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August 2, 2006

Sneaky Rambus

Rambus has been enforcing its memory patents against semiconductor companies, racking up royalties. The wondrous trick was that the claimed technology was rolled into the standard for computer memories. Today the U.S. Federal Trade Commission ruled that Rambus knew just what it was doing, and thus unlawfully gaining monopolistic rent, as economists put it, for four memory chip technologies.

In 1990, Rambus began patenting the technologies that would become the standards. The patents went to the bus interface for higher speed data transfer.

According to the FTC web site:

By a unanimous vote, the Federal Trade Commission has determined that computer technology developer Rambus, Inc. unlawfully monopolized the markets for four computer memory technologies that have been incorporated into industry standards for dynamic random access memory – DRAM chips. DRAMs are widely used in personal computers, servers, printers, and cameras.

In busting Rambus for violating Section 2 of the Sherman antitrust act, the FTC opined in its 119-page ruling:

[T]hrough a course of deceptive conduct, Rambus was able to distort a critical standard-setting process and engage in an anticompetitive “hold up” of the computer memory industry.

In June 2002, the FTC charged Rambus with violating federal antitrust laws by deliberately engaging in a pattern of anticompetitive acts to deceive an industry-wide standard-setting organization, which caused or threatened to cause substantial harm to competition and consumers. The Commission complaint alleged that Rambus participated in the Joint Electron Device Engineering Council (JEDEC), a standard-setting organization that “maintained a commitment to avoid, where possible, the incorporation of patented technologies into its published standards, or at a minimum to ensure that such technologies, if incorporated, will be available to be licensed on royalty-free or otherwise reasonable and non-discriminatory terms.” According to the FTC complaint, Rambus nonetheless participated in JEDEC’s DRAM standard-setting activities for more than four years without disclosing to JEDEC or its members that it was actively working to develop, and possessed, a patent and several pending patent applications that involved specific technologies ultimately adopted in the standards.

In internal proceedings, the FTC lost an administrative trial in early 2004, for failing "to sustain their burden to establish liability for the violations alleged." The FTC appealed to the full Commission, resulting in today's decision.

We find that Rambus’s course of conduct constituted deception under Section 5 of the FTC Act. Rambus’s conduct was calculated to mislead JEDEC members by fostering the belief that Rambus neither had, nor was seeking, relevant patents that would be enforced against JEDEC-compliant products. . . . Under the circumstances, JEDEC members acted reasonably when they relied on Rambus’s actions and omissions and adopted the SDRAM and DDR SDRAM standards. Rambus withheld information that would have been highly material to the standard-setting process within JEDEC. JEDEC expressly sought information about patents to enable its members to make informed decisions about which technologies to adopt, and JEDEC members viewed early knowledge of potential patent consequences as vital for avoiding patent hold-up. Rambus understood that knowledge of its evolving patent position would be material to JEDEC’s choices, and avoided disclosure for that very reason. Through its successful strategy, Rambus was able to conceal its patents and patent applications until after the standards were adopted and the market was locked in. Only then did Rambus reveal its patents – through patent infringement lawsuits against JEDEC members who practiced the standard

In a concurring statement, Commissioner Jon Leibowitz wrote, "Rambus’s abuse of JEDEC’s standard-setting process was intentional, inappropriate, and injurious to competition and consumers alike."

The next step for the FTC is determining the appropriate remedy. That's after Rambus' appeal, which is certain.

Rambus has claimed for years that it told memory makers Micron Technology and Hitachi that it had patents, before the standards-setting discussions begun. Rambus also asserts that the disclosure policies of JEDEC were unclear.

Rambus stock price plunged, down 21%, down $3.62 to $13.36.

Rambus is also being investigated for backdating stock options, an illegal cooking of the books by fiddling with dates to let company executives reap windfall profits from exercising stock options. An audit committee has found, echoing the FTC, that Rambus knew what it was doing.

Posted by Patent Hawk at August 2, 2006 10:47 AM | Patents In Business

Comments

I think sneaky FTC would be a more appropriate title. I have been involved as an investor in this case for seven years and witnessed portions of the FTC trial in person.

When a government agency morphs the actual facts of a case to fit their own agenda, I call it sneaky.
When a government agency disregards a 343-page opinion by their own Chief Judge written after a 54-day trial, I call it sneaky. When they ask for a remedy (forfeiture op property, IP in this case) that is outside of their mandate as well as unconstitutional, that's not only sneaky but also unethical. Is patent law even under their jurisdiction? Why retry a case already decided by the CAFC? What's the agenda? Are we really to believe it's the consumer? Is the extra dollar per computer something really worth fighting for?

The FTC like many other federal agencies works outside the general checks and balances of the constitution. In this case the FTC is using the antitrust laws to attack IP (see DELL, Schering, Unocal) under the guise of "a proper balance between IP and antitrust". What they are doing is actually reserving the right under their terms to invalidate IP that they see as anticompetitive or as an undue rent on consumers. Do you want a government that can take your property, intellectual or otherwise at their discretion?
What does that do to the strength of American IP or to innovation?

I believe and perhaps you and your readers can chime in that patent cases are factually intensive and extremely difficult. Therefore they are best kept in Article III courts and the CAFC. The AIPLA, IPO and certain past FTC commissioners would agree. (see Dell vs. FTC)

As for Rambus sure they will appeal this to a circuit court but that will take years. The FTC has the right and has exercised it in this case (as well as the 15 prior cases with an ALJ decision) to totally disregard both the facts and the law. They simply set aside the entire court record and initial decision and write their own opinion that adheres to the political agenda of the current commission. (patent reform, standard setting, continuations,
etc)

Again, why is the FTC even involved in this case? The CAFC already has said Rambus didn't violate the actual law, so did the FTC's own judge as well as a special master and a Federal Judge in Delaware. How many times does this issue need to be tried? So the FTC morphs their argument into and says that Rambus violated the spirit of the law and the good faith obligation that Rambus owed to JEDEC. Sure the rules were unclear and sure technically Rambus followed them so lets burn them on a crazy antitrust theory never tried before?

The actual evidence shows JEDEC to be a den of wolves, not a boy scout group. Thirteen executives from the DRAM industry are currently serving time for price fixing. If the FTC wants to investigate something they should look into the group boycott of Rambus' RDRAM. Micron, Infineon, Hynix all agreed to litigate Rambus into bankruptcy and have used the legal system as well as the FTC to do so. They signed joint defense agreements and set up a consortium known as ADT. There is plenty of evidence available to support this fact yet the FTC simply ignores it?

Government agencies are not outside of political influence which you pointed out in RIM /NTP. RIM had as incredible amount of influence over the USPTO as well as the DOJ and the same is true here. Lobbying was done most notably by Micron to bring this case to the FTC. They hired a law firm stacked with ex-FTC attorneys who held considerable influence over the agency and Hynix did the same. There was even a brief filed and later removed that was signed by an attorney not employed by the government.

Posted by: Steve Lozan at August 3, 2006 1:34 PM