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In a blow to one of the Federal Trade Commission’s largest and most ambitious proceedings, an administrative law judge has dismissed the agency’s antitrust case against Rambus Inc. The ruling is a roadblock for the three companies challenging the computer chip developer over its patents and could pave the way for Rambus to collect billions in licensing fees from these three and perhaps from scores of others. “For anyone looking for the FTC to bail them out, this decision comes as a detriment,” says Pavan Agarwal, an IP litigation partner in the Washington, D.C., office of Foley & Lardner. The FTC sought to bar Rambus from enforcing patents on computer chip technology, accusing the company, based in Los Altos, California, of abusing its intellectual property rights to illegally monopolize the market for a widely used form of computer memory. Between 1991 and 1996, Rambus participated in meetings that were designed to establish industry-wide technology standards for computer chip makers. The FTC, in its administrative law filing, claimed 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 ruling issued in late February, Chief Administrative Law Judge Stephen McGuire said the commission failed to “sustain its burden of establishing liability for the violations alleged.” 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 say the action against Rambus was the most detailed in the agency’s history. Agency 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 and lead counsel in the commission’s case against Rambus. The decision can be overturned by the full commission and reviewed by a federal appeals court. “No one knows what the commissioners will do,” says Royall, now a Gibson, Dunn & Crutcher partner in Dallas, who left the FTC on Oct. 9, the day after closing arguments in the Rambus trial. “It is a mistake to assume that Rambus will prevail.” An FTC spokeswoman declined comment, citing the commission’s policy of not commenting on pending matters. But Rambus says McGuire’s ruling gives the company the ammunition it needs to collect billions in fees for the use of its patents. John Danforth, Rambus’ general counsel and vice president, calls the decision a watershed for the company. Even if the commissioners choose to overturn the ruling, Danforth says, McGuire’s extensive written decision should give Rambus strength on appeal. “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.” FTC commissioners in 2002 unanimously approved the suit against Rambus, which holds patents on key components of digital computer memory adopted as the industry-wide standard in 1999 by JEDEC, formerly known as the Joint Electron Device Engineering Council. At the recommendation of its counsel, Rambus withdrew from the standard-setting body in 1996, in the wake of an FTC consent decree with the Dell Computer Corp. In an action that paralleled the commission’s later actions against Rambus, 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, which has filed a series of patent infringement suits against manufacturers that will not pay the fees. In turn, three companies — Micron Technology Inc., Infineon Technologies AG, and Hynix Semiconductor Inc. — have countersued Rambus. For those three companies, McGuire’s decision could be a significant barrier. Danforth says the companies 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. antitrust partner A. Douglas Melamed. Arnold & Porter attorney William Baer, the lead lawyer for Micron and a former head of the FTC’s Bureau of Competition, says he is confident the decision will be appealed to the commission. McGuire’s ruling is not the first win for Rambus in this long-running dispute. In January 2003, Rambus scored its first major victory when the Federal Circuit U.S. Court of Appeals ruled against Infineon. The Supreme Court later declined to hear an appeal of that case, and the Federal Circuit then sent it 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 that there was “a staggering lack of defining details” in JEDEC’s patent policy. “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,” wrote Rader. “JEDEC could have drafted a patent policy with a broader disclosure duty. � It could have. It simply did not.” Lily Henning is a reporter at Legal Times, an American Lawyer Media publication in Washington, D.C., that is affiliated with IP magazine.

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