European Union regulators on Wednesday dropped an antitrust investigation into Rambus Inc. after the company agreed to cap royalty fees for memory chip patents. In an agreement reached between EU regulators and Rambus, Rambus will not charge any royalties for SDR and DDR chip standards and to bring fees for newer versions of DDR down from 3.5 percent to 1.5 percent for five years. This settlement comes in an antitrust investigation launched by the European Commission in 2007 charging Rambus with monopolistic abuse relating to the allegedly unreasonable royalties for patents that were alleged to have been fraudulently hidden and ultimately set as industry standards. This should once and for all close the matter of whether Rambus engaged in anticompetitive conduct by participating in industry standard setting. Over the years I have been critical of Rambus, but as the whole story has unfolded I cannot help but notice that something just doesn’t add up. Either Rambus was engaged in one of the most epic patent frauds of all time, or certain government regulators on both sides of the Atlantic had it out for Rambus. I usually don’t give much credence to conspiracy theories, but in the wake of the fabrication of global warming data over decades it seems clear anything can happen and it doesn’t take more than a few rotten apples to perpetrate a fraud. That being the case, I have a suspicion that Rambus was the victim, not the perpetrator.
Those following the Rambus saga will recall that in June 20002, the United States Federal Trade Commission (FTC) filed charges against Rambus alleging that the memory chip designer deceived the industry by not disclosing certain information to a standard setting body. In fact, the FTC charged Rambus with violating United States federal antitrust laws by deliberately engaging in a pattern of anti-competitive acts to deceive the Joint Electron Device Engineering Council (JEDEC), an industry-wide standard-setting organization, which purportedly 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 Monday, February 5, 2007, the FTC issued its 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.
The February 2007 FTC order further barred Rambus from collecting or attempting to collect more than the maximum allowable royalty rates from companies that may already have incorporated its DRAM technology, and required Rambus to employ a Commission-approved compliance officer to ensure that Rambus’s patents and patent applications are disclosed to industry standard-setting bodies in which it participates.
The ink was hardly dry on the 2007 FTC order when, Tom Lavelle, senior vice president and general counsel for Rambus, was already vowing a Rambus appeal would soon follow, which it did. On April 22, 2008, the Court of Appeals for the District of Columbia handed Rambus a victory. 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.”
The DC Circuit acknowledged that those who participated in the standard setting testified that there was an obligation to disclose information about patents and patent applications, but there was no formal finding by the FTC that the relevant 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 was 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. In short, the DC Circuit ruled that the FTC had no proof that Rambus engaged in any activities that were unlawful, illegal or contrary to the requirements set for participation in standard setting.
On Monday, November 24, 2008, the Federal Trade Commission filed a petition for certiorari with the United States Supreme Court seeking review of the decision of the DC Circuit. On February 23, 2009, the United States Supreme Court denied the request by the FTC to review the Rambus case, bringing to a close its Sherman Act antitrust claims against Rambus. At the time the Supreme Court decided not to accept the FTC appeal Lavelle explained: “Eleven DC Circuit judges examined the FTC’s case, and not one supported it in any way. The Solicitor General did not support the FTC’s petition for certiorari, and now the Supreme Court has denied its petition.”
Well, now the EU has stood down as well. I don’t think anyone can read anything into Rambus’ decision to acquiesce to the demands of the EU. It seems like the reasonable thing to do, particularly given seven years of turmoil. Rambus technology will no doubt advance, and the reality is that government investigations over a prolonged period just get in the way of doing business and succeeding, just ask Microsoft and IBM. Still, this winding down seems anticlimactic, and at least a little bit suspicious if you ask me. Like I have always said, either Rambus is innocent and a victim, or they are evil to the core. The fact that Rambus has not been taken out behind the woodshed and shot makes me think the conspiracy theorists were right all along, which makes me wonder why was Rambus drug through the mud for so long? Perhaps that will never definitively be known, but the saga seems to have come to an end without any evidence that Rambus did anything wrong.