FTC pursues computer tech appeal
on Nov 26, 2008 at 2:19 pm
UPDATE: The petition has now been assigned docket number 08-694.
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The Federal Trade Commission has asked the Supreme Court to allow it to police attempts by companies to manipulate for their own advantage the process of setting standards for new technologies built into consumer products, like computers. In a just-filed appeal in FTC v. Rambus Inc., the agency is proceeding on its own, without the support of the Justice Department — something the Commission has attempted in the Court only three times before. (A docket number has not yet been assigned to the case. The petition can be found here, and the D.C. Circuit Court ruling being challenged is here. The FTC has collected documents on the case at this site.)
The specific case involves FTC claims that Rambus, a developer of memory technology for use in computer chips, gained a monopoly by getting its patented inventions adopted as an industry standard, but it achieved that by deceiving the standards-setting group in order to shut out competitors and increase its own royalty income.
But the appeal goes beyond that, arguing that the Circuit Court ruling in Rambus’ favor laid down “sweeping rules that would immunize” deceptive conduct by a would-be monopolist “in most circumstances.” The Circuit Court, it argued, was wrong both about the link, or cause, between the deception and harm to competition, and about the kind of harm that the Sherman Act’s anti-monopoly Section 2 covers.
On this broader point, the FTC complained that the Circuit Court decision “greatly undermines the ability of antitrust enforcement agencies to prevent exclusionary practices that engender monopolies and harm consumers.”
The Commission noted that this was the fourth time it had appealed a case to the Supreme Court without the U.S. Solicitor General — the office that manages almost all government appeals — in support. The SG, it said, had declined to file for it in the Rambus case, so it proceeded on its own. The agency said it has had that authority since he Magnuson-Moss Warranty Act went into effect in July 1975.
On two of those prior occasions of the FTC moving on its own, the Court agreed to hear the appeals and ruled for the Commission (in 1986 and 1990). On the other occasion, the Court itself asked for the Solicitor General’s views, the SG opposed review, and the Court then declined to hear the case. (FTC v. Schering-Plough, 05-273, denied June 26, 2006)
In its case against Rambus, the FTC barred that company for three years from collecting royalties on products that followed the industry standard on computer memories, to the extent those royalties went beyond what Rambus would have been able to collect if it had not used deception and had negotiated beforehand with companies that would license its technology.
Rambus, the FTC contended, had failed to disclose to the standards-setting entity — the Joint Electronic Device Engineering Council — that it had significant patent interests in its computer technology that was being considered in setting the industry-wide standard. It also kept secret, the agency contended, its efforts to refine its patents in order to make sure they conformed to the standard.
Those tactics, the agency continued, allowed Rambus to get ahead of competitors whose technology might also have been adopted as the standard, kept the standards group itself from requiring Rambus to offer licenses as reasonable royalties as a condition for adopting its technology as standard, and gained a monopoly in four memory technologies, enabling it then to assert its patent rights and demand stiff royalties “from makers of the great majority of computer memory chips.”
The standard-setting group, the FTC noted, has rules barring the inclusion of patented technologies in standards without prior assurances that a patent holder will only charge reasonable royalties. But those were the very rules that Rambus’ conduct frustrated, according to the Commission.
The FTC charged Rambus with monopolize the four technology markets, attempted monopolization, and engaging in unfair competition tactics. In its final ruling, the FTC concluded that Rambus had violated Sherman Section 2, by deceptive conduct that harmed competition and that was an important factor in gaining a monopoly.
It found a link between the alleged deception and the gain of monopoly status.
The D.C. Circuit, however, overturned the FTC decision, finding that the agency had failed to make an adequate finding that the deception actually caused harm to competition. The Court also found that, even if the conduct had allowed Rambus to avoid giving users of its technology lower royalty rates, this did not amount to anti-competitive behavior that would violate Section 2. Using deception to gain higher prices, the Court said, normally does not have the tendency to shut out rivals.
The FTC appeal argues that, on the second point, the ruling conflicts directly with one by the Third Circuit Court.
