In a sweeping, 350-page decision, Federal Trade Commission ("FTC") Chief Administrative Law Judge Stephen J. McGuire dealt a significant blow to the FTC's attempts to promote competition by reining in the patent system, dismissing all claims brought by the FTC against Rambus, Inc., the California-based developer of semiconductor memory devices. Over the past several years, the FTC has become increasingly concerned about the potential anticompetitive impact of corporate involvement in standards-setting organizations ("SSOs")-organizations that set industry standards (for example, the size of a floppy disk or light bulb socket or wireless broadband protocol) that enable products to interoperate and accelerate companies' research and development.
The FTC believes that many SSO participants like Rambus are driven to conceal their patents and patent applications from standards-setting committees, betting that the committees will adopt standards that overlap the participants' patent position and put them in position to enforce their patents against an entire industry. While this decision (and the recent dismissal of similar claims against Unocal, Inc.) may make the FTC think twice about pursuing claims of standards-setting misconduct in the future, companies engaged in standards-setting activity must continue to proceed with utmost caution, as SSO disclosure guidelines remain murky and claims of misconduct persist in private litigation.
The FTC's complaint stated three causes of action against Rambus:
- Violations of section 5 of the Federal Trade Commission Act, 15 U.S.C. §45 ("FTC Act") based on Rambus's obtaining monopoly power in the memory device marketplace through its anticompetitive and exclusionary acts and practices before the Joint Electron Devices Engineering Council ("JEDEC")
- Violations of section 5 of the FTC Act through Rambus's pattern of anticompetitive and exclusionary acts and practices with a specific intent to monopolize, resulting in a dangerous probability of monopolization
- Violations of section 5 of the FTC Act through Rambus's anticompetitive and exclusionary acts and practices which constitute unfair methods of competition
The FTC based these claims on Rambus's alleged failure to disclose certain of its patents and/or patent applications to JEDEC while a member of the organization—a nondisclosure purportedly relied on by a JEDEC committee in developing and adopting industry standards for memory devices. Put another way, the FTC claimed that the JEDEC standard (implemented by numerous manufacturers) would not have been adopted had the organization and its members known that practicing the standard would infringe Rambus's patents.
The court rejected the FTC's claims, concluding that the FTC failed to sustain its burden of proof with respect to all three violations alleged in the complaint. Among other things:
- The JEDEC patent policy in place during the time of Rambus's membership (in the early to mid–1990s) did not mandate disclosure of any intellectual property interests by its members. The policy only encouraged disclosure of patents (not patent applications, or intentions to file patent applications) that were "essential" to a standard. Patents were "essential" to a standard if they were necessary for the manufacture or use of a product that complied with the standard.
- The JEDEC patent policy applied only to participants with "actual knowledge" of their company's intellectual property holdings, and in no way imposed an obligation on participants to undertake an independent search within their own company to determine its patent position, or to consult with corporate lawyers.
- Rambus was not in violation of the JEDEC patent policy because that policy merely encouraged the voluntary disclosure of patents essential to practice JEDEC standards. Not disclosing patents conformed not only to the policy but also was consistent with the conduct of other JEDEC members.
- Rambus had no intellectual property interests that it would have been required to disclose even if the disclosure policy had been mandatory.
In sum, Rambus had a legitimate business justification for its actions, and given Rambus's superior technology, JEDEC would have adopted standards reading on Rambus's patent rights even if Rambus had disclosed everything. No pattern of anticompetitive acts or practices or exclusionary conduct existed.
How should the Rambus decision affect the conduct of other SSO participants? Notwithstanding Rambus's exoneration, we believe that SSO participants cannot afford to be cavalier in their approach toward intellectual property disclosure. Many SSOs currently have intellectual property disclosure obligations quite different from those in place at JEDEC during the time Rambus was a member. For example, the Institute of Electronics and Electrical Engineers ("IEEE") bylaws require disclosure of patents essential for compliance with both mandatory and optional portions of any standards set – and certain of its working groups require disclosure of more than just "essential" patents.
Moreover, legal theories quite different from those in the Rambus case are currently being advanced in private party litigation, including equitable estoppel and breach of contract. Companies need to scrutinize the guidelines for each SSO in which they participate to ensure that their SSO delegates are fully complying with their obligations. Where disclosure obligations are unclear,advice of counsel may be sought to interpret the guidelines and defuse any claims that SSO participants intended to mislead their competitors.
*article courtesy of Nicholas G. Papastavros, Timothy W. Mungovan, Jason C. Kravitz, and Richard D. Rochford of Nixon Peabody.