Federal Circuit Rules in Rambus v. Infineon

January 29, 2003. The U.S. Court of Appeals (FedCir) issued its split opinion [MS Word] in Rambus v. Infineon, a patent infringement case involving dynamic random access memory (DRAM) products. The Court of Appeals vacated the District Court's judgment of non-infringement, as a matter of claim construction. It also reversed the District Court's denial of a motion to set aside a jury verdict of fraud based on failure to disclose patent and patent application information to a standard setting body.

Introduction. In addition to claim construction issues, this case involves Rambus's participation in what was known as the Joint Electron Device Engineering Council (JEDEC). This body developed and issued technical standards for a form of computer memory known as synchronous dynamic random access memory (SDRAM), and later, double data rate (DDR) SDRAM. Rambus attended meetings for years, but did not disclose that it had pending patent applications that, when granted, might contain claims that would be infringed by devices made pursuant to the standards being developed. A trial jury of the District Court returned a verdict of fraud against Rambus based upon this non-disclosure conduct. The opinion of the Court of Appeals overturns this. However, Rambus still faces a Federal Trade Commission (FTC) administrative complaint, based upon essentially the same facts, but which alleges violation of antitrust law.

Background. Rambus is a Delaware corporation based in Los Altos, California, that develops and licenses memory technologies to companies that make semiconductor memory devices. It does not actually produce semiconductors. Infineon is one company that makes semiconductor products.

District Court. In 2000, Rambus filed a complaint in U.S. District Court (EDVa) against Infineon alleging infringement of four of its patents, U.S. Patent 5,954,804, U.S. Patent No. 5,953,263, U.S. Patent No. 6,034,918, and U.S. Patent No. 6,032,214. Infineon counterclaimed for fraud under Virginia state law, based upon Rambus's non-disclosure to the JEDEC of its patents and patent applications related to the SDRAM and DDR-SDRAM standards.

The District Court granted judgment as a matter of law (JMOL) of non-infringement in favor of Infineon. The trial jury returned a verdict that Rambus committed fraud during both the SDRAM and DDR-SDRAM standardization process. Rambus moved for JMOL of no fraud, and alternatively, for a new trial. The District Court denied this motion as to the SDRAM standard, but granted it as to the DDR-SDRAM standard (on the basis that Rambus had left the JEDEC before work officially began on the DDR-SDRAM standard). The District Court further granted an injunction against Rambus, and awarded Infineon attorneys fees. Both parties appealed.

Appeals Court. A three judge panel of the Court of Appeals vacated the judgment of non-infringement, and remanded the issue of infringement to the District Court. The Court was unanimous on this issue.

Judge Randall Rader wrote the opinion of the Court, in which Judge William Bryson joined. Recently appointed Judge Sharon Prost dissented in part, on the fraud issue.

Judge Rader wrote that "because substantial evidence does not support the implicit jury finding that Rambus breached the relevant disclosure duty during its participation in the standards committee, this court reverses the denial of JMOL that let the fraud verdict stand."

He reasoned that "To prove fraud in Virginia, a party must show by clear and convincing evidence: 1) a false representation (or omission in the face of a duty to disclose), 2) of a material fact, 3) made intentionally and knowingly, 4) with the intent to mislead, 5) with reasonable reliance by the misled party, and 6) resulting in damages to the misled party. ... A party's silence or withholding of information does not constitute fraud in the absence of a duty to disclose that information."

Then, after a lengthy analysis of the evidence regarding the JEDEC's policies with respect to duties to disclose, he concluded that "In this case there is a staggering lack of defining details in the EIA/JEDEC patent policy. 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. A policy that does not define clearly what, when, how, and to whom the members must disclose does not provide a firm basis for the disclosure duty necessary for a fraud verdict. Without a clear policy, members form vaguely defined expectations as to what they believe the policy requires -- whether the policy in fact so requires or not. JEDEC could have drafted a patent policy with a broader disclosure duty. It could have drafted a policy broad enough to capture a member’s failed attempts to mine a disclosed specification for broader undisclosed claims. It could have. It simply did not."

