Rambus: Clarification of IP Disclosure Rules in Standard Setting

Part One of a Two-Part Article

In a case closely watched by intellectual property holders, the D.C. Circuit has provided new guidance on the potential antitrust consequences of the failure to disclose patent rights during a standard setting proceeding. In Rambus Inc. v. Federal Trade Commission, No. 07-1086, slip op. (D.C. Cir. Apr. 22, 2008), the court held that the intentional non-disclosure of patent rights on technology eventually incorporated into an industry-wide standard, even if it prevents upfront royalty negotiations, does not harm competition. Consequently, it does not constitute a violation of the Sherman Act.

Background: IP Disclosures in Standard Setting

Rambus is the most recent in a series of cases involving so-called 'patent ambush' conduct, in which a firm participating in a standard setting proceeding fails to disclose relevant patent rights until after a standard has been adopted. The antitrust concern is that such non-disclosures prevent a standard setting organization ('SSO') from making a fully informed decision regarding the merits and costs of the competing technologies until after 'lock-in,' when it is too late. The law in this area is still maturing, having proceeded from FTC consent orders ' such as Dell Computer Corp., 121 F.T.C. 616 (1996) and Union Oil Co. of Cal., No. 9305 (F.T.C. July 27, 2005) ' to litigated appellate court opinions ' such as Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007) and now Rambus.

The Dell case, like Rambus, involved standard setting in the computer technology field. The FTC alleged that, if the SSO had known of Dell's patents, it would have adopted an alternative non-proprietary design. Before this theory could be developed further, however, Dell agreed to enter into a consent order.

In a more recent case, the Commission alleged that Unocal made strategic non-disclosures to a government SSO ' the California Air Resources Board ' during a proceeding regarding low emissions fuel standards. Once again, however, the claims were not fully litigated, as Unocal agreed to resolve the allegations as part of a much broader consent order with the FTC, which also encompassed issues arising from its proposed merger with Chevron.

Broadcom ' prior to Rambus, the single litigated case on the issue ' involved a slightly different factual scenario. Plaintiff Broadcom acknowledged that the defendant, Qualcomm, had fully disclosed its patents on mobile phone technology. The 'ambush,' it argued, took place later, when Qualcomm reneged on its promise to the SSO that all technologies incorporated into the standard would be licensed on reasonable and non-discriminatory ('RAND') terms. The Third Circuit ultimately determined that Qualcomm's intentional violation of its RAND commitment, relied upon by an SSO when adopting the standard, constituted a violation of the Sherman Act.

The Rambus Decision

The Rambus case arose out of the company's participation in the Joint Electron Device Engineering Council ('JEDEC') ' a trade association that, among other functions, developed standards for computer memory products. According to the FTC's complaint, Rambus violated JEDEC's intellectual property disclosure policy by failing to disclose 'patent interests' ' a term broad enough to encompass not only issued patents, but also patent applications, contemplated amendments, and other material ' relating to the standards under consideration. These non-disclosures allegedly prevented JEDEC from considering non-proprietary alternatives, or negotiating a reasonable royalty rate, before adopting standards incorporating Rambus' patented technology.

Rather than filing in district court, the FTC elected to prosecute the case through the so-called 'Part III' administrative litigation process, the first step of which is trial before an Administrative Law Judge ('ALJ'). The ALJ dismissed the complaint in its entirety. The matter was then appealed to the FTC itself, which, after expressing significant dissatisfaction with the ALJ's findings of fact, reinstated the complaint and ruled against Rambus.

Rambus appealed to the D.C. Circuit, which, in turn, overruled the Commission. Rather than addressing the existence of a duty to disclose ' an issue hotly disputed below ' the court based its decision almost entirely on the FTC's description of the competitive harm resulting from Rambus' non-disclosure of its IP rights.

Specifically, the court explained that 'the Commission found the consequence of such non-disclosure only in the alternative: that it prevented JEDEC either from adopting a non-proprietary standard or from extracting a RAND commitment from Rambus.' Rambus, slip op. at 10 (emphasis in original). The latter of these two alternatives, the court reasoned, does not constitute an antitrust violation. This is because the antitrust laws only concern themselves with the unlawful acquisition of monopoly power, and therefore do not extend to a lawful monopolist's use of deception to obtain higher prices. Id. at 15 (relying on NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998)). Because the FTC's reasoning did not preclude this possibility, its ruling against Rambus could not stand.

Next month's installment will discuss the impact of the Rambus decision.

John T. Delacourt and Christopher M. Loeffler are attorneys in the Washington, DC office of Kelley Drye & Warren LLP. Delacourt previously served as Chief Antitrust Counsel in the Federal Trade Commission's Office of Policy Planning.

