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The potential value of industry standard-setting bodies in a modern economy has been widely recognized. They permit uniform technical standards to be established outside of the crucible of Darwinistic consumer marketplace competition, which, in turn, can facilitate the rapid development and adoption of new technologies. Standard-setting bodies can achieve these results when they are designed to embrace open, inclusive, collegial and transparent decision-making. Indeed, when done properly, defining technology through the standard-setting process can create efficiencies that are ultimately beneficial to consumers.
INTELLECTUAL PROPERTY Counterfeits: Beyond the Knockoff FTC’s recent ruling in ‘Rambus.’ Cases decided since ‘Philips.’ Open-source software disputes. Emergence of Science Commons. Global patent-filing options. Keeping inventive-act records.

Yet, standard-setting bodies are not immune to anti-competitive pressures, as the Federal Trade Commission (FTC) noted in its Aug. 2 determination that Rambus Inc.’s standard-setting committee behavior violated antitrust laws. These bodies can serve as an attractive nuisance by presenting opportunities for participants to benefit from anti-competitive behavior that can be carried out as a result of their involvement in the process of defining and selecting the standard itself. The commercial incentives to misuse standard-setting bodies for competitive advantage should give pause to those who believe that they are an unalloyed good. In this context, this article examines the most recent turn in the ever-changing Rambus odyssey: how the FTC, in carrying out its views on the standard-setting process, has seemingly diverged from the U.S. Court of Appeals for the Federal Circuit as to what constitutes proper behavior on the part of a standard-setting body participant. The answer lies at the core of the rationale for standard-setting body existence: If competition in the consumer marketplace is to be bypassed by developing a standard upstream of market deployment, that competition must be approximated in the standard-setting process through an open and knowing decision-making process. Any participant that tries to later capitalize on the standard through anti-competitive conduct carried out during the process may find itself out of luck. In the early 1990s, Rambus, a developer and licensor of computer memory technology, was involved in the development of “Rambus DRAM” (RDRAM). Although RDRAM was then considered by Rambus and many others as the next generation of dynamic random access memory (DRAM), Rambus was ultimately unsuccessful in its quest to license its RDRAM technology to major DRAM manufacturers. DRAM manufacturers instead resorted to a standard-setting body affiliated with the Electronic Industries Alliance, called the Joint Electron Device Engineering Council (JEDEC), to come up with the next-generation DRAM technology. Beginning in 1991, after RDRAM had been conceived by Rambus, Rambus also began to participate in the JEDEC DRAM standard-setting process along with the DRAM manufacturers. During this time, Rambus changed its patent applications with the intent of covering the standard being discussed through the JEDEC process. Rambus did not disclose certain patent applications, including those that it changed with the intent to cover the standard, to the standard-setting committee. Ultimately, JEDEC’s work resulted in the creation of the SDRAM, DDR SDRAM and DDR2 SDRAM memory standards. These standards subsequently became widely accepted in the computer industry. Rambus sued manufacturers Then, beginning in 2000, after the JEDEC standards had been finalized, Rambus initiated patent infringement suits against major DRAM manufacturers, including Infineon Technologies A.G., Hynix Semiconductor Inc., Samsung Electronics Co. and Micron Technology Inc. In these suits, Rambus claimed that its patents covered the JEDEC SDRAM standards, which served as the blueprints from which the DRAM makers manufactured their products. The DRAM makers responded by claiming that Rambus, a committee member, had deceived JEDEC by failing to disclose that it possessed or sought to acquire patents for technologies that were being considered by JEDEC for inclusion in the new standards. The first case to reach a verdict involved Infineon, the German DRAM manufacturer. In that suit, which was heard in the U.S. District Court for the Eastern District of Virginia, Infineon asserted that Rambus had committed fraud by not disclosing to JEDEC its patents and pending applications relating to the SDRAM standard. A jury agreed, and Rambus was enjoined from asserting its SDRAM-related patents as a result. The Federal Circuit reversed the decision. It determined that there was insufficient evidence to