He then concluded that the evidence does not support, by clear and convincing evidence, the jury's verdict that Rambus breached its duties under the JEDEC's policy.

Finally, Judge Rader also wrote in the opinion of the Court, that, as a result of the rulings on non-infringement and fraud, the District Court's injunction is moot, and the award of attorneys fees is vacated.

Prost Dissent. Judge Prost wrote in her lengthy dissent on the fraud issue that "substantial evidence supports the jury's verdict that Rambus committed actual fraud under Virginia state law."

Rambus attended its first JEDEC meeting in December 1991 and became a member in February 1992. At the time Rambus joined JEDEC, it had several pending patent applications derived from the ’898 patent application, which has spawned more than a thousand claims in dozens of continuation and divisional applications. Rambus also had a specific plan for using its pending patent applications against anyone using the SDRAM standard. ... Rambus did not, in fact, inform anyone at JEDEC about its pending patent applications by the end of 1992. Instead, Rambus continued to attend JEDEC meetings for three more years, watching the SDRAM standard evolve and then amending its patent applications to try to cover features of the standard."

She continued that "The record is replete with additional and specific instances of Rambus employees attending JEDEC meetings, taking notes of what was discussed, identifying instances where Rambus already had claims covering what was discussed, and then seeking claims to cover what they learned at the JEDEC meetings. Yet Rambus ``did not tell the people at JEDEC that what they were proposing for standardization infringed [its] patents.´´"

FTC Antitrust Action Against Rambus. Rambus' legal troubles are not over. The Federal Trade Commission (FTC) also has an open proceeding against Rambus. It arises out of the same set of facts. However, it is based upon allegations of violation of federal antitrust law, not the Virginia law of fraud.

On June 19, 2002, the FTC filed an administrative complaint against Rambus alleging anti-competitive behavior in violation of Section 5 of the Federal Trade Commission Act (FTCA) in connection in the JEDEC standards setting process. The complaint alleges that Rambus "has illegally monopolized, attempted to monopolize, or otherwise engaged in unfair methods of competition in certain markets relating to technological features necessary for the design and manufacture of a common form of digital computer memory, known as dynamic random access memory, or ``DRAM.´´"

The FTC alleges that Rambus engaged in anticompetitive behavior by "participating in the work of an industry standard setting organization, known as JEDEC, without making it known to JEDEC or to its members that Rambus was actively working to develop, and did in fact possess, a patent and several pending patent applications that involved specific technologies proposed for and ultimately adopted in the relevant standards. By concealing this information -- in violation of JEDEC's own operating rules and procedures -- and through other bad faith, deceptive conduct, Rambus purposefully sought to and did convey to JEDEC the materially false and misleading impression that it possessed no relevant intellectual property rights."

Section 5 of the FTCA, codified at 15 U.S.C. § 45, provides, in part, that "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful." See also, story titled "FTC Files Administrative Complaint Against Rambus" in TLJ Daily E-Mail Alert No. 455, June 20, 2002.

Sean Royall, Deputy Director of the FTC's Bureau of Competition, and lead trial counsel, stated in a release on January 29, 2003 that "Our trial team is reviewing the Federal Circuit's decision to determine what if any bearing it may have on the Commission's federal antitrust suit against Rambus. However, given the significant differences in the factual and legal issues raised by the FTC's antitrust claims and Infineon's fraud claims, we do not expect that this ruling will have a substantial impact on our case going forward."

The FTC also noted that Virginia law requires a heightened "clear and convincing evidence" standard or proof, while the FTC is merely to required to satisfy a lower "preponderance of the evidence" standard of proof in the administrative proceeding.

The administrative proceeding is scheduled for hearing on April 9, 2003.

Rambus Reaction. Geoff Tate, CEO of Rambus, stated in a release that "We are pleased by today's rulings ... Today's rulings help substantiate the importance of our past inventions and allow us to continue our focus on technology leadership."

John Danforth, SVP and General Counsel of Rambus, stated that "Today's rulings are not just about Rambus ...They greatly illuminate a wide range of issues related to standards setting and intellectual property. We believe that the Federal Circuit has done a thorough job of clarifying these issues and that their work merits close attention."