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For two years, high-tech industry has watched with bated breath as Rambus Inc. has battled the Federal Trade Commission over its participation in a standards development organization. The FTC has made clear its concerns in this case, and elsewhere, that patent rights are being used to improperly stifle competition. Now Congress has passed legislation to ease the antitrust risks stalking standard-setting groups. But, ironically, the new law doesn’t address the participants’ liability. Under the Standards Development Organization Advancement Act, signed into law on June 22, private entities that set industrywide technology standards will be able to notify the Justice Department and the FTC of their activities. If proper notification has been filed, and the government has not objected in a timely fashion, the antitrust liability of these organizations will be limited to actual damages. Antitrust liability will also be assessed under a “rule of reason” — to determine whether the group’s activities are unreasonably anti-competitive. And special rules for attorney fees will apply in any antitrust challenge to such an organization’s standard setting. This may boost standard setting generally. But the act provides no relief for the individual companies that collaborate in standard-setting groups. Those companies must remain mindful of recent antitrust enforcement priorities. In this regard, the FTC’s action against computer chip developer Rambus offers valuable insight into how standard-setting activity must be conducted to avoid running afoul of the antitrust laws. From the early to mid-1990s, Rambus belonged to an industry standards development organization. It failed to disclose its pending applications and existing patents to the group, which ultimately set a standard for computer chips that infringed the Rambus patents. Following the industry’s broad adoption of that standard, Rambus began suing multiple companies for violating its patents. The companies complained to the FTC, which investigated. In 2002, it decided to sue Rambus for violation of numerous antitrust laws. In February 2004, an administrative law judge dismissed the case. As of this writing, the FTC staff had appealed the holding to the full commission. As to how the Rambus case will ultimately be resolved, speculation among the antitrust and patent bars runs the gamut. In the meantime, the Rambus case offers some insight into what type of action should be avoided when participating in standard setting. Both the FTC and the Justice Department have long maintained that standard setting generally is very pro-competition and beneficial for consumers. But antitrust enforcers are now balancing the pro-competitive effects of having technological standards against the anti-competitive effects of unfair or deceptive IP practices in adopting, implementing or maintaining a standard. Specifically, concerns arise over the following activities: �Setting standards designed primarily to entrench an older technology or to otherwise thwart innovation. �Modifying existing patents held by a participant in the standard-setting process in order to ensure that a new standard infringes upon those patents. �Collusion, either tacitly or explicitly, among members of a standards development organization to adopt a standard that excludes use or acceptance of a competitor’s product, which, in many instances, is cheaper or more innovative. �Unfairly excluding a competitor from the standard-setting process itself. �Ignoring the rules of the standards development organization as to patent disclosures. In the Rambus case, the FTC argued that the procedural rules of the standard-setting entity established that the company had a duty to disclose patents and, therefore, the FTC alleged, its failure to do so was anti-competitive in violation of antitrust laws. Even where a standards development organization does not mandate certain disclosures, deceptive practices or concealment of patents when lobbying for a particular standard may still spark a time-consuming and costly antitrust investigation. In any event, the Rambus case itself is not over. Individual companies involved in standard setting can’t look to the new law for safe harbor. And the FTC’s recent litigation efforts, as well as an FTC report on the patent system issued last year, display the agency’s long-term commitment to exercising its enforcement authority in matters of potential misuse of IP rights. An FTC report on standard setting, which may provide more guidance on appropriate collaborative behavior, is due out next year. Prudent companies should look forward to reading it. Alicia J. Batts is a partner in the D.C. office of Dickstein, Shapiro, Morin & Oshinsky (www.dsmo.com), focusing on antitrust issues. Formerly an attorney adviser to Federal Trade Commissioner Mozelle Thompson, Batts sits on the editorial board of the ABA Antitrust Law Journal . She can be reached at [email protected]. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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