August 3, 2006
On August 2, the Federal Trade Commission issued its long-awaited ruling in the agency’s monopolization suit against Rambus Inc., a semiconductor technology firm based in Los Altos, California. In its 120-page opinion (available on the FTC Rambus Docket page), the Commission finds that Rambus violated federal antitrust laws by engaging in a “course of deceptive conduct,” which distorted the outcome of a standard-setting process (sponsored by JEDEC, a non-profit standards consortium) and thereby “contributed significantly to Rambus’s acquisition of monopoly power” over technologies used in common forms of computer memory chips, known as “DRAMs.” According to FTC Commissioner Pamela Harbour, by concealing relevant patent information from JEDEC, “Rambus was able to distort the standard-setting process and engage in anticompetitive ‘hold up’ of the computer memory industry.”
The decision marks a significant extension of antitrust law principles into the realm of standard-setting activities, and clarifies the circumstances under which deceptive acts in a standard-setting context may be deemed “exclusionary” and subject to antitrust challenge. The FTC’s decision does not resolve the remedy to be imposed against Rambus for the conduct in question, but requests further briefing on this issue from Rambus and Commission staff lawyers. The decision addresses but does not fully resolve additional allegations that Rambus wrongfully destroyed documents and other evidence to reduce legal risks facing the company.
The FTC’s suit against Rambus was filed in June 2002. After a three-month trial in the summer of 2003, an FTC Administrative Law Judge issued an “Initial Decision” favoring Rambus. That decision was then appealed by Commission staff lawyers to the five-member Commission, which heard arguments on the case in the fall of 2004. The matter has been pending before the Commission since that time.
The FTC’s case against Rambus is predicated on the allegation that participants in JEDEC (Rambus was a member from 1991 through 1996) were required by the organization’s rules to disclose intellectual property rights that might be relevant to standards being considered by the group. In the Commission’s complaint, Rambus was alleged to have violated such rules by concealing patent applications that it believed to cover features incorporated within JEDEC’s synchronous DRAM standards, which are today the most widely adopted memory standards in the world. After leaving the organization in 1996, Rambus allegedly continued a pattern of concealment, and chose not to make its patent claims known to the memory industry until years later, when DRAM makers were “locked in” to use of JEDEC’s memory specifications. By this time, the complaint alleged, DRAM makers were unable to alter their memory designs. Rambus therefore possessed monopoly power and the ability to extract billions of dollars in patent royalties — royalties Rambus would not have been in position to collect had it complied with JEDEC’s rules and disclosed its patent claims prior to the standards being set. The FTC’s unanimous decision concludes that these allegations were proven true by the evidence submitted at trial by the Commission’s staff.
Although the Commission has yet to rule on the remedy for Rambus’s antitrust violations, it is likely that the FTC will consider imposing an injunction against Rambus, barring the company from seeking to collect royalties on DRAM memory chips made in compliance with JEDEC’s standards. Based on the proof admitted at trial, absent such a remedy, Rambus is positioned to collect potentially billions of dollars of patent royalties from makers and users of DRAMs.
This decision is likely to have significant implications for standard-setting organizations and companies that participate in such organizations. Companies involved in standardization activities would be well advised to ensure that they understand and comply with rules and well-established expectations relating to disclosure of intellectual property. The FTC’s decision suggests that even if the organization’s disclosure rules contain potential ambiguities, efforts by a single company to exploit a collective standard-setting effort to secure patents over the resulting standards could give rise to antitrust liability.
Gibson Dunn partner M. Sean Royall, co-chair of the Firm’s Antitrust and Trade Regulation Practice Group, served as Deputy Director of the FTC’s Bureau of Investigation from 2001 through 2003 and personally led the team that developed and tried the Rambus case. Since leaving the Commission in October 2003, Mr. Royall has published several articles addressing issues relevant to case.
Articles reprinted with permission.
Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing any questions they may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work or Sean Royall (202-955-8546 in Washington, DC or 214-698-3256 in Dallas; [email protected] ).
© 2006 Gibson, Dunn & Crutcher LLP
The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.