The Rambus Certiorari Petition: Causation, Competition, and Standard-Setting Organizations

This post was written by Michael A. Carrier. Carrier is a Law Professor at Rutgers University School of Law in Camden.

In December 2008, the Federal Trade Commission (FTC) filed a petition for certiorari in the Rambus case. There are two central issues in the petition. First, what is the standard of causation needed to connect deceptive conduct with the acquisition of monopoly power? And second, do higher prices in standard-setting organizations (SSOs) present competitive harm?

As the D.C. Circuit articulated the facts in In re Rambus, 522 F.3d 456, Rambus developed and licensed computer memory technologies. Between 1991 and 1996, the company participated in the Joint Electron Device Engineering Council (JEDEC), a semiconductor engineering SSO. In 1993 and 1999, respectively, JEDEC approved a synchronous dynamic random access memory (SDRAM) standard and a double data rate (DDR) SDRAM standard that included technologies over which Rambus asserted patent rights. In 1999, Rambus informed DRAM and chipset manufacturers that it held patent rights over technologies included in the standards and that the continued manufacture, use, or sale of the products constituted infringement.

In 2002, the FTC filed a complaint asserting that Rambus violated Section 5 of the FTC Act by “willfully engag[ing] in a pattern of anticompetitive and exclusionary acts and practices.” In particular, the Commission alleged that Rambus failed to disclose patent interests and made misleading disclosures, and that this deceptive conduct resulted in the monopolization of four technology markets implicated by the standard. One of the challenges in the case has been JEDEC’s unclear disclosure policy, which the Federal Circuit—in the related case of Rambus v. Infineon Technologies, 318 F.3d 1081—found to suffer from “a staggering lack of defining details.”

An Administrative Law Judge (ALJ) dismissed the complaint in 2004, but two years later the FTC vacated this decision. The Commission found that JEDEC members were expected to disclose relevant patents, patent applications, planned amendments to pending applications, and “anything they’re working on that they potentially wanted to protect with patents down the road.” The Commission found that Rambus “engaged in representations, omissions, and practices . . . likely to mislead JEDEC members” and that this activity “significantly contributed to its acquisition of monopoly power.”

In what would become the core of the appeal and certiorari petition, the FTC held that “but for Rambus’s deceptive course of conduct, JEDEC either [1] would have excluded Rambus’s patented technologies from the JEDEC DRAM standards, or [2] would have demanded [reasonable and nondiscriminatory] RAND assurances . . . with an opportunity for ex ante licensing negotiations.”

Rambus appealed, and in April 2008, the D.C. Circuit reversed the Commission. It found difficulties with both prongs of the FTC’s conclusion. First, “there was insufficient evidence that JEDEC would have standardized other technologies had it known the full scope of Rambus’s intellectual property.” In particular, the FTC “left open the likelihood that JEDEC would have standardized Rambus’s technologies even if Rambus had disclosed its intellectual property.”

The apparent flaw in the second prong was the absence of competitive harm. The D.C. Circuit stated that “an otherwise lawful monopolist’s use of deception simply to obtain higher prices normally has no particular tendency to exclude rivals and thus to diminish competition.” The court relied on NYNEX Corp. v. Discon, Inc., 525 U.S. 128, in which the Supreme Court had found that a price increase from a fraudulent scheme by a monopoly provider of local telephone services did not harm competition since any injury flowed from “the exercise of market power that is lawfully in the hands of a monopolist.” The D.C. Circuit analogized Rambus’s alleged charging of increased royalties to the NYNEX case, stating that JEDEC “lost only an opportunity to secure a RAND commitment from Rambus” and that this was not “a harm to competition.”

Looking forward, the Supreme Court could grant certiorari to address either (or both) of the two primary issues in the case: (1) the standard of causation needed to connect deceptive SSO conduct and monopolization, and (2) the issue of whether the inability to obtain RAND pricing presents competitive harm.

