FTC Petitions Supreme Court Over Rambus

On Monday, November 24, 2008, the Federal Trade Commission filed a petition for certiorari with the United States Supreme Court (see also Appendix Vol 1 and Appendix Vol 2) seeking review of the April 22, 2008 decision of the United States Court of Appeals for the District of Columbia in Rambus Inc. v. Federal Trade Commission, which turned out to be a victory for Rambus due to the fact that the DC Circuit did not find any support in the record to support the FTC’s determinations that Rambus engaged in unfair and deceptive activities while participating in a standard-setting organization without disclosing its relevant patents.  The FTC had petitioned to seek a rehearing of the case by the entire DC Court of Appeals rather than just letting the panel decision stand, but this rehearing request was denied, thereby necessitating this appeal to the Supreme Court.

This case originally started back in 2002 when the FTC filed charges against Rambus alleging that the memory chip designer deceived the industry. The FTC charged Rambus with violating antitrust laws by deliberately engaging in a pattern of anticompetitive acts to deceive the industry-wide standard-setting organization, which ultimately caused substantial harm to competition and consumers. According to the originally filed 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.

Originally, these charges were litigated in an administrative trial before the FTC. In February of 2004, the charges were dismissed in an initial decision and order by Chief Administrative Law Judge Stephen J. McGuire. The FTC, however, appealed the decision and eventually won a reversal on July 31, 2006. In this opinion the Commission ruled that Rambus engaged in act of deception that constituted exclusionary conduct under Section 2 of the Sherman Antitrust Act, and that Rambus unlawfully monopolized the markets for four technologies that were incorporated into JEDEC standards in violation of Section 5 of the Federal Trade Commission Act. The Commission further found a sufficient causal link between the exclusionary conduct and JEDEC’s adoption of the SDRAM and DDR-SDRAM standards, but did not find that such conduct tainted the subsequent DDR2-SDRAM standard.

On February 5, 2007, the FTC issued its much anticipated final opinion and order in the legal proceeding against Rambus. In the order the FTC, in addition to barring Rambus from making misrepresentations or omissions to standard-setting organizations in the future, ordered Rambus to license its SDRAM and DDR SDRAM technology and set maximum allowable royalty rates it can collect for the licensing. The maximum royalty rate set by the FTC for DDR SDRAM is .5%, which will be effective for three years from the date the Commission’s Order, and will thereafter go to zero. The FTC also determined that the appropriate maximum royalty rate for SDRAM is .25%. In justifying this different royalty rate the FTC explained these rates reflect the fact that SDRAM utilizes only two of the relevant Rambus technologies, whereas DDR SDRAM uses four.

On April 22, 2008, the Court of Appeals for the District of Columbia handed memory chip giant Rambus a victory in its ongoing battle with the Federal Trade Commission (FTC) regarding Rambus’ activities associated with the Joint Electron Device Engineering Council (JEDEC), an industry-wide standard-setting organization. In a nutshell, the FTC determined that Rambus had engaged in monopolistic behavior in violation of §2 of the Sherman Antitrust Act and unfair business practices in violation §5(a) of the Federal Trade Commission Act. The behavior found problematic by the FTC was Rambus’ failure to disclose to the standard setting body that it owned certain patents and patent applications that were relevant to the technology upon which standardization was being attempted.

In a unanimous decision the DC Circuit determined the FTC failed to demonstrate that Rambus inflicted any harm on competition. In its order, the Court stated “we hold, therefore, that the Commission failed to demonstrate that Rambus’ conduct was exclusionary and thus to establish its claim that Rambus unlawfully monopolized the relevant markets.” The DC Circuit also expressed “serious concerns about the strength of the evidence relied on to support some of the Commission’s crucial findings.”

It is not much of a stretch, if a stretch at all, to say that this battle between the FTC and Rambus was a saga between good and evil, with many believing that what Rambus had done was intolerable and inexcusable in the context of standard setting activity. Apparently the DC Circuit did not see it that way, owing to the fact that they did not see any factual support in the FTC record to support the FTC decision, a decision that was difficult to rationalize as objective given the voluminous information contained within the FTC files. Whether you support Rambus or you support the FTC, it seemed to me that the DC Circuit was playing fast and loose with the record and severely mischaracterized the FTC evidence.

As the DC Circuit stated in its opinion, this case turned on the fact that those who participated in the standard setting were obligated to disclose information about patents and patent applications, but that there was no formal finding by the FTC that the policies actually contained such a requirement. In fact, the DC Circuit was disturbed by the fact that the FTC relied on witness testimony from those who had an interest in the outcome of the litigation. So the clear message seems to be that the DC Circuit was not OK with what Rambus was alleged to have done, but found no hard evidence that suggested what they did violated the rules set for participation in standard setting.

I anticipate that the Supreme Court will accept this case and we will hopefully once and for all learn what really happened and whether Rambus actually did engage in the unfair and deceptive practices alleged by the FTC. If Rambus did engage in the alleged conduct they should be punished, and punished severely. If they did not then the record needs to be made clear. Right now all that is clear is that the FTC overwhelmingly believed Rambus engaged in illegal activity, and so far there is but one panel of the DC Court of Appeals that thinks the exact opposite. I suspect things will get much more interesting.