The U.S. Court of Appeals for the D.C. Circuit overturned the Federal Trade Commission's (FTC) landmark decision regarding standard-setting activities and held that a lawful monopolist may engage in deceptive behavior without violating the antitrust laws so long as the deceptive behavior is not used to acquire or maintain monopoly power. Rambus, Inc. v. FTC, 2008 U.S. App. LEXIS 8662 (D.C. Cir., Apr. 22, 2008) (Williams, Sr., J.).
The case appeared before the court after a unanimous FTC found that Rambus' failure to disclose its patent interests to the Joint Electron Device Engineering Council (JEDEC) led to Rambus' monopolization of the markets for certain DRAM technologies in violation of Section 2 of the Sherman Act and Section 5 of the FTC Act. Even though JEDEC's disclosure policies were "not a model of clarity," the FTC determined that members expected one another to disclose patents, patent applications and planned amendments to pending applications that related to the technologies being considered for standardization. The FTC concluded that but for Rambus' deceptive conduct, which significantly contributed to Rambus' monopoly power, JEDEC either would have excluded Rambus' patented technologies from the JEDEC standards or would have demanded reasonable and non-discriminatory (RAND) licensing assurances. As a result of Rambus' deceptive behavior, the FTC required Rambus to license its technology at "reasonable royalty rates."
On appeal, a unanimous three-judge D.C. Circuit panel vacated the FTC's findings and held that the FTC failed to show that Rambus' conduct was exclusionary under a theory of monopolization. The key to the decision was the FTC's inability to conclusively prove that JEDEC would have standardized non-proprietary technology but for Rambus' deception. Rather, the FTC "left open the likelihood that JEDEC would have standardized Rambus' technologies even if Rambus had disclosed its intellectual property." Accordingly, Rambus' conduct did not exclude any rivals or lead to Rambus' monopoly power.
Even if Rambus' conduct allowed it to demand higher royalties by avoiding RAND licensing terms, the court found this conduct did not injure competition because the higher royalties stemmed from Rambus' lawful exercise of monopoly power. The court stated, "an otherwise lawful monopolist's use of deception simply to obtain high prices normally has no particular tendency to exclude rivals and thus to diminish competition."
Practice Note: The outcome of the Rambus case is highly fact-specific, and engaging in deceptive conduct in the standard-setting process still presents a risk of antitrust liability because the standard-setting organization could later claim that it would have standardized a different technology but for the patent holder's deception. Therefore, patent holders should continue to exercise caution when participating in standard-setting activities and should act in good faith to disclose relevant patents in accordance with the standard-setting organization's disclosure rules.
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