By Scott Cameron
Rambus, Inc., applied for, and later received, several patents from the United States Patent and Trademark Office related to computer memory chips. A patent is generally thought of as conferring the patent holder with a legal monopoly over the patented subject. The patent holder owns the subject to the exclusion of all others. So how is it that, in a unanimous decision, the Federal Trade Commission recently found that the monopoly achieved by Rambus’ patent violated federal antitrust laws?
Rambus shows that the often interrelated and sometimes confusing arena of intellectual property law contains some very real checks and balances. Complying with one field’s requirements does not ensure the compliance with all relevant requirements. In this case, although Rambus’ acquisition of patents may have complied with patent law, the manner in which they were acquired amounted to anticompetitive, exclusionary conduct. Therefore, the FTC found that Rambus’ conduct violated Section 2 of the Sherman Act. 15 U.S.C. § 2.
To appreciate Rambus’ conduct requires a brief tour of the semiconductor and computer memory industry practices. For years, the high tech electronics industry has been driven by standards. The Sony Betamax debacle was the earliest example of the consequences of possessing the non-standard technology. VHS won the first battle over standards, and the Betamax, which many still believe to be the superior technology, quickly faded away. An industry standard allows all competitors in a particular field to use the same platforms and media. A Sony DVD player should play all DVD’s, not just Sony-made DVD’s. Likewise, DVD distributors are not likely to manufacture a different version of each DVD depending on the type of television the consumer owns. As technology grows faster and faster, and the number of new technologies soars, the need for standards is even more pronounced.
Rambus is a company that develops, secures patents on, and licenses technologies to companies that manufacture semiconductor memory devices, including the Dynamic Random Access Memory chips (DRAM) and Synchronous DRAM’s (SDRAM’s) at issue here. The standard governing semiconductor memory devices including DRAM’s was established by the Joint Electron Device Engineering Counsel, or JEDEC. One of the key factors evaluated by JEDEC in deriving the standard for the SDRAM was the presence of patents over the technology. JEDEC’s concern was the ability for the entire industry to have free, or at worst, very inexpensive, access to the technology it crowned the new standard. The presence of patents over the technology implies the requirement to pay the patent holder a royalty for use, something JEDEC tries to avoid in establishing an industry standard. In fact, when JEDEC learned that a proposed standard was encompassed by the one patent Rambus did disclose, they changed the standard to avoid the patent.
With this as a backdrop, it becomes easy to understand why the FTC took issue with Rambus’ behavior. Rambus was a member of JEDEC. As a member of the group responsible for establishing the industry standard, Rambus was in a position of great influence over what technology would be established as that standard. What was unknown to JEDEC, and what the FTC found that Rambus worked to keep hidden, was the fact that Rambus had several patents and several patent applications pending that would encompass the standard to be published by JEDEC. In fact, Rambus actually amended some of the patent applications once it became clear what the standard would be to ensure the patents it received would encompass the standards. In what the FTC found was a clear violation of JEDEC’s requirements, Rambus did not disclose to JEDEC the fact that it held these patents or that it had pending patent applications. After the standard was announced by JEDEC, Rambus revealed its patents through cease-and-desist letters demanding the purchase of licenses to use the technology, and if the letters weren’t successful, infringement lawsuits. This, the FTC found, was a course of deceptive conduct through which Rambus was able to distort a critical standard-setting process and which amounted to “an anticompetitive hold up of the computer memory industry.”
The question still remains, however, what to do with Rambus. The FTC’s August 1, 2006, ruling dealt only with the liability. And while Rambus has indicated it will appeal the ruling, the FTC will soon issue another ruling regarding the remedy it will impose. At issue in this phase of the proceedings is whether, or to what extent, Rambus will be able to profit from its anticompetitive behavior. It seems intuitive that, having been found liable for what amounts to piracy of the computer memory industry, Rambus should not be allowed to profit. It is important to note, however, what the FTC did not, and arguably could not, do—it did not invalidate the patents. Rather, the FTC found that Rambus engaged in anticompetitive behavior in violation of Section 2 of the Sherman Act, and established a briefing schedule for the issue of the remedy to be imposed.
One option that amounts to a forfeiture of the patents is for the FTC to enjoin Rambus from collecting any royalties on the use of the technology. However, the FTC’s August 1, 2006, opinion seems to lean toward establishing reasonable royalty rates that Rambus may charge, rather than prohibiting all royalties. Further, it is unlikely that JEDEC will change the standard to avoid Rambus’ patents. The end result is likely that Rambus will retain its patents and the right to impose reasonable royalty requirements for the use of the patented technology.
Not surprisingly, the FTC proceedings are not the only matters keeping Rambus’ legal team busy. Rambus is currently involved in litigation with many major semiconductor companies. It is possible that a district court could invalidate Rambus’ patents, but it is not clear that this will happen. In fact, in one recent litigation, Rambus was awarded $307 million in damages after a jury found that Hynix Semiconductor had infringed Rambus’ patents.
It is not clear what will happen when the dust settles here. It is clear, however, that the FTC is making a strong statement regarding antitrust law. It is not enough to meet the technical requirements of the USPTO to obtain a patent. If the acquisition of that patent is achieved through deceptive means and results in an exclusionary monopoly, the patent holder still risks running afoul of antitrust laws.