NetList Inc (NLST)

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Netlist uses IP leverage for $40 million licence with SK hynix and akey supply agreement

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With much of the semiconductor industry facing a supply crunch, US-based Netlist has used itsrecent courtroom gains to agree a purchase deal as well as a patent licence with its long-timelitigation opponentEarlier this week Netlist and SK hynix announced the settlement to bring a long-running five-year patent fight to an end.Under the terms of the deal, the pair have agreed a cross licence.

Netlist is granting its Korean rival a worldwide licence to part of its portfoliorelated to memory technologies. In return SK hynix will pay its recent courtroom opponent $40 million.But there was another interesting element to the deal: the pair also signed a supply agreement by which Netlist is entitled to purchase up to $600million of memory products from SK hynix.

On a call with analysts, Netlist CEO C K Hong praised the extent of the deal: “In all this is a broad strategic partnership which encompassespatents, products and technology that opens up many avenues of synergistic growth.”He added that the company remains in litigation with Google and Samsung, before stressing that:

“We are committed to increasing the value ofour intellectual property and licensing it on fair, reasonable and non-discriminatory terms to other implementers.”But in discussing the details of the deal, Hong was particularly keen to talk up the benefits of the supply part of the agreement against thebackdrop of growing constraints across much of the semiconductor sector.“The worldwide chip shortage has been well documented in recent weeks and memory and storage chips are no exception,” Hong explained.

He went onto cite analysts’ predictions for a continued shortage in DRAM and NAND components through next year and underlined that the dealwould allow Netlist to “secure significant volume of hynix products” for both integration into the business’s existing products and for re-sale.“Given the prevailing market conditions and the business terms of this agreement, we believe that the access to scarce memory chips will providea significant boost to our product business going forward,” Hong stated.

The shortages in the semiconductor industry come as the demand for chips across a range of sectors has met with several disruptions, such asthe covid pandemic and geopolitical tensions between the US and China. Notably, that has caused some companies such as GM and other majorOEMs in the auto sector to make production cutbacks. The agreement between the companies came together after two key legal milestones fell Netlist’s way: a claim construction order in March inlitigation between the pair in the Western District of Texas; and a February decision from the Court of Appeals for the Federal Circuit which deniedSK hynix’s attempts to move that WDTX suit to the Northern District of California.

At a more settled time for the semiconductor space, those decisions might have prompted Netlist to increase its expectations in terms of anylicensing pay-out. While $40 million in the bank will come as a timely boost to the company, which reported net sales of $47.2 million in 2020, theconstraints in the global chip market clearly led it to place more weight on the supply side of the deal.

In size terms, Netlist is a fairly small IP player with over 130 issued and pending US and foreign patents according to its most recent annualreport. That makes it a minnow in the semiconductor industry where several companies boast portfolios that stretch into the tens of thousandsof assets.

Against the backdrop of the turmoil in the industry, one of the interesting things to track will be the extent to which shortages in key componentsmay impact the web of licensing deals that exist among the leading players.

While many not be able to replicate the Netlist deal, semiconductorportfolios right now are only looking more valuable. Global Patent Litigation State of PlayWe want to know your views in our patent litigation benchmarking survey. It shouldn’t take longer than 10 minutes to complete, so click here totake part. The survey’s findings will be the centerpiece of the next IAM Special Report, to be published in Q2 2021.Richard LloydAuthor | [e-mail]