DC Circuit Finds Failure to Disclose Patents to Standard Setting Organization Did Not Present an Antitrust Injury

In Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir 2008), Rambus appealed the finding of the Federal Trade Commission (FTC) that Rambus engaged in an unfair method of competition and unfair or deceptive acts or practices prohibited by § 5(a) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 45(a).  Specifically, the FTC had found that Rambus had engaged in unfair competition by deceptively failing to disclose its patents and patent applications relating to standards being set by a standard setting organization (SSO) in relation to synchronous dynamic random access memory (SDRAM): the Joint Electron Device Engineering Council (JEDEC).

Rambus had participated in the JEDEC in developing the standard, but had withdrawn prior to finalization of the standard.  The rules of the JEDEC required participating members to disclose intellectual property encompassing the standards being developed.  During this participation, Rambus did not disclose the existence of various patent applications related to the standard under discussion as the claims at the time of participation did not cover the standard.  However, after withdrawal, Rambus presented new claims in the pending application which did encompass the standard.  After the standard was finalized, Rambus asserted that compliance with the SDRAM standard would infringe its patent rights relating to the undisclosed inventions.

The FTC filed a complaint under § 5(b) of the FTC Act, 15 U.S.C. § 45(b), charging that Rambus engaged in unfair methods of competition and unfair or deceptive acts or practices in violation of the Act.  See 15 U.S.C. § 45(a).  Specifically, the FTC alleged that Rambus’ failure to disclose its intellectual property violated the JEDEC disclosure requirements, and resulted in Rambus’ ability to monopolize the SDRAM market through unfair means.  Rambus had contended that it had complied with the specific JEDEC rules in regards to what intellectual property was required to be disclosed and, therefore, did not engage in the type of deceptive behavior needed to show unfair competition under 15 U.S.C. § 45(b).

After conducting a trial before an administrative law judge (ALJ), the ALJ issued an Initial Decision agreeing with Rambus.  Specifically, the ALJ found that any failure to disclose was due to the specific JEDEC policies not requiring such disclosure and therefore Rambus’ non-disclosure was not in violation of the JEDEC policies.  However, after appealing to the Commission, the Initial Decision was reversed and Rambus was found to have engaged in deceptive behavior.  Specifically, the Commission found that the JEDEC policies and rules, while not a model of clarity, at least impliedly required the disclosure and such was presumed by the members.  Moreover, the deceptive intent provided for the monopolization because, had JEDEC been aware of the patent applications, JEDEC either would have excluded the patented technologies from the standard or at least required Rambus provide assurances of “reasonable and nondiscriminatory” license fees.  As a remedy, the Commission ordered that the patented technology be made available for license at a preset license rate, depending on the type of JEDEC compliant DRAM involved.

On appeal, Rambus challenged the finding that the JEDEC rules required disclosure of the patent applications in question.  Also, Rambus challenged that there was an antitrust violation because there was insufficient evidence that the JEDEC either would have excluded the patented technologies from the standard or at least required Rambus provide assurances of “reasonable and nondiscriminatory” license fees.  In regards to the license fees, Rambus argued that the required license would not have been an antitrust violation, and there was insufficient evidence that JEDEC would have simply excluded the patented technology.

The D.C. Circuit noted that not all monopolies are illegal as only those acquired by unlawful means are considered anticompetitive.  In defining what constitutes unlawful acquisition of a monopoly, the DC Circuit relied upon its prior decision in United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (en banc) (per curiam) in defining the test.  Under this test, there needs to be a finding on the following:

First, “to be condemned as exclusionary, a monopolist’s act must have ‘anticompetitive effect.’ That is, it must harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice.” Microsoft, 253 F.3d at 58; see also Trinko, 540 U.S. at 407; Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993); Covad Commc’ns. Co. v. Bell Atlantic Corp., 398 F.3d 666, 672 (D.C. Cir. 2005). Second, it is the antitrust plaintiff—including the Government as plaintiff—that bears the burden of proving the anticompetitive effect of the monopolist’s conduct.

While criticizing the Commission’s findings of fact on the issue of whether disclosure was necessary, the D.C. Circuit accepted the Commission’s conclusion that the failure to disclose the patent applications was in violation of the JEDEC rules for purposes of appeal.  The D.C. Circuit then found that, even assuming the disclosure was required, the Commission improperly assumed that the anticompetitive effect existed for both likely outcomes had the patent applications been properly disclosed (i.e., preventing JEDEC from excluding the patented technology or requiring a license).  Moreover, the Commission had specifically found that the FTC had not provided sufficient evidence that JEDEC would have excluded the patented technology from the standard, which the D.C. Circuit found would have been an antitrust effect harmful to competition.  As such, the only viable antitrust effect was that JEDEC would have been required Rambus to provide the license.

The D.C. Circuit then found that, whereas in the Microsoft case there was evidence of an effect caused by Microsoft’s deceptive intent (i.e., tricking developers in working on proprietary Java applications when the developers were intending to work on platform independent Java applications), the only competitive harm resulting from Rambus’ deceptive actions was a raise in prices.  However, relying on NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998), the D.C. Circuit found that the mere raising of prices was not an anticompetitive effect.  Specifically, even assuming Rambus had disclosed the patents, this disclosure would also have resulted in a price increase such that there was no discernable injury.  As such, the D.C. Circuit vacated the Commission’s ruling due to the failure to find evidence of an anticompetitive effect due to Rambus’ failure to disclose the patent applications in question.

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