“50 years of crazed, prolific invention”
In a Michigan bankruptcy court, a quietly brutal legal battle is taking place over one of the most innovative new memory technologies in over 25 years.
The suit names both Intel and Micron – who are developing rival products based on similar technology – as defendants. It spans thousands of pages of heavily redacted claims, including alleged breach of contract, and fraudulent transfer.
At its heart are claims about a “highly irregular” transaction that took place in 2015, three days after the chip giants jointly launched a radical new memory class – 3D XPoint – that they claim can be “up to 1,000 times faster than NAND”.
Who’s Gone to Court?
The litigant is Energy Conversion Devices (ECD)’ Liquidation Trust (ECDLT), which represents the creditors of ECD.
ECD was founded by pioneering American inventor Stanford Ovshinsky.
It filed for bankruptcy in 2012 – the year that the highly prolific, self-taught Hall of Fame inventor died.
But its liquidation trust says it retained rights to the payment of royalties and to rights of first refusal to the stock of a company, Ovonyx, that the inventor had co-founded with a former Micron CTO.
The ECDLT alleges that the defendants have “sought to destroy these valuable rights”. It names in court filings:
- Micron – against which the trust says it has “allegations sufficient to establish a badge of fraud”;
- Intel – against which the Trust alleges “tortious interence”;
- Tyler Lowrey – a former Micron CTO and business partner of Ovshinsky;
- Ovonyx, a company that the two founded, and;
- Ovonyx Memory Technology LLC, an entity which holds hundreds of patents that the ECDLT claims the rights to.
“A Major Breakthrough in Memory Process Technology”
At stake, potentially, is a share of licensing rights to 3D XPoint (pronounced “cross point”): technology described by Intel and Micron in a joint July 2015 release as “a major breakthrough in memory process technology, and the first new memory category since the introduction of NAND flash in 1989”.
The technology works by utilising a unique property of glass containing chalcogens such as sulphur or tellurium: this can be manipulated by a current to change states from amorphous to crystalline; a reversible phenomena which is then used to record memory. (The states correspond to logic 0 and 1).
If production can scale – and it is comparatively early days – 3D XPoint could be a game changer, for the data centre segment in particular.
The ECDLT describes the technology in its initial filing as “on the edge of extraordinarily valuable commercialisation”, saying it is “hard to understate how valuable 3D XPoint, and the technology powering it that came from ECD and Ovonyx, is to Micron and the computer and memory industry.”
Rewind: “The Companies Invented Unique Material Compounds…”
Some context: on July 28, 2015, Intel and Micron announced that they were collaborating on the technology, boldly promising delivery of “non-volatile memory speeds up to 1,000 times faster than NAND.”
In their joint announcement, the two American semiconductor heavyweights were keen to take credit for the invention: “The companies invented unique material compounds and a cross point architecture for a memory technology that is 10 times denser than conventional memory”, they wrote in July 2015.
The media were, curiously, given just 36 hours notice of that announcement: an unusual approach to launching a radical new class of memory technology.
The news was described by one as a “premature and unnecessarily hurried announcement” and others reported Micron’s then-CEO Mark Duncan looking uncomfortable on stage – as he emphasised “there have been a lot of papers written, a lot of people talk about how they’d like to create a memory like this: this one’s real; it’s in our fab.” (Claims of visible discomfort are, of course, subjective: for our money, Duncan looked at ease).
The name Stanford Ovshinsky – a prolific and self-taught hall of fame inventor, son of a scrap metal merchant, and lifelong labour union supporter – was nowhere to be seen.
It took six months after the launch for a link with his work to be made publicly, when Guy Blalock, the co-CEO of IM Flash (a joint Intel-Micron vehicle set up to commercialise the technology) acknowledged that materials breakthroughs and an invention at the heart of Ovshinsky’s work were involved.
He said: “Chalcogenide material and an Ovonyx switch are magic parts of this technology with the original work starting back in the 1960’s.”
(“My work on chalcogenide devices for electrical and optical applications is a highlight of my life”, Ovshinsky had told E\PCOS conference attendees in 2011).
A Protracted Pause
By 2017 Intel had brought its first 3D XPoint product to market.
Dubbed “Optane”, it is now in commercial use – including via a multi-year technology agreement with enterprise software giant SAP: Intel claims SAP HANA customers using it “are capable of reducing data recovery times from 50 minutes to 4 minutes.
In late 2018 Intel and Micron split, the latter exercising its right to buy out Intel’s stake in their joint venture IM Flash for $1.5 billion.
This can handle a stunning 2.5 million input/output operations per second, triple today’s typical SSD offerings, and boasts the industry’s highest bandwidth at more than 9GB/s in read, write and mixed modes.
The claims being made by both vendors are significant, not least because as Moore’s Law grinds to a halt, memory matters more than ever to those seeking an edge over competitors with their computing workloads: as Micron VP Jeff Bader told Computer Business Review in a July interview “The noise is made by compute guys, but data movement is the problem; in and out of the chip to feed the processor.”
But behind the scenes, a legal battle over the IP rumbled.
“Not Drafted with a Corporate Lawyer’s Precision”
The Michigan law suit was first filed on July 12, 2018.
In it, the ECDLT says it “seeks redress for valuable contractual rights… that are now being undermined by the Defendants”.
