforth:  Can't really predict that there will be hearing after the
reply brief, Daniel, and so, I think if you really want to think about it as a
timeline, you need to build in some additional time for a hearing and then
some additional time for a decision by the commission, and I can't at this
point, particularly without having read the liability opinion or seen the
briefing on remedy, I can't give you much better sense of the timing.

Daniel Amir:  OK.  Thanks.

Operator:  We'll take our next question from Michael Cohen from Pacific
American.   Go ahead, sir.

Michael Cohen:  Yeah, John?  You specifically mentioned that this would
probably not apply to DDR2 and later standards.  What is your confidence in
that statement, and, also, can you clarify whether this would apply to DDR?

John Danforth:  Sure.  With respect to DDR2, I have a high level of confidence
based on my understanding of the opinion, not having yet read it, but I have a
high level of confidence that the commission found that there was no
causation, and by that I mean, I think they just concluded that too much time
had passed between our conduct at JEDEC, which by any reading ended in '90,
early '90, mid-'96 at the latest, and the DDR2 standard, which was passed by
the industry in 2003.  Now, as to DDR1, which you also asked about -- that was
passed in 1999.  The commission does not appear to have made the same lack of
causation decision with respect to DDR1.  To the contrary, their -- their
holding, as I understand it, says that as to the 4 technologies, we did create
-- as the technology market was 4 of them that I listed -- we did create
monopoly power through that JEDEC conduct.  So, I hope that answers your
question.

Michael Cohen:  I -- OK.  Let me clarify this.  So, by breaking it into
instead of DRAM that you're monopolizing then breaking it into these 4
technologies, they believe these 4 technologies kind of gave a lock-in applied
to DDR1 but not necessarily later standards?  Would that be correct?

John Danforth:  I -- I haven't see it, but, again, they treat the technologies
and their alternative technologies so that, you know, they'll treat CAS
[column access strobe] latency as part of a technology market which in their
view includes technological workarounds or alternative to CAS latency that
they believe the industry could have and would have selected as an alternative
had they known that royalties would be charged.  I think that's their theory.
They define these markets in that way, and, yes, they say that as to those
markets defined in that way, those specific technologies and their
alternatives, that we both created some kind of improper monopoly because of
the JEDEC conduct and that somehow that monopoly created in that time period
was in some fashion either locked in or in some other way linked to the
decision to continue to include those technologies in the 1999 standard, and
-- and you've heard me speak before about why I don't think there's a causal
link, but I'm not gonna go into that today.

Michael Cohen:  Since the original '898 application included these 4
technologies, which was, you know, prior to the formation of JEDEC, did they
explain how they can claim monopolization in that when it's, you know, part of
the patenting process?

John Danforth:  We're -- We're all gonna have to read the opinion, Michael,
which is now available on the JE -- on the FTC web site.  The FTC has spoken
fairly clearly in the past, that their theory is that we had the patent
monopoly appropriately granted to us by the PTO [Patent and Trademark Office],
but that somehow, through the standardization process, the economic effect or
impact of that monopoly position which we legitimately had was amplified
through the standards setting process, and that in turn depends upon whether
or not the standards setting process, you know, did expect there, for example,
to be disclosures of IP [intellectual property] such that they could work
around it, if possible.  I think that's their theory, and we should all study
the opinion to conclude whether or not that still is their theory.  I do know
the following as well:  that in this opinion, the emphasis is not so much on
what are the specific disclosure rules of JEDEC.  They seem to have moved away
from that approach to this -- to the question, and they, I think, to my
understanding, are now focusing more on what is a sort of good faith
obligation that any participant in a standards setting organization with these
expectations wou -- should have had.  And that's my understanding of the
current theory.

Michael Cohen:  With regard to the -- the liability portion that you're still
going to be briefing, can you give any comments in terms of any expectations
of -- of, you know, what you think is the likelihood that might come there?

John Danforth:  Well, I can't really give you likelihood, but, first of all,
we're not gonna briefing liability.  We're gonna be briefing remedy.

Michael Cohen:  Sorry.

John Danforth:  I think you just misspelled.

Michael Cohen:  Yes, I did.

John Danforth:  And -- and in terms of what we expect, I think there are
indications in the liability opinion as to, you know, what kind of remedies
the c -- the -- the -- the -- the commission has already said they think are
too extreme.  So, they -- they said that both the proposal we initially made
and the proposal the complaint council initially made are both too extreme and
they're asking us what in the record can we -- can you point us to that
supports our finding of a different remedy, or what process should we follow
to find a different remedy?

Michael Cohen:  OK.  And my final question is:  After we get a chance to read
this full decision, will we have an opportunity in a public forum where we can
ask additional questions?

John Danforth:  We don't know at this point.  We're -- we're just looking at
this ourselves.  A copy of it was actually just handed to me, and it's a 119
pages, and until we've read it and figured out what -- to what extent it opens
up questions that we might talk about, I think we'll wait.  I wanna make sure
you understand, Michael, our focus right now is on a very specific thing,
which is, although we disagree with these liability determinations, and we
think Chief ALJ McGuire got it right, we're putting liability issues aside,
and we're really gonna be focusing our question -- our -- our attention now on
what the appropriate remedy should be, and, again, we think we can establish
that our rates are reasonable.

Michael Cohen:  OK.  Thank you very much.

Operator:  Once again, ladies and gentlemen.  If you'd like to ask a question
at this time, please press the * and 1 on your touchtone phone.  If you'd like
to remove your question from the queue, press the # key.  Once again, to ask a
question at this time, press * and 1.  We will pause one moment to allow
questions to queue.  At this time, we have no more questions queued.

Harold Hughes:  May I add just a few closing comments?  First, we have great
confidence in our legal team's ability to defend the value of the
Farmwald-Horowitz patents, but please keep in mind that our scientists and
engineers did not stop innovating when we left JEDEC, as John pointed out,
sometime in 1996.  Indeed, approximately 80% of our patents have priority
dates subsequent to our departure from JEDEC.  Not only was the creation of
this technology difficult, we and our customers and licensees have found that
the incorporation of all leading edge techno -- tech -- leading edge
technology is in of itself challenging.  To address this need, we have added
significant engineering capability to the company.  From this capability, we
derive not only substantial revenue, but also market support for our licensing
efforts.  We believe the combination of all these forces will help us through
this period, and, with that, I'll end the call, and thank you very much for
your continued support.

Operator:  Ladies and gentlemen, this concludes today's teleconference.  You
may disconnect at any time.