K&LNG
AUGUST 2006
Alert
Antitrust & Competition
Member of Industry Standard-Setting Group Held Guilty of
Monopolization by Deceiving the Group About Its Intent to
Claim Patent Rights Over the Standardized Technology
On July 31, 2006, the Federal Trade Commission
unanimously ruled that Rambus, Inc. had unlawfully
monopolized the markets for certain computer
memory technologies by withholding from an
industry standard-setting group information
regarding its intention to assert patent rights over the
memory technology which the group was selecting
as the standard for incorporation in future chips.
According to the FTC:
“Rambus’s course of deceptive conduct
contributed significantly to Rambus’s
acquisition of monopoly power by distorting
[the standard-setting group’s] technology
choices and undermining [the group’s]
members’ ability to protect themselves against
patent hold-up. This conduct caused harm to
competition.”
In the 1990’s, the computer hardware industry faced
a “memory bottleneck problem” as the speed of
central processing units improved much more
rapidly than the speed of memory chips. Rambus,
Inc., a developer and licensor of computer memory
technologies, developed technology intended to
alleviate the memory bottleneck. It filed a patent
application (the “‘898 Application”) for its
technology early in 1990. In response to a demand
by the Patent and Trademark Office that it identify
which of the multiple claimed inventions it wished
to pursue in the ‘898 Application, Rambus filed ten
divisional applications. Rambus then unsuccessfully
sought to license its technology to the memory chip
manufacturers. In part, Rambus’ lack of commercial
success resulted from the manufacturers’ reluctance
to pay royalties and licensing fees. The
manufacturers turned instead to the Joint Election
Device Engineering Council (“JEDEC”) for
technology.
JEDEC was an industry-wide standard-setting
organization composed of manufacturers and
purchasers of the relevant type of memory chips, as
well as producers of complementary products and
computer systems. It eventually incorporated into its
standards for two successive generations of memory
devices certain technologies relating to, inter alia,
memory response times, data burst lengths, data
transmission speeds and synchronization of CPU and
memory clocks. Rambus was a member of JEDEC
and participated in its deliberations and its voting
regarding the selection of the relevant memory
technology. In addition, Rambus used information
which it learned at JEDEC meetings to modify its
patent applications to ensure that subsequently
issued patents would cover applications satisfying
the JEDEC standards. After JEDEC had rejected
other alternative technologies in these areas and after
industry participants had incorporated the JEDEC
standards into their product designs, Rambus
asserted that JEDEC’s implementations of these
technologies infringed its patent rights and
demanded royalties.
In response, the Federal Trade Commission held that
Rambus had unlawfully monopolized the markets
for these technologies. Rambus was deemed to hold
monopoly power in the subject markets because
more than 90% of the products incorporated
technologies over which Rambus claimed patent
Kirkpatrick & Lockhart Nicholson Graham LLP
rights. The exclusionary conduct that rendered
Rambus’s monopoly position unlawful, according to
the FTC, was its deceiving JEDEC into believing
that it would not assert patent rights over the
JEDEC-approved technologies.1 In finding a duty
for Rambus to disclose its intellectual property
position, the FTC relied not just on the breach of any
express duty to disclose under JEDEC’s rules, but
on the totality of the circumstances, which the FTC
concluded made Rambus’s conduct “materially
deceptive.” JEDEC operated, the FTC found, on a
cooperative basis in which members were expected
to disclose during JEDEC’s deliberations the
existence of any patents and patent applications that
would cover implementation of the standards under
consideration. Rambus was aware that JEDEC had
a policy of not standardizing on patented technology
unless it had first negotiated a reasonable and nondiscriminatory license fee for all products complying
with the JEDEC standard. According to the FTC:
we find that JEDEC’s policies . . . and
practices, considered as a whole, gave JEDEC
members reason to believe the standard-setting
process would be cooperative and free from
deceptive conduct. In that environment, we
find that Rambus’s course of conduct was
likely to be ‘material’ because it was likely to
infect the decisions of JEDEC members with
respect to the . . . standard to be adopted.
Although Rambus made it plain in the market that it
held patent rights over its own chip design, the FTC
found it significant that JEDEC representatives who
viewed Rambus’s marketing presentation for its own
chip design considered that design to bear “little or
no resemblance” to the JEDEC-compliant design.
According to the FTC, “under these circumstances,
an awareness that Rambus held or likely would seek
a patent covering [its chip] did not equate to any
contemplation that Rambus could or would obtain
patents” covering the JEDEC-compliant design.
Overall, Rambus’s conduct was insufficient to alert
JEDEC members to the potential for Rambus to
demand royalties on the technology being adopted,
according to the FTC:
“The message that Rambus reasonably
conveyed – in a context in which it had been
asked about its patent position, and in which
other members expected disclosure of patents
and applications – was that Rambus would
have disclosed if it had anything relevant to
reveal . . . . Under the circumstances, JEDEC
members acted reasonably when they relied on
Rambus’s actions and omissions and adopted
the [ ] standards.
Specifically, the FTC found that Rambus’s
exclusionary conduct consisted of:
n
“potentially deceptive omissions via its
continuing concealment of its patents and
patent applications until after” the relevant
industry standards were already in place;
n
“outright misrepresentations when it gave
evasive and misleading responses to
questions about its conduct” with respect to
intellectual property rights; and
n
using information gained through its
participation in JEDEC to help share its
patent filing strategy to ensure coverage of
the technology being approved as the
standard.
The FTC disclaimed any intent to require all
standard-setting organizations to require disclosure
of relevant intellectual property. However, it stated:
If an SSO [standard setting organization]
chooses not to require such disclosures, SSO
members still are not free to lie or to make
affirmatively misleading representations
(emphasis added).
1 Courts adjudicating patent infringement claims and related counterclaims have reached divergent results on whether Rambus’s
failure to disclose its patents constituted fraud or antitrust violations. See, e.g., Rambus, Inc. v. Infineon Technologies AG, 318 F.3d
1081 (Fed. Cir. 2003); Hynix Semiconductor Inc. v. Rambus, Inc., 2006 WL 2038357 at *12 (N.D. Cal. July 17, 2006); Special
Master’s Report and Recommendations on Motion of Micron Technology To Compel Defendant Rambus To Produce Certain
Documents, Micron Technology, Inc. v. Rambus, Inc., CV-00-792-KAJ (D. Del. Mar. 6, 2006).
2
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AUGUST 2006
In summary, the FTC ruled that Rambus had
unlawfully monopolized various markets for
memory chip technology by failing to disclose its
contention that its patent applications covered certain
implementations of that technology until after
JEDEC had chosen those implementations from
among numerous competing technologies and after
the industry had become locked into that technology
through its subsequent investments. Such a lock-in,
the FTC found, conferred on Rambus monopoly
power to raise royalties above competitive levels.
The FTC has requested additional briefing regarding
the determination of an appropriate remedy.
This decision underlines the necessity for holders of
intellectual property to carefully consider all of the
ramifications of their actions in connection with
standard-setting organizations.
Thomas A. Donovan
tdonovan@klng.com
412.355.6466
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