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Thomas Lavelle’s decision to take the top legal post at Rambus Inc. might surprise some. After all, why would anyone give up a general counsel job at Xilinx, Inc., an $8 billion company with more than 3,000 employees, the world’s largest maker of programmable computer chips, for the GC slot at a company one-tenth the size, with a laundry list of legal troubles? Rambus, based in Los Altos, designs high-speed computer memory chips and makes money solely on licensing its technology. Since 2000, Rambus has been embroiled in a series of bitter patent battles with several giant microchip manufacturers that refused to license the company’s chip design and accused Rambus of illegally obtaining its patents during the development of the industry chip memory standard in the early 1990s. In April, Rambus obtained a jury award of $307 million against Ichon, South Korea�based Hynix Semiconductor Inc. for infringing its patents. But since that victory, Rambus has had a slew of bad news, starting with a court decision slashing its damages award to $134 million. A few months later, the Federal Trade Commission sided with the company’s critics and found Rambus violated antitrust law when it failed to disclose its patents while attending meetings to establish industry standards. To add to its legal woes, the company is one of more than 120 high-tech firms being investigated by the Securities and Exchange Commission for possible stock option backdating irregularities. Last year Rambus announced that it would take more than $200 million in charges for stock options that were improperly dated. In January, Rambus said that it could face delisting from Nasdaq if it fails to make its February 19 SEC deadline for its financial restatement. To say that Rambus’ new GC has his work cut out for him is an understatement. After his hiring was announced in November, some posters on Internet message boards devoted to Rambus stock mused whether the 56-year-old Lavelle had a career “death wish.” But to Lavelle, his decision was a no-brainer. He says that the Rambus job is an opportunity to be part of a “very compelling” business model, one that many U.S. companies will likely adopt. “Rambus is focused on intellectual property, and that’s the direction the U.S. economy is heading,” he says. “And, frankly, that’s how all of the high-tech companies have been making their real money now.” The first thing on Lavelle’s to-do list is to bring Rambus in compliance with SEC accounting rules. Lavelle’s experience with Xilinx’s own stock options backdating problem made him a shoo-in for the Rambus job. In August, San Jose�based Xilinx announced that its own internal investigation found no fraud, but it would take a $2.2 million charge to account for stock options that were improperly granted. Rambus CEO Harold Hughes noted in a meeting with investors in January that he expects Lavelle to provide “great leadership and focus to our corporate governance and compliance initiatives.” Lavelle acknowledges that his most immediate goal right now is to put more emphasis on the corporate securities function of Rambus’ 10-lawyer legal department, which has been heavily focused on litigation in the last few years. Four in-house attorneys are working full-time supporting outside counsel at Los Angeles’ Munger, Tolles & Olsen. Since 2000, the company has initiated about a half-dozen lawsuits, including a massive price-fixing case against four memory chip manufacturers in California state court. Rambus is accusing the memory chip makers of sharing information on pricing to shove a Rambus-backed technology off the market. “I’m not going to reduce the amount of time we spend on litigation, but we’re adding capability on the corporate side,” Lavelle says. But Rambus faces an even graver threat to its business than its current trouble with the SEC. In February the FTC capped at just 1 percent the royalty rates that the company can charge on patents covering four semiconductor designs. The commission also requires Rambus to license the patents covered by the chip designs. The sanctions were not as severe as the company’s critics had hoped. (The FTC could have barred Rambus from collecting any royalties at all and could have applied the restrictions to later versions of memory technology on which Rambus now collects royalties.) But Rambus still plans to appeal the finding and the sanctions. The full commission’s ruling has already put a damper on Rambus’ 6-year-old patent infringement suit against Hynix. Recently the judge overseeing the patent case denied Rambus’ request to exclude the FTC’s finding of “deceptive conduct.” Hynix and three other microchip makers had filed separate antitrust counterclaims against Rambus, petitioning the courts to invalidate the company’s patents for fraudulent and anticompetitive behavior. The FTC finding is expected to bolster the microchip manufacturers’ cases against Rambus. The FTC�imposed royalty cap could also mean that Rambus would recover only a limited amount of damages if the company prevails in its infringement suit against memory chip makers. “[Lavelle] will not have a dull day [at Rambus],” predicts Silicon Valley attorney Kenton King, a partner at Skadden, Arps, Slate, Meagher & Flom who worked with Lavelle at Xilinx as outside counsel. “Rambus is facing an array of legal issues that could be really difficult to navigate. But Rambus is fortunate to have somebody of [Lavelle's] caliber. He has the maturity and experience, and he will do a really good job there.” Lavelle doesn’t seem perturbed by the legal headaches he inherited from his predecessor, John Danforth, Rambus’ first GC. (Danforth stepped down in July to become a senior legal adviser and currently manages Rambus’ price-fixing suit.) “It can look daunting, but I like a challenge,” Lavelle says. Though not a patent attorney by training, Lavelle has significant IP credentials. At Xilinx, he oversaw the company’s eight-year patent infringement suit against rival Altera Corp., which resulted in a $20 million settlement in favor of Xilinx. And he helped the company grow its patent portfolio to become one of the top 100 IP holders in the world. “We weren’t even Fortune 500, but we’ve cracked the 100 list,” he says. Lavelle got his courtroom experience soon after graduating from Santa Clara University School of Law by serving as a deputy public defender in Orange County. He never thought of becoming a tech industry attorney until his wife, pregnant with their second child, submitted his resume for an Intel Corp. in-house position without his knowledge. He became Intel’s fifth in-house attorney in 1983 and worked on various litigation, including the successful defense of private antitrust claims and an FTC inquiry. His 16-year career at Intel was briefly interrupted in 1992 when he became GC at Steve Jobs’ short-lived computer hardware company, NeXT Computer Inc. The job lasted just nine months, but it gave Lavelle a taste of being in charge of a company’s legal department. “It made me want to be a general counsel,” Lavelle says. These days Lavelle has far grander plans. As Rambus’ GC, he’d like to come up with a business solution that would enable companies like Rambus to license their patented technology without the threat of litigation, or at least with as little litigation as possible. “I’d like our customers to understand and appreciate the value we bring,” Lavelle says. But that’s more of a long-term goal, he says, admitting that he’s still getting up to speed on the licensing business. For now, Lavelle will likely keep seeing reluctant customers in court. Xenia P. Kobylarz is a reporter with IP Law & Business, a Recorder affiliate based in New York.

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