Antitrust - In the Matter of Rambus, Inc. (D.C. Cir., April 22, 2008)
On April 22, 2008, the United States Court of Appeals ruled for Rambus, Incorporated (“Rambus”) in a long-running dispute with the Federal Trade Commission (“FTC”). On August 2, 2006, after a lengthy investigation,
the FTC ruled that Rambus had violated the Sherman Act by engaging in misleading conduct in connection with the adoption of a standard by an industry Standard Setting Organization (“SSO”). That case, In the Matter of Rambus, Inc. (FTC, Dkt. No. 9302), concerned three generations of computer memory standards promulgated by the Joint Electron Device Engineering Council (“JEDEC”). JEDEC, an SSO within the Electronic Industries Association, is the
industry group responsible for standardizing semiconductor engineering.
BackgroundRambus was founded in 1990 to develop and to license computer memory devices. Rambus does not directly manufacture these devices. Instead, it earns income through the licensing of its various computer memory-device
patents. Rambus has been very involved in developing faster technologies for Dynamic Random Access Memory (“DRAM”), a component of a typical personal computer’s infrastructure. In early 1990, Rambus filed a patent
application for a series of technologies comprising Rambus DRAM, or RDRAM. This application would eventually cover a series of innovations and technologies relevant to four distinct DRAM-related technology markets.
During the course of the 1990s, JEDEC developed and issued three generations of DRAM standards. Rambus, as a member of JEDEC, participated in the development of these standards. JEDEC eventually adopted standards that called for
the use of technologies in four DRAM-related markets for which Rambus either held a patent or was in the process of securing a patent.
Rambus, however, never disclosed the existence of these patents to JEDEC or its membership. According to the FTC, Rambus used its role as a member of JEDEC to gain information about new proposed standards and then “amend its
patent applications to ensure that subsequently-issued patents would cover the ultimate standard.” After JEDEC issued the relevant standards, Rambus began a series of patent infringement suits against semiconductor manufacturers
following those standards.
In its August 2, 2006 ruling, the FTC found that Rambus’ conduct constituted unlawful monopolization under Section 5 of the FTC Act. In reaching this conclusion, the FTC also found that Rambus’ actions were “exclusionary
conduct” in violation of Section 2 of the Sherman Act.
The FTC considered it to be key to this ruling that Rambus made misleading statements and actions in the context of JEDEC’s standard setting practice. JEDEC’s members – while still competitors – also operated
under an assumption that other members would act cooperatively at least in the context of the standard setting process. JEDEC guidelines require its membership to reveal the existence of any patents or patent applications that would
affect existing or proposed JEDEC standards. Additionally, before approval of any standard, JEDEC members holding patents incorporated into that standard must agree to license those technologies on reasonable and nondiscriminatory
terms.
The Appeals Court Decision
In its opinion overturning the FTC’s decision, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit rejected the FTC’s finding that Rambus had engaged in unlawful monopolization
in violation of Section 5 of the FTC Act. The flaw in the FTC’s decision, according to the Court, was that the Commission found Rambus’ nondisclosure of its patents violated antitrust law only in the alternative. Specifically,
the FTC found that Rambus nondisclosure prevented JEDEC from either adopting other, non-proprietary technologies into its standards or from extracting a commitment from Rambus that it would license its technologies
on reasonable and nondiscriminatory terms.
In order to uphold the FTC’s decision, the Court concluded that both alternative grounds must constitute violations of Section 5 of the FTC Act. The Court then went on to reject the second alternative – that Rambus’
nondisclosure prevented JEDEC from extracting a commitment from Rambus that it would license its technologies on reasonable and nondiscriminatory terms – as constituting unlawful monopolization. The appeals court found the
FTC’s second alternative to be contrary to the Supreme Court’s ruling in NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998). In NYNEX, the Supreme Court concluded that deceptive conduct standing alone
is an insufficient basis for a Section 5 claim. Rather, the party alleging the misconduct must also allege and prove harm to the competitive process. Applying that logic to Rambus’ acts, the Court concluded that, preventing
JEDEC from securing a reasonable and nondiscriminatory commitment from Rambus did not include any harm to competition: “[t]hus, if JEDEC, in the world that would have existed but for Rambus’ deception, would have standardized
the very same technologies, Rambus’ alleged deception cannot be said to have had an effect on competition in violation of antitrust laws.”
The DC Circuit’s decision does not conclusively end the FTC’s prosecution of Rambus. The Court remanded the case back to the FTC based on the FTC’s original complaint against Rambus, which included a count charging
Rambus with other methods of unfair competition. However, the Court also implied that further prosecution might also lack merit, noting the Court’s “serious concerns about the strength of the evidence relied on to support
some of the Commission’s crucial findings.” The Court said that there was a lack of clear evidence that JEDEC members understood they were required to disclose any work in progress at the time standards were adopted
that might potentially affect those standards. Typical of the Court’s skepticism that further prosecution of Rambus is warranted was the statement that “[o]nce again, the Commission has taken an aggressive interpretation
of rather weak evidence.”
ConclusionThe question of when liability can be imposed for allegedly improper conduct before standard setting organizations is a major issue in antitrust on which various decision-makers have split. At almost the
same time that the FTC ruled against Rambus, the federal district court in New Jersey entered a decision dismissing a complaint for facially similar alleged SSO abuse filed by Broadcom against Qualcomm. In December 2007, however,
the Third Circuit reversed that dismissal, relying in part on the reasoning of Rambus. See Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir 2007). Now, the DC Circuit has reversed Rambus,
while Broadcom’s case was allowed to proceed. Accordingly, it is difficult to imagine that this will be the last word on the subject.