On the first issue, the D.C. Circuit found that causation was not shown since it was possible that JEDEC could have incorporated Rambus’s technology into the standard even if it had been disclosed. In other words, the lack of disclosure could not definitively be pinpointed as the catalyst for monopoly power. The court in essence applied a “but for” standard by which the plaintiff would need to show that the monopolist’s deceptive conduct was the sole reason it acquired monopoly power. Antitrust courts, however, traditionally have not set the bar so high.

The D.C. Circuit itself, in United States v. Microsoft Corp., 253 F.3d 34, explained that “neither plaintiffs nor the court can confidently reconstruct a product’s hypothetical technological development in a world absent the defendant’s exclusionary conduct.” Because “the defendant is made to suffer the uncertain consequences of its own undesirable conduct,” the court inferred causation where exclusionary conduct “reasonably appear[ed] capable of making a significant contribution to . . . maintaining monopoly power.”

Even more relevant is the circuit split on this issue. In 2007, the Third Circuit, in Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, addressed deceptive behavior by Qualcomm relating to the “Wideband code division multiple access” (WCDMA) technology used in cell phones. In denying a motion to dismiss, the court explained that a false promise of RAND licensing could “harm[] the competitive process by obscuring the costs of including proprietary technology in a standard and increasing the likelihood that patent rights will confer monopoly power on the patent holder.” Such a standard—which is similar to those offered in the Microsoft decision and the 2006 FTC Rambus opinion—is markedly different than that offered by the D.C. Circuit’s Rambus opinion.

The D.C. Circuit’s “but for” causation standard presents particular challenges in the context of SSOs, which often consist of numerous participants and multiple competing technologies. In this setting, it is difficult to delineate the precise cause of monopoly power. Compounding the challenges are the divergent levels of need for different patents. Stated most simply, deception could be the reason a weak patent is included in a standard, but could play a less direct role for strong patents that are essential to the standard.

The second ground on which the Supreme Court could grant certiorari would involve the issue of RAND licensing and competitive harm. The D.C. Circuit relied on NYNEX to hold that a lawful monopolist’s pricing decisions do not demonstrate anticompetitive harm. Rambus would appear to present a different scenario, however. For at a minimum, unlike New York Telephone, granted a monopoly by the regulatory system, Rambus did not appear to be a lawful monopolist. To the contrary, its alleged deception seemed to be a central reason it obtained monopoly power.

Also worthy of scrutiny would be the D.C. Circuit’s assertion that RAND licensing would lead to “less competition from alternative technologies” since “high prices and constrained output tend to attract competitors, not to repel them.” This issue, however, is far more complicated than this single sentence reveals. For the determination of the effect of SSO pricing on competition implicates numerous complex issues including (1) the potential exercise of oligopsony power (by which SSO licensees could reduce the price received by patentee licensors), (2) increased competition within the standard (which could be fostered by reasonable royalties that allow widespread use of the standard), and (3) hold-up facing SSO participants with irreversible investments in the standard (which can be reduced by RAND licensing). (I discuss these issues in detail in my forthcoming book, Innovation for the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law (Oxford).)

In short, the Rambus certiorari petition presents important issues of causation and competitive harm at the heart of standard setting.

6 thoughts on “The Rambus Certiorari Petition: Causation, Competition, and Standard-Setting Organizations

  1. If a SSO decides to hand-pick IP specifications from an inventor through NDA between the inventor and members of the SSO, but without the inventor’s explicit approval, and the inventor later obtained patents on the IP, why is the monopoly illegal?

    In Rambus’ case, JEDEC did not even acknowledge the IP came from Rambus, let alone request RAND from Rambus. If anything were illegal, it would be the members of JEDEC who violated NDA.

  2. Hi iwasthere,

    Re:
    “Sand bagging the standards committee is a time honored tradition”
    and every inventor’s dream.

  3. Sand bagging the standards committee is a time honored tradition. Just ask motorola. You need to look to the elections of the committee board members – or those who make the vote on the standards – to see who is really gaming the system. Hint: it is not always the “best” technology that wins, but the technology with the most votes. That’s the raw math that even scotus can appreciate.

    BTW: i thought a technology provider agreed to license IP if adopted at “reasonable and non-discriminatory rates – now that sounds like a good basis to deny injunctive relief and limit money damages – not render the IP unenforceable.

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