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It has not been a good year for Rambus Inc. In November, a federal court permanently barred the high-tech developer from asserting a family of patents against one company on reasoning that might well apply to almost any other company. That case is now pending before the U.S. Court of Appeals for the Federal Circuit, which heard arguments in early June. Two weeks later, the Federal Trade Commission independently accused Rambus of a pattern of anti-competitive conduct for the purpose of exploiting these same patents. Since the patents are potentially worth $1 billion (according to the FTC), the threat to Rambus is very real. In fact, the company’s stock lost over half of its value between October 2001 and September 2002. The patents themselves — for advanced forms of computer technology called dynamic random access memory — are not the problem. It’s the way Rambus used and, some would say, abused the patent process in the context of setting industrywide standards. The FTC has recently declared itself very concerned with the interaction between patent and antitrust law. In the commission’s view, nowhere do patentees face greater temptations to misuse their patents, nor greater responsibility to compete fairly, than in the context of standard-setting organizations. Standard-setting organizations play a key role in high-tech industries, where companies vigorously shield the specifics of the sophisticated technology behind their own products and services, and yet need to understand the technology behind their competitors’ and others’ products and services well enough to ensure interoperability. A company that finds itself with a key patent — or two or 10 — covering an industry-standard technology may well have hit the jackpot, at the expense of everybody else in the business. The FTC recently rekindled its interest in standard setting by charging Rambus with anti-competitive acts that, among other things, “decreased incentives, on the part of [computer memory] manufacturers and others, to participate in . . . industry standard-setting organizations or activities.” According to the FTC, this creates “both within and outside the [computer memory] industry, decreased reliance, or willingness to rely, on standards established by industry standard-setting collaborations.” Rambus is just the latest patent owner to be drawn into the ambiguities of the government’s antitrust enforcement policies with respect to intellectual property. It now faces both a Federal Circuit appeal and an FTC investigation that, legal observers say, could redefine the scope of patent disclosure obligations for companies involved with standard-setting organizations. DYNAMIC MEMORY TECHNOLOGY Founded in March 1990 by electrical engineers Michael Farmwald and Mark Horowitz, Rambus Inc. designs, develops, and licenses computer memory systems. The existence and profitability of the company depend entirely on its ability to secure patents and then license them to semiconductor makers and other manufacturers. In November 2001, U.S. District Judge Robert Payne of the Eastern District of Virginia placed a portion of those licensing profits in jeopardy when he enjoined Rambus from enforcing certain patents against Infineon Technologies. The patents at issue all stemmed from U.S. Patent Application No. 07/510,898, filed in April 1990 for certain computer memory systems. Initially, the U.S. Patent and Trademark Office determined that the ’898 application contained 11 independent and distinct inventions. The PTO, therefore, required Rambus to select just one invention to pursue in the ’898 application and allowed it to file additional “divisional applications” on the remaining inventions. Rambus did precisely that and was subsequently granted 39 U.S. patents based upon the original ’898 application. The patents in the ’898 family were directed toward developments in dynamic random access memory (DRAM) technology. “Random access” refers to the ability of a computer’s central processing unit to access any part of its memory directly, rather than proceeding sequentially from some known starting place. “Dynamic” refers to the fact that the storage cells for each bit of information must be periodically refreshed. Typically, each cell includes a transistor and a capacitor, which loses its charge rather quickly, thus requiring periodic recharging. Despite this inconvenience, DRAM is the most common semiconductor memory technology in use today due to its high chip density and correspondingly low price. The need for faster memory systems eventually led to synchronous dynamic random access memory (SDRAM), in which the central processing unit sends and receives information from the memory according to the “tick” of a “clock” contained within the memory system. Next came double data-rate synchronous dynamic random access memory (DDR-SDRAM), in which the rate of transfer of the information is doubled because information is sent on both the “tick” and the “tock” of the clock. By linking memory functions to the system clock, SDRAM and DDR-SDRAM offered a promising solution to the problem of memory bottlenecks that result when the speed of other computer components begins to surpass that of conventional DRAM. In the Virginia dispute, Rambus alleged that Infineon infringed several of its patents pertaining to SDRAM and DDR-SDRAM technologies. Infineon, in turn, accused Rambus of committing fraud as a member of a standard-setting organization that had been pondering precisely those SDRAM and DDR-SDRAM technologies while Rambus was starting to expand and perfect its patent portfolio. GROUP DECISIONS The JEDEC Solid State Technology Association — originally known as the Joint Electron Device Engineering Council, hence the acronym — is one of several standard-setting bodies affiliated with the Electronic Industries Alliance, a trade association. As explained in JEDEC’s Manual of Organization and Procedure, the group’s primary purpose is to “promote