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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 week 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, 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. The FTC sought to bar Rambus from enforcing patents on computer chip technology, accusing the Los Altos, Calif.-based company of abusing its intellectual property rights to illegally monopolize the market for a widely used form of computer memory. Rambus was one of the companies participating in meetings from 1991 through 1996 about setting industrywide 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 � 5 of the FTC Act by engaging in unfair methods of competition. In his ruling last week, Chief Administrative Law Judge Stephen McGuire said the commission failed to “sustain its burden of establishing liability for the violations alleged.” He is expected to follow up his one-sentence order with release of a 300-page decision this week. 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 Rambus was the most detailed administrative action 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,” Danforth says — an account that Royall generally confirms. “I’m hopeful that they will recognize now they didn’t clear those hurdles, and can’t.” But that’s not a guarantee that the FTC will soften its approach on such matters. Under Chairman Timothy Muris, the FTC is “often pushing the envelope” on law at the intersection of antitrust and intellectual property, says Ernest Gellhorn, a professor at George Mason University School of Law, where Muris was a professor and interim dean. He notes that antitrust issues regarding standard-setting organizations arise primarily in two areas: when the organization’s process or rules are exclusionary and, as in Rambus’ case, when individual participants are thought by the commission to misuse the standard-setting process for anti-competitive ends. It is on the latter that the FTC has focused its attention, says Gellhorn. “What the commission is doing is praiseworthy,” says Gellhorn of its focus on standard-setting bodies. “They have their eyes set on the right target.” Yet, Gellhorn adds, good intentions don’t always carry the day with administrative law judges like McGuire, who came to the FTC in March 2003 from an ALJ post at the Environmental Protection Agency and took over the Rambus case when longtime 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.” SIGNIFICANT BARRIER In 2002, FTC commissioners unanimously approved the suit against Rambus, which holds patents on key components of digital computer memory 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 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. Rambus 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, Judge McGuire’s decision could be a significant barrier. Rambus’ Danforth says that 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. Infineon lawyers Mark Kovner and Kenneth Starr of Kirkland & Ellis, and David Beddow of O’Melveny & Myers, which represents Hynix, declined comment. The ruling from ALJ McGuire is not the first win for Rambus in this long-running dispute. In January 2003, Rambus scored its first major victory when the U.S. Court of Appeals for the Federal Circuit 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. He 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 could have. It simply did not.” (Should the FTC’s administrative law case against Rambus be appealed to the federal courts, it cannot be heard by the Federal Circuit. The circuit does not have geographic jurisdiction, and FTC decisions have to be appealed to a circuit in which the respondent does business.) But lawyers who will likely fight to keep the commission’s case alive could be looking hopefully to a recent decision by commissioners overturning an ALJ in another antitrust case. In December 2003, the commissioners reversed a finding by an ALJ that cleared the Schering-Plough Corp. of colluding with two other companies to delay the entry of lower-cost generic competition. In a final order, the commissioners disagreed with the ALJ’s antitrust analysis, identifying at least two “fundamental legal errors.” Former FTC lawyer Royall says that although the decisions by ALJs play an important role, they ultimately do not bind the commissioners. “The commissioners do not have to give deference to a judge’s decision,” says Royall. “It’s anybody’s guess what the ultimate outcome will be.” Rambus’ Danforth agrees. “The message here is stay tuned,” he says. “We don’t know just how good for us it is.”

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