The saga goes back to 1998, when the inventor Ovshinksy signed a deal with Micron veteran Lowrey to commercialise his innovations. (Even the complainant admits in a 2019 court filing that this was “not drafted with a corporate lawyer’s precision”)
This letter confirmed that ECD would “license its valuable intellectual property to a to-be-formed entity”, which became Ovonyx.
In exchange it obtained two key contractual protections: a right to 0.5% of Ovonyx’s revenues and rights of first refusal relating to Lowrey’s stock in Ovonyx and assets of Ovonyx.
Ovonyx went on to successfully sub-license its IP, earning over $58 million in revenues from June 1999 to May 23, 2012.
(Intel acquired preferred stock and observer rights for Ovonyx’s board of directors in 2000).
“ECD never forfeited its rights under these two agreements, including when ECD sold its Ovonyx stock to Micron, the liquidation trust’s lawyers argue.
Micron and Intel declined to comment for this piece.
In a September 28, 2018 filing, however, Ovonyx and Micron described the case as ” little more that the Trust’s attempt to revive and monetize a twenty-year-old executory contract that it [the court] rejected as part of its Chapter 11 case in 2012.
“Crazed, Prolific Invention”
Ovshinsky’s ECD itself went bankrupt in 2012 after what one observer describes as “50 years of crazed, prolific invention”. (For more on the inventor’s life, businesses and myriad inventions, Computer Business Review highly recommends “The Man Who Saw Tomorrow” – a 2018 biography by Lillian Hoddeson and Peter Garrett).
When ECD filed for bankruptcy, it began marketing its equity stake in Ovonyx, with Micron emerging as the winning bidder.
“ECD offered to Micron ECD’s rights [under a 1998 and 1999 agreement] but Micron declined”, the liquidation trust said in court filings, claiming that ECD retained its rights to first refusal to any sale or IP, and the licensing revenue.
16 Days Later…
The finer nuances of what rights, if any, the ECDLT has under a series of agreements between 1998 and 2000 continues to be fought over in court.
But the plot thickened after the ECDLT made its first representation.
Just 16 days after the liquidation trust filed suit in Michigan, Micron and Intel publicly launched 3D XPoint. Three days after that, they made a controversial “series of transactions” that the ECDLT is now also suing them for.
Precisely what happened is unclear, owing to extensive redactions in the court filings.
A filing by Micron and Ovonyx describes it as follows: “On July 31, 2015, Ovonyx, Micron and Defendants Ovonyx Memory Technology, LLC and Intel Corporation entered into a series of transactions as described in the attached Brief [redacted].
These included the transfer by Ovonyx of “a majority of its valuable intellectual
property” to a newly formed company Ovonyx Memory Technology, Inc., (OMT),
The ECDLT says this was done in “strict secrecy, with no notice to the Trust, and in clear violation of ECD’s contract rights”. (See below).
“No notice was provided to the Trust so that the Trust could determine whether to exercise its right of first refusal in respect of this transfer to OMT,” it says.
The deal was spotted by ECDLT almost by accident, when it was conducting Rule 2004 document discovery. It is clearly furious: “The 2015 Merger transaction was highly irregular, and amounted to a sweetheart deal for Micron and Intel”, the ECD claims, saying: “Intel was heavily involved in, and directly benefitted from, the 2015 transactions”. (Further details are, once more redacted).
While the nature of this merger that has so exercised the ECDLT may never become fully public, the liquidation trust has made seven charges in court.
The Seven Charges
Count I involves claims of three separate breaches.
“First,” the trust argues, “there has been a failure to pay the Royalty.
“Second, the Trust was not provided notice so that it could exercise the First Refusal Rights for the assets transferred… Third, the Trust was not provided notice so that it could exercise the First Refusal Rights for sale of Ovonyx stock.”
The Complaint alleges, the trust says, “facts demonstrating breach of contract, tortious interference, Micron’s liability under an alter ego or successor liability basis, and fraudulent transfer.”
Count II asserts that Micron is the “alter ego of Ovonyx, or bears successor liability
for Ovonyx’s debts…”
Count III is an alternative to Count II to the extent that “[if] Micron and Ovonyx are not alter egos or Micron does not have successor liability, then Micron tortiously interfered with Ovonyx’s and Lowrey’s contractual obligations owed to ECD”, the trust alleges.
Counts 4 and 5:
Counts IV and V are against Ovonyx Memory Technology (OMT) LLC, alleging that OMT “tortiously interfered with Ovonyx’s and Lowrey’s contractual obligations owed to ECD”, and alleging that OMT received an “actual fraudulent transfer.”
Counts 6 and 7:
Counts VI and VII are against Intel.
Count VI alleges that Intel “aided and abetted the tortious interference with Ovonyx’s and Lowrey’s contractual obligations owed to ECD.”
Count VII seeks a declaration that “to the extent that OMT received an avoidable fraudulent transfer, Intel may not use the intellectual property Ovonyx fraudulently transferred to OMT.”
How long the case will rumble on remains unclear.
The ECDLT is pitting itself against deep-pocketed defendants, who are pushing back vigorously, and with combined 2019 revenues of over $100 billion, can afford to do so for a long time. 3D XPoint technologies meanwhile continue to slowly emerge from Intel and Micron’s fabs, as the data centre sector watches closely.