the development and standardization of terms, definitions, product characterization, test methods, manufacturing support functions and mechanical standards.” Membership in JEDEC is available to any company conducting business in the United States that “manufactures electronic equipment or electronics-related products, or provides electronics or electronics-related services.” An eligible company need only submit an application, pay membership fees, and agree to abide by JEDEC’s rules. A central issue in the Infineon trial was whether JEDEC required members to disclose pending patent applications (and not just already-granted patents) that would apply to standards under consideration, even before the rules were amended in 1993 to explicitly require the disclosure of applications. To make matters more complicated, Rambus formally withdrew from JEDEC in June 1996, several months before filing the divisional applications that led to the four patents at issue. Nonetheless, Infineon was able to convince the jury that Rambus committed fraud by attending JEDEC meetings, listening to discussions about the technology to be included in the SDRAM standard, remaining silent (in the face of a duty to disclose) about its pending patent applications during those meetings, and, with the assistance of its patent lawyers, obtaining additional patents to cover the features of the JEDEC standard even as those features were being discussed at JEDEC meetings. At the conclusion of the 212-week trial, the jury found Rambus liable for actual and constructive fraud in its conduct with regard to the SDRAM and DDR-SDRAM standards. It awarded Infineon nominal damages of $1 and punitive damages of $3.5 million. The District Court later reduced the punitive damages award to $350,000 and set aside the constructive-fraud verdict and part of the actual-fraud verdict having to do with the DDR-SDRAM standard before awarding attorney fees and expenses of more than $7 million to Infineon. Then, on Nov. 26, 2001, the court entered its final ruling that permanently barred Rambus from asserting its fraud-tainted U.S. patents against any of Infineon’s SDRAM and DDR-SDRAM products manufactured according to the standard. Rambus appealed, and the Federal Circuit heard oral arguments on June 3, 2002. Two other suits involving two other DRAM manufacturers, both seeking a declaratory judgment that their JEDEC-compliant products do not infringe Rambus’ patents, have been stayed pending the Federal Circuit’s ruling (which had not been issued when this article went to press). ENTER THE FTC Rumors of a parallel investigation by the FTC were confirmed on June 19, when the commission formally announced that it had charged Rambus with monopolization of the DRAM market under Section 5 of the Federal Trade Commission Act. That law authorizes the FTC to pursue companies for “unfair or deceptive acts or practices in or affecting commerce.” Although Section 5 does not define unfair, the Supreme Court has ruled that it includes “every contract, combination . . . or conspiracy, in restraint of trade” and “attempts to monopolize.” The FTC’s complaint makes some allegations that are not readily apparent from the District Court’s opinion. For example, even though the explicit requirement to disclose patent applications was not added to the JEDEC manual until October 1993, the FTC’s complaint asserts that “the existence and scope of these disclosure obligations were commonly known within JEDEC before that time, and indeed throughout the entirety of Rambus’s involvement in the organization.” According to the FTC complaint, Rambus was initially advised by its patent counsel that it was at risk of forfeiting the right to enforce its patents only “if Rambus were to convey to other JEDEC participants the false or misleading impression that it would not seek to enforce its patents.” Then, in January 1996, after the FTC issued a proposed consent order in In re Dell Computer Corp. involving anti-competitive conduct within a standard-setting organization, Rambus’ patent counsel allegedly reversed course and advised terminating “further participation in any standards body” (hence Rambus’ resignation from JEDEC several months later). Public statements by the FTC since 1996 have clarified that the applicable enforcement standard for anti-competitive conduct under In re Dell Computer Corp. is consistent with court cases decided under the doctrine of equitable estoppel and does not create a general obligation to search for or disclose pertinent intellectual property rights to standard-setting organizations lacking a policy on such matters. But now allegations in the Rambus complaint concerning unwritten disclosure obligations that were “commonly known within the JEDEC” are raising new concerns about what had once been considered a safe haven from FTC prosecution. In fact, the unusually broad scope of the FTC’s mandate under Section 5 has prompted calls for more-specific guidelines regarding the requirements for disclosure of IP rights to standard-setting groups. Although the FTC has recently responded to these concerns by holding public hearings on standard-setting practices, the exact scope of a patent owner’s obligation under the doctrine of equitable estoppel may never be completely certain. ‘COME WITH CLEAN HANDS’ The modern doctrine of equitable estoppel can be traced to the medieval English kings who prevented, or “estopped,” the enforcement of certain decisions by local courts of common law. Eventually, this special power of judicial review was delegated to the king’s chancellors and their chancery courts. In contrast to the often inflexible rules of the common law courts, chancery courts developed a new set of legal principles and procedures using broad notions of fairness called “equity.” Eventually, these equitable principles were boiled down to a series of 12 maxims, including: “He who comes to equity must come with clean hands.” Although the distinction between courts of law and equity has largely