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Monday, February 5, 2007

FTC Issues Final Opinion and Order in Rambus Matter

Posted by D. Daniel Sokol

An FTC press release today reports that the FTC has issued a final opinion and final order on Rambus, one of the more exciting IP-Antitrust cases in the past few years.

From the FTC Press Release:

The Federal Trade Commission today issued a final opinion and order in the legal proceeding against computer technology developer Rambus, Inc. In addition to barring Rambus from making misrepresentations or omissions to standard-setting organizations, the order requires Rambus to license its SDRAM and DDR SDRAM technology and sets maximum allowable royalty rates it can collect for the licensing, bars 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 requires 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 order is designed to remedy the effects of the unlawful monopoly Rambus established in the markets for four computer memory technologies that have been incorporated into industry standards for dynamic random access memory – DRAM chips. DRAMs are widely used in personal computers, servers, printers, and cameras.

The release continues:

The Commission’s majority opinion states that the Supreme Court has “emphasized the Commission’s wide discretion in its choice of remedy, and stated the expectation that the Commission would ‘exercise a special competence in formulating remedies to deal with problems in the general sphere of competitive practices.’”                   

Thus, “The Commission enjoys ‘wide latitude for judgment’ in fashioning a remedial order, subject to the constraint that the requirements of the order bear a reasonable relationship to the unlawful practices that the Commission has found.”

“Having found liability, we want a remedy strong enough to restore ongoing competition and thereby to inspire confidence in the standard-setting process. At the same time, we do not want to impose an unnecessarily restrictive remedy that could undermine the attainment of pro-competitive goals,” it says.                   

“[T]he Commission has previously declared, and we agree, that ‘where the circumstances justify such relief, the Commission has the authority to require royalty-free licensing.’ . . . We conclude, however, that Complaint Counsel have not satisfied their burden of demonstrating that a royalty-free remedy is necessary to restore the competition that would have existed in the ‘but for’ world – i.e., that absent Rambus’s deception, JEDEC would not have standardized Rambus technologies, thus leaving Rambus with no royalties. . . .We have examined the record for the proof that the courts have found necessary to impose royalty-free licensing, but do not find it. ”

“We therefore are left with the task of determining the maximum reasonable royalty rate that Rambus may charge those practicing the SDRAM and DDR-SDRAM standards. Royalty rates unquestionably are better set in the marketplace, but Rambus’s deceptive conduct has made that impossible. Although we do not relish imposing a compulsory licensing remedy, the facts presented make that relief appropriate and indeed necessary to restore competition,” the opinion states.        

“[W]e find that a maximum royalty rate of .5% for DDR SDRAM, for three years from the date the Commission’s Order is issued and then going to zero, is reasonable and appropriate. We also find that a corresponding .25% maximum rate for SDRAM is appropriate. Halving the DDR SDRAM rate reflects the fact that SDRAM utilizes only two of the relevant Rambus technologies, whereas DDR SDRAM uses four.”

The opinion explains that the order bars Rambus “from collecting royalties relating to the sale, manufacture or use of any JEDEC-compliant DRAM or non-DRAM products that are greater than those that Rambus is allowed to collect under the terms” of the order. “The purpose of this provision . . . is to preclude Rambus from continuing to collect monopoly rents” with respect to these products.

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Comments

Great blog, Professor. What did you think of the FTC's decision? Do you agree with its refusal to require Rambus to offer a royalty-free license? I have mixed feelings on this question: Requiring Rambus to offer a royalty-free license certainly would have had a greater deterrent effect; yet, such a requirement seems unduly harsh and frankly, unfair to Rambus. I also can't help but wonder whether the case will withstand scrutiny on appeal. The FTC hasn't had a lot of luck with the appellate courts lately, particularly in cases involving intellectual property. Any thoughts on that?

Posted by: Denise L. Diaz | Feb 6, 2007 4:36:05 PM

Overall, I am pleased with the decision and the remedy. Standard setting organizations serve an important function in fostering innovation. However, as Rambus' behavior demonstrates, a company can exploit standard setting for anti-competitive gain. Remedies, particuarly in innovative industries are difficult to craft because of the dynamic effects that they can have. This is an area that suggests particular caution in not being too over-reaching with remedies. Sean Royall, who helped try the FTC case, wrote a nice article that explains how to think about standard setting concerns. See M. Sean Royall, Standard Setting and Exclusionary Conduct: The Role of Antitrust in Policing Unilateral Abuses of a Standard-Setting Process, 18 ANTITRUST 44 (2004)

Posted by: D. Daniel Sokol | Feb 7, 2007 10:36:43 AM

Thanks for the quick response and the referral.

Posted by: Denise Diaz | Feb 9, 2007 2:54:02 PM

Be interested what you think of recent filings in related court cases that indicate that Micron lawyers were working on documents (eg Findings of facts, opening argument outlines, post trial briefs) for the FTC Complaint Council (Sean Royall) and also preparing witnesses with the FTC CC DURING the FTC trial. Now Micron is one of Rambus main competitors and was one of the initial complainents to the FTC. Is it appropriate or ethical for government agency prosecutors to receive such assistance during trial proceedings?

See pages 36-49 of 2.3MB PDF: Declaration of CAROLYN LUEDTKE in Support of 771 MOTION to Compel
http://f1.grp.yahoofs.com/v1/wDVZRzS49OT-vQaECjoVsoutJfI9r1NmC5vGhJY57tG4z59bRbpgZy4ewCTyZExIwBO5mh_vqbOvUCAizqo0FvSyC7M2JEQc7VU/Exhibit%20A-G%20re%20Micron%20and%20FTC.pdf

Posted by: Scott | Dec 7, 2007 4:53:35 AM

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