support the jury’s conclusion that Rambus had breached a duty requiring it to disclose its patent portfolio to JEDEC. Rambus Inc. v. Infineon Technologies A.G. , 318 F.3d 1081, 1104 (Fed. Cir. 2003). The Federal Circuit read the JEDEC disclosure policy and found “that the relevant disclosure duty hinge[d] on whether the issued or pending claims [were] needed to practice the standard.” Id. at 1100. The Federal Circuit then determined that, while Rambus may have believed that certain patents and applications that it did not disclose to the committee read on, and were essential to practice, the JEDEC standards, in reality they did not. (A patent may not strictly read onto a standard, but, at the same time, it may be infringed because it covers a feature that has been incorporated in the implementation of the standard.) Consequently, the court concluded that Rambus’s SDRAM patents did not fall within the scope of the JEDEC disclosure requirement because “JEDEC’s disclosure duty erects an objective standard [to disclose patents and patent applications]. It does not depend on a member’s subjective belief that its patents do or do not read on the proposed standard.” Id. at 1104. The Federal Circuit summed up Rambus’s behavior at JEDEC by observing that, “While such actions impeach Rambus’s business ethics, the record does not contain substantial evidence that Rambus breached its duty under the EIA/JEDEC policy.” Id. While Rambus continued to litigate its patents in court, an FTC complaint was also filed in 2002 by the DRAM manufacturers alleging that Rambus had engaged in monopolistic behavior in violation of the antitrust laws through its actions at JEDEC. Specifically, the complaint accused Rambus of concealing from JEDEC the fact that it was working to patent technologies under consideration by JEDEC. An initial decision rendered by an FTC administrative law judge (ALJ) found in favor of Rambus. Specifically, the ALJ echoed the rationale underlying the Federal Circuit’s opinion in Infineon and held that the JEDEC disclosure duty only applied to “essential” patents-patents that read onto the JEDEC DRAM standard. The ALJ concluded that because Rambus did not have any essential patents or pending applications, it did not violate any duty to JEDEC. FTC takes different view On Aug. 2, 2006, the FTC reversed the ALJ and found that Rambus violated � 2 of the Sherman Act and � 5 of the FTC Act. In the Matter of Rambus Inc. , No. 9302, 2006 WL 2330117 (FTC), 2006-2 Trade Cases P 75,364 (Aug. 2, 2006). The commission determined that Rambus had acquired monopoly power by engaging in “exclusionary conduct” through its “deceptive conduct” at JEDEC. Specifically, the FTC called Rambus out for deceiving the JEDEC committee members to capitalize on the JEDEC policies by, among other things, misleading members to believe that Rambus was not seeking patents covering the technology while, at the same time, secretly amending their patent applications toward the technology being discussed in committee meetings. In contrast to the Federal Circuit’s Infineon decision and the findings of the ALJ, the commission analyzed Rambus’s duty to JEDEC under a “totality of the circumstances” test. The test that the FTC applied enforces an open and knowing standard-setting decision-making process. After considering the JEDEC policy on disclosure, Rambus’s understanding of the policy, other JEDEC members’ understanding of the policy and the behavior of JEDEC members, the commission concluded that Rambus had engaged in deceptive conduct. The commission found that “Rambus’s conduct was calculated to mislead JEDEC members by fostering the belief that Rambus neither had, nor was seeking, relevant patents that would be enforced against JEDEC-compliant products. Rambus’s silence, in the face of members’ expectations of disclosure, created a misimpression that Rambus would not obtain and/or enforce such patents.” Rambus Inc ., No 3902, at 67. In short, Rambus used the standard-setting process to position itself to later hold up the standard with its patents. The FTC decision in Rambus merits close examination because the conclusions reached, while based largely on the same facts, are notably different from those reached by the Federal Circuit in the Infineon case. The Infineon opinion suggests that the Federal Circuit was not overly exercised by Rambus’s conduct. In fact, the Federal Circuit and the ALJ’s decisions would appear to be at odds with the disclosure standard articulated by the FTC in Rambus . The Federal Circuit interpreted the JEDEC disclosure requirements to apply to patents that are necessary to practice a standard, and it recognized the perils and unbound potential of proceeding under a looser standard: “[T]he disclosure duty operates when a reasonable competitor would not expect to practice the standard without a license under the undisclosed claims . . . .To hold otherwise would contradict the record evidence and render the JEDEC disclosure duty unbounded. Under such an amorphous duty, any patent or application having a vague relationship to the standard would have to be disclosed. JEDEC members would be required to disclose improvement patents, implementation patents, and patents directed to the testing of standard-compliant devices-even though the standard itself could be practiced without licenses under such patents.” 