disappeared in our modern legal system, judges in the United States have retained broad equitable powers to deny relief to plaintiffs with “unclean hands.” Unfortunately, there aren’t many hard and fast rules for determining when a defense of unclean hands will succeed. Nonetheless, courts have provided some general guidelines for applying the doctrine in patent disputes. An equitable estoppel defense typically arises when a patent owner makes a misleading communication that it will not enforce its patent, and an infringer reasonably relies upon that communication to continue or expand its business. The communication itself can take almost any form, including conduct or silence, as long as it supports a reasonable inference that the patent will not be enforced. In order to show reliance, however, the infringer must demonstrate that it was lulled into a false sense of security with regard to continuing or expanding its operations. Consequently, silence alone is generally not enough to create estoppel, unless the patent owner also has some other duty to disclose its patent position. The main difference between a defense of equitable estoppel and a counterclaim for fraud is the opportunity to receive monetary compensation for injuries. Actions for fraud allow a misled party that can prove it was harmed to be compensated. The equitable estoppel defense, while it does not require any such proof of injury, does not provide for monetary damages either. Most litigants prefer to receive monetary compensation if possible. Yet in patent infringement cases, it can be quite difficult to prove that a fraud was the proximate cause of damages when, as in Infineon’s case, the defendant had not yet paid any royalties. Accused infringers are therefore often forced to rely on the equitable estoppel defense with its lesser burden of proof. Happily for Infineon in its fraud claim against Rambus, Judge Payne followed Virginia law, which allows attorney fees to be included as part of the recoverable damages where the inflicted injury is “wanton or malicious.” This interpretation allowed Infineon to prove its injury merely by submitting copies of its attorneys’ billing records, totaling nearly $2.4 million. For FTC investigations, damage claims are replaced by civil fines, payable to the U.S. Treasury, of up to $10,000 per violation of FTC orders. PRECAUTIONS FOR PARTICIPANTS For companies that choose to participate in the standard-setting process — and there are many good reasons to do so — the pitfalls of equitable estoppel, fraud, and unfair competition can be avoided by taking a few simple steps. First, if the standard-setting organization has a disclosure policy, follow it. If the policy is unclear or nonexistent, err on the side of caution by disclosing as much as possible about potentially relevant patents, as early in the standard-setting process as possible. For example, consider sending everyone on the pertinent technical committee a copy of relevant patents. In fact, many companies will assign an individual to periodically search for, and properly disclose, relevant patents from the company’s portfolio to standard-setting groups in which it participates. When it comes to patent applications, things get a little more tricky. Applications are generally maintained in confidence by the government for at least 18 months after filing or until they are granted, whichever comes first. Furthermore, any publication of the information in an application before that time extinguishes any trade secret protection that might otherwise be available for the invention and allows third parties to initiate proceedings that may delay, or even prevent, the issuance of the patent. Public-use and interference proceedings can both be sought by competitors at any time before an application is granted. On the other hand, recent changes to the patent laws provide an incentive for inventors to notify competitors once their applications have been formally published by the PTO. Under certain circumstances, it is now possible to collect royalties for infringement starting from the time that an infringer receives notice of the published application. The availability of these so-called “provisional remedies” can help to mitigate against the loss of trade secret protection and the increased risk of defending an interference or protest proceeding. Provisional remedies are not available, however, for applications that are informally published by patent applicants themselves. Therefore, if the rules of a standard-setting organization require the disclosure of both issued patents and pending applications, it may be worth asking the PTO for expedited publication of any pertinent applications before participating. Even if the organization does not actually require notification regarding applications, consider doing it. It may help impress the standard-setting organization with the usefulness of the company’s technology. More importantly, it will comply with any unwritten or informal disclosure policies that the FTC may otherwise try to enforce. Of course, delaying disclosure until after the PTO has published the application is still the wisest course. With regard to unpublished applications, talk to a patent attorney about whether the benefits of disclosure are worth the increased risks. Last but not least, seek legal advice immediately if any cooperative activity between competitors is not completely open and transparent, or involves any form of anti-competitive behavior. The consequences of failing to follow the joint FTC/Justice Department “Guidelines for Collaborations Among Competitors” can be much more serious than the mere invalidation of patent rights or payment of attorney fees. And this is one situation where unclean hands can cost a lot more than just a bad first impression. William F. Heinze is an associate with Atlanta’s Thomas, Kayden, Horstemeyer & Risley. He advises clients in all areas of patent law. [email protected].

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