FTC Grants a Partial Stay to Rambus

Memory technology developer Rambus, Inc. secured an important, but not unexpected tactical victory on Friday, when the Federal Trade Commission released an order partially staying the sanctions that it imposed on February 2, 2007. In the earlier order, the FTC prohibited Rambus from charging royalties to implement two standards in excess of those the Commissioners determined Rambus could have charged, absent its abuse of the standards process that created those standards.   Under the new order, Rambus will be permitted to continue to charge the rates it demanded prior to the FTC's intervention – but only if it places the excess amounts in a court-approved escrow. The order is conditional, and will not become effective, unless Rambus files its anticipated appeal of the original decision in a Court of Appeals prior to April 12, the effective date of the February 2 decision.
The Commissioners' latest Order will be welcomed by Rambus' stockholders, because Rambus would otherwise have required to either drop its rates on April 12, or seek to renegotiate all of its licenses in such a way as to require make-up payments from its licensees, should it ultimately succeed on appeal. 

But the new Order will not be good news for Rambus licensees, which will be deprived of the near-term use of funds that the FTC had already held to be excessive, and illegally obtained. Those funds would be returned to them – with interest, but minus the fees of the escrow agent – if Rambus loses its appeal at some yet to be determined point in the future.

Friday’s Order denied Rambus’ plea to stay the other terms of the Commission’s original ruling. As noted in a footnote to last Friday’s decision, Rambus did not "articulate any reasons for staying" these provisions. That Rambus would have failed to do so is not surprising, given that these other provisions bar Rambus from misrepresenting or failing to disclose its patents in standard setting organizations (e.g., in so many words, "thou shalt not cheat").
While the Commissioners called their decision "a difficult one" in the Conclusion of the Order, in fact the partial stay was not contested by the FTC’s own Complaint Counsel, presumably because he believed the relief sought by Rambus to be reasonable under the FTC’s own Rules of Practice and Procedure (16 C.F.R. Section 3.56(c)). Under that rule, the party asking for relief must address the following four factors:
1. The likelihood that the applicant will succeed on appeal
2. That it would suffer "irreparable harm" if the stay is not granted
3. The degree of injury that other parties would suffer if the stay is granted
4. Why the stay is in the public interest.
As it happens, the first factor is rather easily addressed, given that there is precedent that the mere fact that a "complex factual record" is involved is sufficient to give rise to a sufficient chance that another court may come out differently.
The second factor is most obvious, given the likelihood that Rambus would find itself unable to recover the excess funds by any other means.
The third factor is addressed by the escrow arrangement, which the FTC will review, and which the Commissioners describe at length in the order in an effort to ensure that the impact on licensees (other than the interim loss of use of their funds) will be as minor as possible. Moreover, the Commissioners note that the damage to licensees will not be irreparable, if Rambus loses its appeal, while the damage to Rambus would be, if its appeal succeeds.
The Commissioners do not address the last "prong" of the test convincingly, or directly. Unlike the first two factors, which are addressed specifically, the Order discusses the last two tests together, balancing the relative harm to Rambus of one outcome, and to the public of another. That analysis primarily addresses factor 3 – which addresses the negative, but not factor 4 – which is concerned with the positive (e.g., not whether harm will result, but whether a positive result will obtain). The closest that the Order comes to addressing the fourth test head on is this simple statement:
…we note that a blanket stay of the provisions prohibiting Rambus from collecting excess royalties would frustrate the Commission’s efforts to restore competition to the relevant markets.
The Order also includes a further point of significance to the marketplace: a clarification (to the extent that any clarification was in fact necessary) that the Commissioners’ February 2 order was intended to impose only a "forward-looking remedy." Rambus had rather implausibly asked for a stay of the economic sanctions of the original Order, because of alleged ambiguity over whether it might have to disgorge past royalties in excess of those now permitted. The Commissioners clarified their intention instead.
While an appeals court will determine whether the Commissioners’ February 2 Order stands or falls, the FTC will retain authority over the escrowed funds, and will oversee their distribution in one direction or the other, upon delivery of a final "mandate" by the appellate court.
Action will now turn, then, to an entirely new venue: the Court of Appeals in which Rambus brings its appeal. At that point, the seemingly endless merry-go-round of the Rambus saga will begin once again – more than a decade and a half after the actual events that gave rise to the continuing saga. 
The new Order can be found here,. You can find past pleadings and orders, as well as track further action on the FTC’s prosecution of Rambus here: FTC Docket 9302. 

A press release issued by Rambus on last Friday’s order can be found here. 

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Comments (2)

  1. It is unfair to ask the licensees to bear the free of an eschew agent, particularly if Rambus lose the appeal. I thought it is usual for the "losing party" to bore the cost associated with the eschew account? Shouldn’t Rambus be forced to foot the bill of an eschew agent whatever the outcome?

    • I was a bit surprised as well that Rambus wasn’t saddled with the costs of the escrow if it lost, and agree that it’s not very fair.  That said, In a commercial setting, it’s quite typical for the escrow agent’s costs to come out of the pot, and effectively be paid by the winner rather than the loser.  I confess that I don’t personally know whether that’s the way it’s always done in this type of situation as well.

      It’s also worth pointing out that the money in the escrow, under the court order, can only be invested in money market and similarly safe, but very low return, investments.  This means that if the licensees "win," their return on the escrowed refund fwill be far lower than what the licensee would have hoped to earn by investing the same money in its own business.

        –  Andy

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