Part One of a Two-Part Article

In a case closely watched by intellectual property holders, the D.C. Circuit has provided new guidance on the potential antitrust consequences of the failure to disclose patent rights during a standard setting proceeding. In Rambus Inc. v. Federal Trade Commission, No. 07-1086, slip op. (D.C. Cir. Apr. 22, 2008), the court held that the intentional non-disclosure of patent rights on technology eventually incorporated into an industry-wide standard, even if it prevents upfront royalty negotiations, does not harm competition. Consequently, it does not constitute a violation of the Sherman Act.

Background: IP Disclosures in Standard Setting

Rambus is the most recent in a series of cases involving so-called 'patent ambush' conduct, in which a firm participating in a standard setting proceeding fails to disclose relevant patent rights until after a standard has been adopted. The antitrust concern is that such non-disclosures prevent a standard setting organization ('SSO') from making a fully informed decision regarding the merits and costs of the competing technologies until after 'lock-in,' when it is too late. The law in this area is still maturing, having proceeded from FTC consent orders ' such as Dell Computer Corp., 121 F.T.C. 616 (1996) and Union Oil Co. of Cal., No. 9305 (F.T.C. July 27, 2005) ' to litigated appellate court opinions ' such as Broadcom Corp. v. Qualcomm Inc. , 501 F.3d 297 (3d Cir. 2007) and now Rambus .

The Dell case, like Rambus, involved standard setting in the computer technology field. The FTC alleged that, if the SSO had known of Dell's patents, it would have adopted an alternative non-proprietary design. Before this theory could be developed further, however, Dell agreed to enter into a consent order.

In a more recent case, the Commission alleged that Unocal made strategic non-disclosures to a government SSO ' the California Air Resources Board ' during a proceeding regarding low emissions fuel standards. Once again, however, the claims were not fully litigated, as Unocal agreed to resolve the allegations as part of a much broader consent order with the FTC, which also encompassed issues arising from its proposed merger with Chevron.

Broadcom ' prior to Rambus, the single litigated case on the issue ' involved a slightly different factual scenario. Plaintiff Broadcom acknowledged that the defendant, Qualcomm, had fully disclosed its patents on mobile phone technology. The 'ambush,' it argued, took place later, when Qualcomm reneged on its promise to the SSO that all technologies incorporated into the standard would be licensed on reasonable and non-discriminatory ('RAND') terms. The Third Circuit ultimately determined that Qualcomm's intentional violation of its RAND commitment, relied upon by an SSO when adopting the standard, constituted a violation of the Sherman Act.

The Rambus Decision

The Rambus case arose out of the company's participation in the Joint Electron Device Engineering Council ('JEDEC') ' a trade association that, among other functions, developed standards for computer memory products. According to the FTC's complaint, Rambus violated JEDEC's intellectual property disclosure policy by failing to disclose 'patent interests' ' a term broad enough to encompass not only issued patents, but also patent applications, contemplated amendments, and other material ' relating to the standards under consideration. These non-disclosures allegedly prevented JEDEC from considering non-proprietary alternatives, or negotiating a reasonable royalty rate, before adopting standards incorporating Rambus' patented technology.

Rather than filing in district court, the FTC elected to prosecute the case through the so-called 'Part III' administrative litigation process, the first step of which is trial before an Administrative Law Judge ('ALJ'). The ALJ dismissed the complaint in its entirety. The matter was then appealed to the FTC itself, which, after expressing significant dissatisfaction with the ALJ's findings of fact, reinstated the complaint and ruled against Rambus.

Rambus appealed to the D.C. Circuit, which, in turn, overruled the Commission. Rather than addressing the existence of a duty to disclose ' an issue hotly disputed below ' the court based its decision almost entirely on the FTC's description of the competitive harm resulting from Rambus' non-disclosure of its IP rights.

Specifically, the court explained that 'the Commission found the consequence of such non-disclosure only in the alternative: that it prevented JEDEC either from adopting a non-proprietary standard or from extracting a RAND commitment from Rambus.' Rambus, slip op. at 10 (emphasis in original). The latter of these two alternatives, the court reasoned, does not constitute an antitrust violation. This is because the antitrust laws only concern themselves with the unlawful acquisition of monopoly power, and therefore do not extend to a lawful monopolist's use of deception to obtain higher prices. Id . at 15 (relying on NYNEX Corp. v. Discon, Inc. , 525 U.S. 128 (1998)). Because the FTC's reasoning did not preclude this possibility, its ruling against Rambus could not stand.

Next month's installment will discuss the impact of the Rambus decision.

John T. Delacourt and Christopher M. Loeffler are attorneys in the Washington, DC office of Kelley Drye & Warren LLP. Delacourt previously served as Chief Antitrust Counsel in the Federal Trade Commission's Office of Policy Planning.