For the last five years, memory technology developer Rambus has been locked in litigation with chip vendors Infineon, Samsung, Micron, and Hynix - and the Federal Trade Commission, which brought an action against Rambus. All of these suits involved their joint involvement in standard setting activities in JEDEC. The four chip vendors accused Rambus of setting a "submarine patent" trap for them in the JEDEC process, while Rambus accused them of a price fixing conspiracy.
For a number of years, Rambus won most, although not all of the legal battles, including in its initial round against the FTC. But a month ago, the Commissioners of the FTC unanimously overturned the ruling in favor of Rambus earlier handed down by an FTC Administrative Law Judge, and held Rambus liable. You can read more about that ruling, and the background of the various Rambus suits here.
The echoes of the FTC decision are still reverberating. First, it helped Foundry Networks, which recently brought a "son of Rambus" suit against French telecommunications giant Alcatel. Since the FTC verdict, multiple class action lawsuits have been filed against Rambus on behalf of purchasers of SDRAM chips, seeking recovery of the premium added to the price of those chips in order to pay the royalties Rambus demanded to license the undisclosed patent.
These initial actions provide a sampling of the ongoing impact that the FTC decision will have as the marketplace, litigants and standard setting organizations assess the impact of the FTC decision on their strategies and assumptions. When Rambus scored its first big win in the United States Circuit Court against Infineon, the standard setting world was stunned, because it seemed that gaming the system might be a safer strategy than playing by the rules. An across the board review of intellectual property rights policies in such organizations followed, in an effort to assess what could be done in order to make the process more trustworthy.
Now, the reverse will be true, as participants worry about the possible consequences of (for example) accidently neglecting to disclose a patent in timely fashion. Dell alleged that this was the case a decade ago when it asserted an undisclosed patent against a standard it helped develop, but agreed to a consent degree with the FTC in 1995 that denied it the right to charge millions in royalties on that patent from implementers of that standard. The FTC is now accepting industry comment on what penalties to assess against Rambus. If it decides to seek the same remedy that Dell agreed to years ago, Rambus could lose hugely. First, it would lose the ability to charge royalties against future sales of SDRAM chips, based on its undisclosed patent. But second, it could be forced by the class action suits not only to disgorge all of its royalties on past sales of SDRAM chips, but, potentially, treble damages and attorneys costs as well. Finally, its past and potential settlements with the four chip vendors would be imperilled.
All of which will hopefully be well noted by other standard setting participants who may at some point have been tempted to play fast and loose by the process, as well as by Alcatel, as its determines its strategy in defending the suit brought by Foundry Networks.
Indirectly, the FTC decision will also give strength to the current push by many high tech companies to permit, or require, early disclosure of patents in the standard setting process – so called ex ante disclosure. If disclosure is going to become more imperative anyway, why not reap the added benefits of flushing a much information out as soon as possible in the process, when it can be most beneficial?
I’ll continue to report as additional ripples from the FTC’s decision spread.
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