FTC Holds That Rambus Unlawfully Monopolized Markets
August 2, 2006. The Federal Trade Commission (FTC) released its opinion [120 pages in PDF] in its administrative proceeding titled "In the Matter of Rambus, Inc.". It concludes that Rambus unlawfully monopolized the markets for four computer memory technologies that have been incorporated into industry standards for dynamic random access memory (DRAM) chips.
This reverses the February 17, 2004, order of Stephen McGuire, Chief Administrative Law Judge, dismissing the FTC's complaint. See, story titled "ALJ Dismisses FTC Complaint Against Rambus" in TLJ Daily E-Mail Alert No. 839, February 18, 2004.
The FTC also issued an order [2 pages in PDF] on August 2, 2006, titled "Order Reversing and Vacating Initial Decision and Accompanying Supplemental Briefing on Issues of Remedy, and Denying Complaint Counsel's Motion for Sanctions".
See also, FTC Docket No. 9302 for hyperlinks to pleadings in this proceeding.
FTC Complaint. 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 with its participation in a standard setting body for dynamic random access memory products. See, story titled "FTC Files Administrative Complaint Against Rambus" in TLJ Daily E-Mail Alert No. 455, June 20, 2002.
The complaint pertains to Rambus's participation in the JEDEC Solid State Technology Association, which was formerly known as the Joint Electron Device Engineering Council. JEDEC develops and issues technical standards for a form of computer memory known as synchronous dynamic random access memory (SDRAM).
The complaint alleged 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 alleged that Rambus engaged in anticompetitive behavior in violation of Section 5 of the FTCA 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."
FTC Opinion. The just released opinion states that "Through a course of deceptive conduct, Rambus exploited its participation in JEDEC to obtain patents that would cover technologies incorporated into now-ubiquitous JEDEC memory standards, without revealing its patent position to other JEDEC members. As a result, Rambus was able to distort the standard-setting process and engage in anticompetitive ``hold up´´ of the computer memory industry. Conduct of this sort has grave implications for competition."
The opinion concludes that "Rambus's acts of deception constituted exclusionary conduct under Section 2 of the Sherman Act, and that Rambus unlawfully monopolized the markets for four technologies incorporated into the JEDEC standards in violation of Section 5 of the FTC Act."
It adds that "We find that Rambus engaged in exclusionary conduct that significantly contributed to its acquisition of monopoly power in four related markets. By hiding the potential that Rambus would be able to impose royalty obligations of its own choosing, and by silently using JEDEC to assemble a patent portfolio to cover the SDRAM and DDR SDRAM standards, Rambus’s conduct significantly contributed to JEDEC’s choice of Rambus’s technologies for incorporation in the JEDEC DRAM standards and to JEDEC’s failure to secure assurances regarding future royalty rates – which, in turn, significantly contributed to Rambus’s acquisition of monopoly power."
FTC Commissioner Pamela Harbour wrote the opinion, which was joined by all four of the other Commissioners.
Concurring Opinion of Liebowitz. Commissioner Jonathan Liebowitz also wrote a concurring opinion [21 pages in PDF]. He wrote that Rambus' "conduct meets all the requisite elements of a Section 2 violation." However, he continued that "It would be equally apt, though, to characterize Rambus's conduct as an ``unfair method of competition´´ in violation of Section 5 of the FTC Act. Section 5 was intended from its inception to reach conduct that violates not only the antitrust laws themselves, but also the policies that those laws were intended to promote." (Footnote omitted.)
Liebowitz wrote that "From the FTC's earliest days, deceitful conduct has fallen within Section 5's province for its effects on competition, as well as on consumers. Innovation -- clearly at issue in this case -- is indisputably a matter of critical antitrust interest."
He elaborated that "some commentators have misperceived the Commission's authority to challenge ``unfair methods of competition,´´ incorrectly viewing it as limited, with perhaps a few exceptions, to violations of the Sherman and Clayton Acts. Others are unclear just how far Section 5 can reach beyond the antitrust laws. Regardless of the reasons for these cramped or confused views, a review of Section 5's legislative history, statutory language, and Supreme Court interpretations reveals a Congressional purpose that is unambiguous and an Agency mandate that is broader than many realize. (Footnotes omitted.)
Liebowitz argued that the FTC "should place greater emphasis on developing
the full range of its jurisdiction and making it more clear to the bar, the
public, the business community, and potential antitrust malefactors what Section
5 embraces and what it does not. Although the Commission has not left fallow its
Section 5 jurisdiction to challenge conduct outside the antitrust laws, neither
has the Agency fully exercised or explained it. In discussing Section 5 in the
context of Rambus, I hope to encourage the Commission (and its staff) to develop
further and employ more fully this critical and unique aspect of our statutory
mandate. If we do, benefit will accrue both to consumers and to competition."