Participants

Mike Smargiassi; Investor Relations; Netlist Inc

Chun Hong; Chairman of the Board, President, Chief Executive Officer; Netlist Inc

Gail Sasaki; Chief Financial Officer, Executive Vice President, Company Secretary; Netlist Inc

Suji Desilva; Managing Director, Senior Research Analyst; Roth Capital Partners LLC

Presentation

Operator

Good day, and welcome to the Netlist second-quarter 2024 earnings conference call and webcast. (Operator Instructions). This event is being recorded.
I would now like to turn the conference over to Mike Smargiassi, Investor Relations. Please go ahead.

Mike Smargiassi

Thank you, Betsy, and good day, everyone. Welcome to Netlist's Second Quarter 2024 Conference Call. Leading today's call will be Chuck Hong, Chief Executive Officer of Netlist; and Gail Sasaki, Chief Financial Officer. As a reminder, you can access the earnings release and a replay of today's call on the Investors section of the Netlist website at netlist.com.
Before we start the call, I would note that today's presentation of Netlist's results and the answers to questions may include forward-looking statements, which are based on current expectations. The actual results could differ materially from those projected in the forward-looking statements.
Because of the number of our risks and uncertainties that are expressed in the call, annual and current SEC filings and the cautionary statements contained in today's press release. Netlist assumes no obligation to update forward-looking statements.
I will now turn the call over to Chuck.

Chun Hong

Thanks, Mike, and hello, everyone. In the second quarter, Netlist secured two significant legal victories that further validate the actions we have taken to protect our intellectual property. These wins advance the company's objective of entering into long-term licensing agreements with implementers of our IP, that fairly [ consists ] Netlist and its shareholders.
First, in May, the jury in Netlist's case in the Federal Court for the Central District of California. Found unanimously that Samsung materially breached the joint development and license agreement entered into in November 2015.
This trial brought to light, Samsung's misconduct and bad faith actions, which were designed to harm Netlist, and accordingly, the jury rendered a verdict which confirms that we have what we have been asserting all along, the Samsung intentionally and materially breach the agreement and no longer has a license to Netlist patents.
Given this verdict, the Eastern District of Texas moved forward last week with the denial of Samsung's post-trial motions in the $303 million patent infringement jury award against Samsung. The court entered a final judgment in this case and a denial of post-trial motions brings this case to a close in the U.S. District Court.
With these actions, the court has upheld the jury's verdict and damages award, confirm that Samsung willfully infringed Netlist's patented technologies and that none of the asserted patents claims is invalid. Netlist's patents in this case, covered both high bandwidth memory or HBM and DDR5 memory technologies foundational to generative AI computing.
Second, in May, Netlist won a $445 million damages award against Micron in the Eastern District of Texas. The unanimous jury verdict found that Micron willfully infringe Netlist's patents 912 and 417. Earlier this month, Judge Gilstrap entered the final judgment.
And so we have now moved on to the post trial stage of this case. After all post-trial motions are addressed by the court, Micron will have 30 days to file an appeal to the Federal Circuit Court of Appeals, and we fully expect that Micron will appeal this verdict.
I want to underscore that in just over a year, two separate juries have awarded Netlist nearly $0.75 billion in damages for willful patent infringement by two of the largest semiconductor manufacturers in the world. These are some of the largest patent damages award historically in our industry and highlight the tremendous value of the technology Netlist created. Especially in memory for AI computing.
It's also notable that the award address a relatively short infringement periods, mostly between 2022 and 2023. At the beginning stages of the AI memory adoption. In the months since the two verdicts, both Samsung and Micron have each shipped exponentially larger volumes of the infringing memory products for AI and their dollar exposure to our patents have piled up and will continue to accumulate in the months ahead.
In the Eastern District of Texas, the case against Samsung is set for a pretrial, conference on August 23, and trial on September 9. In this case, which we call Samsung, Eastern District of Texas II, Netlist is asserting the 912 patent along with LRDIMM patent 417, both of which relate to the infringement of large volumes of DDR4 RDIMMs and LRDIMMs.
In addition to these same patents that were asserted in the Micron case, for Samsung case II, the 608 patent, which reads on a different aspect of LRDIMM technology then the 417 is being asserted as well. I would note that the 608 was not instituted in the IPR filed by Micron in the Western District of Texas case.
On the last call, I commented on the Patent Trial and Appeals Board, the IPR process, and specifically, the history of Netlist's 912 patent. Patent litigation and the PTAB landscape remain hostile to patent owners and innovative companies like Netlist. This can be seen in IPR statistics over the last few years as well as the extreme proposals coming out of the USPTO today.
We share investors frustration with the current process, but we are committed to defending our patents through the patent office's existing framework.
We currently have seven IPR appeals in process. and expect to add three more in the near future. After receiving final written decision from the PTAB, parties have 30 days to file a request to challenge the result at the PTO itself.
This appeal process can take several months. That these appeals are denied, the PTAB will enter a final decision and denial. This then opens the window to file an appeal with the Federal Circuit Court of Appeals. For each appeal, we expect the process to take around 18 months. And so we expect to see Federal Circuit appellate rulings, on some of the IPR final written decisions and the district court judgments later next year.
Although we will not point to specific IPR's based on a thorough expert analysis of all of the final written decisions, we are confident that some of these decisions will be reversed or remanded on appeal due to clear legal and procedural errors made by the PTAB in rendering its decisions.
On the legislative front, during the second quarter, members of the Netlist legal team spent time in Washington, D.C. meeting with elected representatives and their staff to raise awareness on the status of the U.S. patent system.
Netlist's 912 patent is well known among the IP community in general, as well as with the federal officials. At 14 years, we believe it is the longest running reexam of any patent in history. The 912 has become the poster trial for the excesses of the AIA, the IPR process, PTAB abuse, and a proof point for a need for patent reform.
There are three proposed bipartisan bills, the Prevail, the Restore, and the Para. Each would address different aspects of the process, make critical reforms to curb abuses by big tech, protect patent holders and restore balance to the US patent system. We will continue to work with wall makers to help support their efforts to enact these bills into law.
I will now turn the call over to Gail for a financial review.