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In a blow to one of the Federal Trade Commission’s largest and most ambitious proceedings, an administrative law judge last month dismissed the agency’s antitrust case against Rambus Inc. The ruling is a roadblock for three companies challenging the computer chip developer over its patents and could pave the way for Rambus to collect billions in licensing fees from those three, as well as scores of others. “For anyone looking for the FTC to bail them out, this decision comes as a detriment,” says Foley & Lardner’s Pavan Agarwal, an intellectual property litigation partner in Washington, D.C. The FTC sought to bar Rambus from enforcing patents on computer chip technology, accusing the company of abusing its IP rights to illegally monopolize the market for a widely used form of computer memory. Rambus participated in meetings to set industrywide standards for computer chips from 1991 through 1996. The FTC claimed that Rambus violated antitrust law by failing to disclose that it already had patents pending on some of the technology being considered — and ultimately adopted — by the standard-setting body. The FTC also alleged that the company kept amending its patent claims in response to what it learned at the standard-setting meetings, thus violating Section 5 of the FTC Act by engaging in unfair methods of competition. In his Feb. 17 ruling, Chief Administrative Law Judge Stephen McGuire said that the commission failed to “sustain its burden of establishing liability for the violations alleged.” McGuire followed up his one-sentence ruling with a 348-page report released Feb. 24 that fully backs Rambus. McGuire wrote that Rambus did not violate the patent policy of the standard-setting body and that the company’s conduct did not have anti-competitive effects on the computer chip market. McGuire’s ruling came after a three-month trial that began in April 2003 and involved 500,000 pages of documents and more than a dozen major law firms. FTC lawyers said it was the most detailed administrative action in the commission’s history. FTC staff lawyers who brought the complaint are certain to appeal the ruling to the full commission, says M. Sean Royall, a former deputy director of the FTC’s Bureau of Competition who served as lead counsel in the case. The decision can be overturned by the full commission and reviewed by a federal appeals court. Says Royall, now a Gibson, Dunn & Crutcher partner in Dallas, who left the FTC on Oct. 9, the day after closing arguments in the trial: “It is a mistake to assume that Rambus will prevail.” But Rambus says the ruling gives the company the ammunition it needs to collect billions in licensing fees. John Danforth, general counsel and vice president, calls the decision a watershed for the company. “When the FTC brought this case, they expressly told us in meetings that there were high hurdles in their being able to prevail,” says Danforth — an account that Royall generally confirms. “I’m hopeful that they will recognize now they didn’t clear those hurdles, and can’t.” But there’s no guarantee the FTC will soften its approach. Under Chairman Timothy Muris, the FTC is “often pushing the envelope” at the intersection of antitrust and IP law, says law professor Ernest Gellhorn of George Mason University, where Muris previously taught. Gellhorn notes that antitrust issues regarding standard-setting bodies arise primarily in two areas: when the organization’s process or rules are exclusionary and when individual participants misuse the process for anti-competitive ends. It is on the latter that the FTC has focused its attention, he says. Gellhorn calls this focus on standard-setting bodies “praiseworthy.” Yet, he adds, good intentions don’t always carry the day with administrative law judges like McGuire, who came to the FTC last year from the Environmental Protection Agency and took over the Rambus case when ALJ James Timony retired. “ALJs jealously guard their independence,” Gellhorn says. “The decisions they come to are not infrequently at odds with what the agency wants.” In 2002, FTC commissioners unanimously approved the suit against Rambus, which holds patents on key components of digital computer memory technology adopted as the industrywide standard in 1999 by JEDEC, formerly known as the Joint Electron Device Engineering Council. At the recommendation of its counsel, Rambus had withdrew from the standard-setting body in 1996, in the wake of an FTC consent decree with the Dell Computer Corp. The FTC had charged that Dell acted anti-competitively during deliberations by a body similar to JEDEC. Many companies — including most major electronics makers — are embroiled in litigation with Rambus. Rambus has filed a series of infringement suits against manufacturers that will not pay its fees. In turn, three companies — Micron Technology Inc., Infineon Technologies AG, and Hynix Semiconductor Inc. — have countersued. For those three companies, McGuire’s decision could be a significant barrier. Danforth says they have asserted antitrust claims similar to the FTC’s. “We’ve had this sitting over our heads and asserted against us as a defense for four years as a sort of get-out-of-jail-free card,” says Danforth, who relied on outside counsel Gregory Stone from Los Angeles’ Munger, Tolles & Olson and a Wilmer, Cutler & Pickering team led by D.C. partner A. Douglas Melamed. The Feb. 17 win is not the first for Rambus in this long-running dispute. In January 2003, the U.S. Court of Appeals for the Federal Circuit ruled against Infineon. The Supreme Court declined to hear an appeal, and the Federal Circuit sent the case back to a U.S. district court in Virginia, where it is expected to go to jury trial in May. In the Federal Circuit decision, Judge Randall Rader wrote: “When direct competitors participate in an open standards committee, their work necessitates a written patent policy with clear guidance on the committee’s intellectual property position. JEDEC could have drafted a patent policy with a broader disclosure duty. . . . It simply did not.” (Should the FTC’s case be appealed to the courts, the Federal Circuit cannot hear it. The circuit lacks geographic jurisdiction, and FTC decisions must be appealed to a circuit in which the respondent does business.) “The message here,” says Rambus’ Danforth, “is stay tuned.” Lily Henning is a reporter at Legal Times. She can be reached at [email protected].

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