318 F.3d at 1101. The FTC, on the other hand, looked past the disclosure requirement and more toward the underlying premise of industry standard-setting bodies: If competition in the consumer marketplace is to be bypassed by developing a standard upstream of market deployment, that competition must be approximated in the standard-setting process through an open and knowing decision-making process. The FTC’s motivation for this is grounded in public policy, as is clearly evinced in the Rambus decision. Public policy principles At the very outset of its decision, the FTC explained the benefits and dangers of standard-setting bodies: “Standard setting occurs in many industries and can be highly beneficial to consumers. Standards can facilitate interoperability among products supplied by different firms, which typically increases the chances of market acceptance, makes the products more valuable to consumers, and stimulates output. But standard setting also poses some risks of harm to competition. By its very nature, standard setting displaces the competitive process through which the purchasing decisions of customers determine which interoperable combinations of technologies and products will survive.” Rambus Inc ., No 3902, at 3. When the process is carried out properly, the pro-competitive benefits of standard setting outweigh the loss of market competition. For this reason, antitrust enforcement has accepted and tolerated standard-setting activities. But when a firm engages in exclusionary conduct that subverts the standard-setting process and leads to the acquisition of monopoly power, the pro-competitive benefits cannot be fully realized. The policy objective of ensuring that standard-setting bodies remain true to their intended purpose, and do not degenerate into tools for monopolization, no doubt played a significant role in the FTC’s Rambus decision. The FTC noted: “Antitrust scrutiny of possibly deceptive conduct in the standard-setting context is especially warranted when the standard-setting body has determined to carry out its work in an environment ostensibly characterized by cooperation, rather than rivalry.” Id. at 34. The Rambus decision, while certainly an indictment of Rambus’s conduct at JEDEC, is no less a warning to companies involved in standard-setting bodies and the standard-setting bodies themselves. Indeed, the FTC’s determination to scrutinize standard-setting bodies to ensure that they are not compromised by anti-competitive forces may have already had impact. For instance, electronics industry members are currently engaged in a public fight regarding the Institute of Electrical and Electronics Engineering (IEEE) standard designated 802.20. The IEEE 802.20 working group is charged with developing a new standard for mobile broadband wireless access. In January, a working group member questioned the legitimacy of a standard proposal vote. He alleged that, in contravention of IEEE rules, improper “bloc voting” had occurred by members of the working group affiliated with another member, that other members were given insufficient time to prepare competing proposals and that questions posed about the successful proposals were not adequately answered. On June 8, the IEEE Standards Association Standards Board suspended the IEEE 802.20 working group’s activities until Oct. 1, pending an investigation. On Sept. 15, the board unanimously voted to replace the working group’s officers, concluding that the existing process “was not effectively serving the . . . goal of high-quality standards achieved through a fair and open process.” Report of Actions on IEEE 802.20, (2006), http://standards.ieee.org/announcements/IEEESASB802.20Report.pdf . The board stated that it was reconstituting the working group’s leadership in order to “provide clearly neutral leadership and to eliminate perceptions of possible bias.” Id. Alexander J. Hadjis is chair of the patent litigation group at Sonnenschein Nath & Rosenthal and a partner in the firm’s Washington office. His practice focuses on patent litigation and cases at the interface of intellectual property and antitrust law. Matthew J. Vlissides is a member of the patent litigation group and an associate in the firm’s Washington office.

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