NetList Inc (NLST)

[100lbStriper]

NLST Full text Reporting from Trial:

Part 1 (more in comments) https://www.law360.com/ip/articles/1837286/-secret-docs-show-samsung-breached-netlist-deal-jury-told


By Craig Clough; Law360 (May 14, 2024, 10:34 PM EDT) -- An attorney for Netlist told a California federal jury Tuesday during opening statements in its breach of contract suit against Samsung that "secret documents" will show that the technology giant's executives gleefully sought to crush Netlist by cutting off its supply of crucial computer memory products.

Jason G. Sheasby of Irell & Manella LLP, who represents chipmaker Netlist, told the jury that Netlist Inc. reached a deal in 2015 to license its 190 computer technology patents to Samsung Electronics Co. Ltd. in exchange for Samsung supplying it with NAND and DRAM memory products at a competitive price.

Part 2:

"The deal was a huge breakthrough for Netlist, as Samsung completely dominates the worldwide supply of NAND and DRAM products, which Netlist desperately needed for its business, and Samsung had refused for a time to sell the parts to Netlist, Sheasby said. Netlist is a small company, with about 120 employees, while Samsung boasts over 30,000 workers, according to Sheasby.

But about 18 months into the deal, Samsung arbitrarily said it would no longer honor the agreement and significantly slowed down its deliveries, Sheasby said.

"When we complained, they cut it to zero, the record will show, because they already had access to our patents, and no longer needed to keep their commitment under the agreement," Sheasby said. He also said Samsung "knew it was infringing" Netlist's patents, and that the jury will see the "secret records in which they candidly admit this."

Part 3:
"The jury will also see emails and communications in which Samsung executives called Netlist "morons," and that they were "laughing out loud" with "glee" at the disruptions Samsung was causing for Netlist, Sheasby said.

Samsung not only stole Netlist's patents that were licensed under the deal, but it also shared the technology with other companies, Sheasby said.

Samsung executives also "openly admitted to governmental agencies that they wanted access to Netlist's patents so they could use them without permission," Sheasby said.

Darin W. Snyder of O'Melveny & Myers LLP, who represents Samsung, told the jury that the deal between the companies did not guarantee Netlist to an unlimited supply of NAND and DRAM products, and that the slowdown Netlist experienced in deliveries was a result of worldwide disruptions in the market, which is a common occurrence."

Part 4
"Snyder likened the shortage in 2017 and 2018 to the toilet paper shortage experienced at retail stores during the outbreak of COVID-19, suggesting that there simply wasn't enough product available on the market to meet Netlist's orders on time, even though Samsung prioritized Netlist and did its best to keep the supplies coming.

Snyder also said that Samsung "never would promise an unlimited supply" due to "frequent shortages in the memory product market." He also said the deal did not include a minimum requirement of deliveries or delivery obligations.

Neither attorney told the jury how much money in potential damages is at stake in the trial.

The trial is just one arm of a yearslong legal battle between the two companies, which has also seen action in Texas federal court, the Patent Trial and Appeal Board and U.S. Patent and Trademark Office."

Part 5:

In the instant action, Netlist filed suit against Samsung in 2020, alleging the two companies entered a joint development and license agreement on Nov. 12, 2015, which allowed Samsung to supply NAND and DRAM products to Netlist on Netlist's request at a competitive price and to pay Netlist $8 million in engineering fees.

Beginning in 2017, Samsung declined to fulfill all of Netlist's forecasts, requests and orders for NAND and DRAM products, putting some on backlog and rejecting others, according to the suit.

On May 27, 2020, Netlist sent a letter claiming Samsung breached the agreement, and on July 15, 2020, sent another letter terminating the deal.

Both parties eventually moved for summary judgment, and U.S. District Judge Mark C. Scarsi granted partial summary judgment in favor of Netlist's claims in 2021 but held that Netlist can't recover consequential damages and that any damages must be determined by a jury.

Part 6:

A jury in December 2021 determined Netlist was owed no damages, but in October, a split Ninth Circuit reversed Judge Scarsi's summary judgment finding. The majority found the contract was ambiguous and remanded it to the district court for a finding on whether extrinsic evidence creates a genuine issue of material fact as to the agreement's meaning, which ultimately resulted in the current trial.

Netlist won a $303 million verdict in the Eastern District of Texas in 2023 after a jury found Samsung infringed five of Netlist's patents, although the PTAB has since found those patents are invalid.

Chun K. Hong, the president, CEO and co-founder of Netlist, took the stand Tuesday as the trial's first witness and said the companies were previously at odds before striking the 2015 deal and bringing "global peace" where they agreed to "lay down their weapons."

"A year and a half into the agreement, they reverted back to their ways as if we didn't have a contract," Hong said.

Part 7

Samsung started to significantly reduce its NAND and DRAM deliveries in 2017, with Netlist asking for $100 million worth but only receiving $21 million, Hong said. The deal with Samsung allowed Netlist to significantly expand its operations, but after Samsung pulled back on deliveries Netlist eventually lost all of its new customers, he said.

Netlist initially projected that it would reasonably reach $300 million in annual revenue within a few years under the Samsung deal, but due to the deliveries evaporating, they ended up in the red, Hong said.

Snyder was still cross-examining Hong when the proceedings ended for the day, but during that time, Snyder tried to establish that Netlist was a company in financial distress when it reached the 2015 deal, as Hong said it had only been profitable for one year over the last two-plus decades.

The trial is scheduled to resume Thursday morning.

Part 8

Netlist is represented by Jason G. Sheasby, Michael Harbour, A. Matthew Ashley and Lisa S. Glasser of Irell & Manella LLP.

Samsung is represented by Darin W. Snyder, Marc F. Feinstein and Amy R. Lucas of O'Melveny & Myers LLP.