 | |
| |
TechnologyDaily Mobile
Rambus Case Ruffles Antitrust Law
by Sarah Lai Stirland
On a clear December morning, lawyers in a closely-watched antitrust proceeding underway at the Federal Trade Commission stood by their courtroom desks as they awaited the arrival of the agency's commissioners to hear their arguments.
After the five commissioners took their seats in the packed court room, the FTC's Geoffrey Oliver presented the bureau's arguments, saying this was one of the most important cases the commission had ever faced.
If the computer-memory design firm Rambus was allowed to assert the patents that it had obtained in bad faith, he said, consumers could pay up to an additional $3 billion for computer products. He added that the outcome of the case could send a key message to technology companies.
"At the most fundamental level, it's a question of how we assess how companies behave when they get together to set standards," said Oliver, an assistant director of the commission's anticompetitive practices division in its bureau of competition.
The FTC's enforcement division had appealed a February 2004 administrative law judge's dismissal of an antitrust action that it brought against Rambus. The oral arguments that day were the second of two hearings in the appeals process.
The agency commissioners do not have a time limit to make a decision on whether to affirm or reverse the February ruling. But if they reverse the decision, legal observers expect Rambus to appeal. The appeal could be heard in any jurisdiction where Rambus conducts business.
FTC Charges Rambus As Deceitful
The FTC has charged Rambus with violating federal antitrust law by deceiving its competitors while it participated in a process for crafting and setting the standards for a form of computer memory called dynamic random access memory. The FTC's original complaint said Rambus participated silently in industry standards-setting meetings for years, but did not properly disclose that it had applied for some patents that included some of the technology under discussion. Instead, the company asserted its patents after the industry had accepted and deployed the agreed-upon standard, thereby locking the industry into using the Rambus-patented technology. The FTC said the conduct amounts to unfair competition, and it wants to stop Rambus from asserting its related patents.
Antitrust lawyers are watching the case's progress for guidance on whether companies are expected to act in good faith during standards-setting proceedings, or whether the participants in standards-setting proceedings can be expected to continue act competitively.
"The really critical legal question here is: Do the participants have a duty of good faith to each other?" said Andrew Updegrove, a partner at the law firm of Gesmer Updegrove in Boston. "The [administrative law judge] said: 'No, they don't.'"
But lawyers for Rambus argued at the December FTC hearing that the company's behavior was lawful and did not violate antitrust law. Instead, they said, Rambus lawfully protected its trade secrets by refusing to disclose whether it had applied for a patent on the technology that an industry group ultimately adopted as the industry standard. They also argue that the refusal to disclose the information put the members of the standards organizations on notice about a potential conflict, and that form of notice was sufficient notice.
Judge Says FTC Failed In Arguments
FTC Chief Administrative Law Judge Stephen McGuire dismissed the Rambus case in February. He said the FTC had failed to establish Rambus' liability, adding that the agency had charged Rambus with anti-competitive behavior that is not governed by federal antitrust law. In a separate case decided at the federal circuit in January 2003, the judges said the rules on disclosure issued by the standards organization, the JEDEC Solid State Technology Association (formerly known as Joint Electron Device Engineering Council) were unclear. The judges ruled that Rambus was not obligated to disclose its patent applications.
Some See Rulings As Creating Uncertainty
The rulings have thrown the standards-setting process in the technology industry into a sea of uncertainty.
"Rambus - what does it do? It denies you predictability," said Carl Cargill, Sun Microsystems' director of standards, at a conference about the technology standards-setting process in September. "You can't even put together a coherent business plan because you don't know what the royalties are -- it's chaotic and it's random and [standards participation] becomes an ineffective business tool."
Sun participates in 200 different standards organizations.
"With the [Federal Circuit's] ... decision, I don't think that it's great for the antitrust practitioner in helping them to counsel their clients," said Alicia Batts, a partner at Dickstein, Shapiro, Morin, Oshinsky, at the same conference. "I think people could read that decision and people might think that this kind of conduct is OK, and that if you craft your patents carefully, you could make a lot of money ... The point of standards-setting process is not to allow companies to develop huge patent pools that they can make a substantial amount of money on, but to create products for consumers and to have innovation."
Updegrove said his firm has worked on a "flood" of new intellectual property rights policies for companies in the wake of the two major legal decisions. Some of the firm's old consortium clients wanted their policies updated while others came to the firm to establish new policies.
The other side-effect of the legal decisions is that it can take consortia much more time to establish the rules governing the information that each member should disclose.
"The big deal is that many companies have very strong opinions on what their policies should say," he said. "[The process] takes up money, and it sometimes even slows the process."
Updegrove said his firm has drafted 20 to 25 intellectual property rights policies in the past two years. The policies stipulate that members of the consortia must disclose their relevant patents, patent applications and relevant trade secrets. They are not required to disclose exact patent claims within their patent applications, but only portions that would be affected. The timing of the disclosure depends on the type of standards process the organization employs.
Meanwhile, the Consumer Electronics Association, which maintains more than 20 standards committees governing audio, video and home-networking, has tightened its disclosure policies in the wake of the two legal rulings. That means asking companies more frequently whether they have any patents or patent applications that might affect their activities, said Ralph Justus, vice president of CEA's technology and standards department. They are asked to disclose every time the committee publishes a new draft of a standard, he said. If a company does hold a patent that affects the standard, they are asked to license it on a "reasonable and non-discriminatory" basis.
Despite moves by standards-setting organizations to improve the clarity and understanding of their rules, the antitrust legal community still is looking for legal decisions that they hope will establish certainty as to what the norms of behavior should be during standards-setting proceedings.
"If you have legal standards to encourage opportunistic conduct, it seems to me as a lawyer that it could be extremely disruptive to standards-setting going forward," said Sean Royall of Gibson, Dunn & Crutcher. Royall is former deputy director of the FTC's bureau of competition and was heavily involved in the litigation against Rambus.
NEW FEATURE
-Advertisement-
-Advertisement-
-Advertisement-
