A U.S. appeals court found memory chip designer Rambus Inc inappropriately destroyed documents related to patent lawsuits it filed, sending its shares down sharply.
The U.S. Court of Appeals for the Federal Circuit said on Friday it was clear that Rambus had destroyed documents but it was not clear that the destruction was so serious that a lower court should have tossed out one of its lawsuits.
It sent the dismissal back to the U.S. District Court in Delaware while adding that the lower court might still decide the shredding was serious enough to cause Rambus to lose the case it brought against Micron Technology, the top U.S. maker of memory chips for computers.
In a related ruling, the appeals court found Rambus destroyed documents related to a patent infringement suit it successfully brought against Korea's Hynix Semiconductor. It asked a California court in that case to review its ruling in view of the document destruction.
The decisions slammed Rambus' shares, which were off their lows but still down 16 percent in afternoon trading on Nasdaq.
"I think the market is reacting to the technical finding of spoliation and the near-term loss of the roughly $400 million that was waiting for it in the Hynix case," said Michael Cohen, principal of MDC Financial.
The appeals court said "it was not clear error" for the Delaware court to conclude that Rambus' document policy was to further its litigation strategy by frustrating the fact-finding efforts of parties adverse to Rambus.
"It is undisputed that Rambus destroyed between 9,000 and 18,000 pounds of documents in 300 boxes," the court said.
Hynix and Micron accused Rambus of holding improper shredding parties even as the company laid out plans to sue them for patent infringement. The lower courts were divided on the issue.
Micron had won in the Delaware court when a judge invalidated 12 Rambus patents, citing document destruction by Rambus as the reason.
But Rambus won against Hynix in a separate trial, when a federal judge in California found that nine Rambus patents were valid and had been infringed.
Trading in Rambus was halted six times Friday as the stock hit circuit breakers after rapidly rising and then falling through the 10 percent threshold in a matter of minutes.
At 10 million shares traded, volume was over 12 times the daily average.
Rambus had no immediate comment and Micron could not be reached for comment.
The cases are: Hynix Semiconductor v. Rambus, 09-1299 and Micron Technology v. Rambus 09-1263 in the U.S. Court of Appeals for the Federal Circuit.
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