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Thursday, April 29, 2010

The D.C. Circuit’s Error in Rambus and a More Justifiable Framework for Causation and Standard-Setting

Posted by D. Daniel Sokol

Mike Carrier (Rutgers-Camden Law) has posted The D.C. Circuit’s Error in Rambus and a More Justifiable Framework for Causation and Standard-Setting.

ABSTRACT: In the most important ruling ever on causation and standard-setting, In re Rambus, the D.C. Circuit made it unnecessarily difficult to demonstrate causation. It erected roadblock after roadblock in front of legitimate cases alleging monopolization in the standard-setting context.

The primary hurdle took the form of a dichotomy. The court reasoned that Rambus’s nondisclosure of its patents was responsible for the standard-setting organization (SSO) either (1) adopting its technology or (2) failing to obtain reasonable-and-nondiscriminatory (RAND) royalties. But its reasoning on each prong of the dichotomy cut off legitimate claims.

The first prong, of adoption, received a strict “but for” causation standard that is essentially impossible for a plaintiff to show. The FTC was punished for not “eliminating the possibility” that the SSO might have included Rambus’s technology even if it had been disclosed. But the difficulties of proving a sole cause and predicting a counterfactual setting are extremely difficult. The challenges are even higher in the standard-setting context, in which there are numerous potential technologies, including many that are unpatented and less expensive.

The second prong, addressing RAND royalties, also suffered from an excessive reliance on the case of NYNEX Corp. v. Discon, Inc., which presented a far different factual scenario than Rambus. The D.C. Circuit imbued one line in the case, on monopoly pricing, with far more weight than was warranted. In addition, unlike Rambus, the case dealt with the conduct of a party that already had monopoly power.

Antitrust law has no developed standard of causation upon which the D.C. Circuit could have relied. This Article begins the process of constructing such a framework by turning to the law with the most developed causation framework, tort law. Two conceptions of causation, factual and legal cause, offer instructive elements.

The factual cause inquiry asks if the defendant’s conduct played any role in the anticompetitive effect. It makes clear that each of multiple causes could be a factual cause. It then determines whether the conduct reasonably contributed to the effect. In the Rambus case, the company’s nondisclosure appeared to reasonably contribute to its monopoly power.

The legal cause inquiry determines if the conduct was the type targeted by the antitrust laws and if it substantially contributed to the defendant’s monopoly power. The FTC would have been able to show legal cause in this case. Nor would Rambus have been able to rebut these showings since it failed to offer evidence that its technology was so superior that (even if it had disclosed) the SSO would have adopted it, let alone adopted it without a RAND guarantee.

In short, borrowing a framework from tort law for antitrust causation promises to improve upon the D.C. Circuit’s requirement of showing that the conduct was the sole cause of the anticompetitive effect. It does so by forging a strong, but not impossible, connection between the challenged conduct and the anticompetitive effect.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/04/the-dc-circuits-error-in-rambus-and-a-more-justifiable-framework-for-causation-and-standardsetting.html

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