Long time readers will recall that perhaps the most high-profile (and high emotion) legal dispute involving standards revolves around the conduct of a memory design company called Rambus Incorporated. The emotion arises in part because Rambus develops and licenses technology, but does not actually fabricate semiconductors. This has made its stockholders particularly partisan, as its stock has risen and fallen in synchrony with its fortunes in court, and its detractors particularly irate, because they view Rambus not only as a patent troll, but also as one that has gamed the standards development process during the creation of a universally adopted SDRAM memory standard. Hundreds of millions, and perhaps billions, of dollars of royalties are at stake.
The Federal Trade Commission (FTC) is one of those that thinks that Rambus gamed the system and deceived the marketplace, and I'm another. That's why the FTC is asking the Supreme Court to overturn a lower court decision and reinstate the FTC's conviction of Rambus, and why I'm filing another in a series of "friend of the court" briefs in support of that goal.
The Rambus dispute has three legs to it. The first is a snarl of suits between Rambus, on the one hand, and four semiconductor companies (Hynix, Infineon, Micron, Samsung) individually on the other. Rambus sued each for patent infringement and for conspiracy, and each countersued for deception in the JEDEC standards setting process in which the standard in question was developed. The second leg involves complaints brought against US regulators against the same four semiconductor companies alleging them with price fixing (each has settled with the regulators). And the third involves US regulators (the Federal Trade Commission, or FTC) and European Regulators (the European Commission), each of which opened a separate investigation into the same course of conduct.
One of those legs, or at least the US part of it involving the FTC, is now coming to a climax, with the FTC petitioning the U.S. Supreme Court to grant "certiorari," which is legalese for a review by the Supreme Court of a ruling by a lower court. In this case, that ruling was entered by the United States Circuit Court of Appeals for the District of Columbia Circuit, which earlier this year overturned a unanimous decision by the Commissioners of the FTC against Rambus. If the Supreme Court denies certiorari, then this part of the long Rambus saga will be over, although the possibility for further action by the EC will continue.
Would a final loss by the FTC matter? I think so. I’ve filed five pro bono amicus curiae ("friend of the court") briefs in this case before (one with the Federal Circuit, one with the Supreme Court, and three with the FTC), and, as noted, I’m about to file another one. Here are the details:
Facts: The underlying facts are that both the Federal Trade Commission (FTC) and a trial court have found that Rambus Incorporated practiced deliberate deception on the JEDEC standards development process. Specifically, both found that Rambus:
– participated in the JEDEC process while amending patents already filed so that these patents would be sure to be infringed by the standard under development once it was finally adopted
– deliberately failed to disclose its patents when it knew that it was required to do so
– waited until the standard had been widely adopted and the market place had become "locked in" via adoption. Only then did Rambus assert its patents, demanding royalties higher than it presumably would have been able to negotiate had it made timely disclosure of its patents. Of course, by then it was also too late for JEDEC to amend the specification to render it non-infringing
Case history: Rambus sued various companies that refused to pay royalties, and they counterclaimed on various legal grounds based upon Rambus’s deceptive conduct. In 2002, the FTC filed a complaint against Rambus, alleging violation of the antitrust laws. An Administrative Law Judge (ALJ) for the FTC at first found in favor of Rambus (based largely because the judge found the JEDEC patent policy to be vague), but the FTC appealed that decision, and the Commissioners of the FTC unanimously over ruled the ALJ, coming out decisively against Rambus. Rambus then appealed to the Circuit Court of Appeals of the District of Columbia Circuit, which found in its favor.
The Current appeal: The FTC is now appealing the case to the Supreme Court (technically, this is called a "petition for certiorari"). The FTC believes that the Appeals Court misapplied the relevant antitrust laws to the facts of the case (as do I). Specifically, the FTC charges that, by failing to disclose its patents before the standard was adopted (i.e., at a time when JEDEC could have either chosen a different, non-infringing route, or the members of the working group could have negotiated RAND terms with Rambus), Rambus restrained competition between the Rambus approach and the various alternative technologies that might have been adopted instead. The Appeals Court applied a very technical analysis to conclude that an illegal restraint of competition was not proven.
Why should SSOs care? It is vital to note that the Appeals Court did not dispute that Rambus sought to game the standards development process by deceiving the other members of the working group, and then by allowing the marketplace to become locked in before asserting its patent claims. Rather, it differed on whether, and how, specific provisions of the antitrust laws should be applied to the facts at hand. The result is that, if the Appeals Court decision stands:
– other participants in the standards development process (including some of your own members) may conclude that they can get away with similar deceptive conduct
– those that would be unwilling to engage in such conduct may be less likely to participate in standards development at all (including in your organization), because they might have more to lose than to gain from doing so, knowing that others may engage in conduct similar to that employed by Rambus
– those that might otherwise adopt your standards may be less willing to do so, because they may fear that they, too, may fall into the kind of "patent ambush" trap that the adopters of the JEDEC standard fell into.
What my brief will say: There are several other amicus briefs that will be filed (in addition to the brief of the FTC itself) that will argue the points of law. The purpose of the brief that I will file will be to demonstrate to the Supreme Court that a broad variety of SSOs have serious concerns over the consequences of the Appeals Court decision. In other words, my brief will not be directed at arguing the law, but rather at persuading the Supreme Court that it should agree to accept the FTC’s petition, instead of the hundreds of other petitions competing for its time, due to the great importance that standard setting has for society, commerce, education and government. In substance, what it will say, and what you would be supporting, would be the following arguments:
1. Standards are vital to the national interest, to society and to commerce.
2. The standards development process is conducted by a light weight private sector infrastructure comprising hundreds of non-profit organizations in which industry, academia, consumer and government representatives participate, at their own cost, to develop standards for the good of all.
3. SSOs adopt intellectual property (IPR) policies to minimize the chance of inadvertent infringement of patents, and to ensure that anyone can implement standards on RAND terms (and ideally without cost).
4. The standards development process relies heavily on a presumption of trust as between those that participate, and specifically on the assumption that members will honor their obligations under IPR policies. If that trust can be violated with impunity, then there is more for participants to lose than to gain by participating, and the whole process becomes in danger of collapse.
5. Due to concerns such as cost, SSOs are not capable of enforcing their rules in court, and it is extremely expensive for their members, and others that adopt their standards, to defend themselves when IPR policy rules are violated and patent infringement is asserted against them in violation of those rules.
6. SSOs, their members, those that adopt standards, and those that rely upon them, therefore need to be able to rely on the courts to defend their interests when standards development participants betray their duties of trust and violate IPR policy rules.
7. If the decision of the Appeals Court stands, then the standards development process will be endangered, at great cost to society, to the national interest, and to those that have taken the time and effort, and undertaken the cost, to participate in good faith in the development of standards.
Relief Requested: For these reasons, parties to my brief will be urging the Supreme Court to grant the FTC’s petition for certiorari, and then conclude that the FTC correctly applied the law, thereby supporting the integrity of the standards development process.
Participants: Thus far, two accredited standards development organizations, and six (updated: 10) consortia, representing a very wide variety of industries have agreed to be parties to my brief, together representing thousands of individual members.
Prognosis: Will the Supreme Court grant certiorari? The odds are never good, because the Court has the docket space to accept only a few percent of all of the cases that are submitted to it each year. Accordingly, the Court weighs factors such as the importance of the legal issues at stake, whether there are differences in outcome among the various federal circuits that should be resolved to ensure equal application of federal laws, and so on.
When the brief is completed, I’ll post it for your review, as well as links to any of the other amicus briefs that will be filed that are available on line.
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