The European Commission has launched its first attack on ‘patent ambush’ by issuing a statement of objections to US technology company, Rambus, over royalties they have claimed for patents in “Dynamic Random Access Memory” chips (DRAMS) used in PCs, cameras, printers, etc.
DRAMs have been standardised by an industry-wide US based standard setting organisation – Joint Electron Devices Engineering Council (JEDEC). Rambus owns and is asserting patents which it claims cover the technology included in these JEDEC standards. Therefore, every manufacturer wishing to produce synchronous DRAM chips or chipsets consequently must either acquire a licence from Rambus or litigate its asserted patent rights.
The statement of objections issued by the Commission sets out the Commissions view that that Rambus intentionally hid the fact that it held patents essential to the adopted standard through the stand-setting process with the intention of then fleecing as many people as possible afterwards for royalties for the licences to use the standard. The Commission therefore provisionally considers that Rambus breached the EC Treaty’s rules on abuse of a dominant market position (Article 82) by subsequently claiming unreasonable royalties for the use of those relevant patents. The Commission’s preliminary view is that without its “patent ambush”, Rambus would not have been able to charge the royalty rates it currently does.
The Commission believes the appropriate remedy would be for Rambus to charge a reasonable and non-discriminatory royalty rate.
According to Rambus – Rambus first filed a patent application for its revolutionary memory technology in 1990 and proceeded to teach the industry how to apply that technology, subject to nondisclosure agreements. By invitation, Rambus later joined a JEDEC committee that was developing a DRAM standard. “The issues raised by the European Commission include Rambus’ participation in JEDEC that ended over a decade ago,” said Thomas Lavelle, senior vice president and general counsel at Rambus. “These are largely the same issues examined by a number of US courts, the Federal Trade Commission, and currently before the US Court of Appeals for the District of Columbia Circuit. We are studying the Statement of Objections and plan to respond in due course.”
The Federal Trade Commission found Rambus guilty of the same charges last year, when it unanimously reversed an initial decision and order by Chief Administrative Law Judge Stephen J. McGuire from 2004 that had cleared Rambus.
The FTC stated “We find that Rambus’s course of conduct constituted deception under Section 5 of the FTC Act. Rambus’s conduct was calculated to mislead JEDEC members by fostering the belief that Rambus neither had, nor was seeking, relevant patents that would be enforced against JEDEC-compliant products. . . . Under the circumstances, JEDEC members acted reasonably when they relied on Rambus’s actions and omissions and adopted the SDRAM and DDR SDRAM standards.”
“Rambus withheld information that would have been highly material to the standard-setting process within JEDEC,” the opinion continues. “JEDEC expressly sought information about patents to enable its members to make informed decisions about which technologies to adopt, and JEDEC members viewed early knowledge of potential patent consequences as vital for avoiding patent hold-up. Rambus understood that knowledge of its evolving patent position would be material to JEDEC’s choices, and avoided disclosure for that very reason.”
“Through its successful strategy, Rambus was able to conceal its patents and patent applications until after the standards were adopted and the market was locked in,” states the opinion. “Only then did Rambus reveal its patents – through patent infringement lawsuits against JEDEC members who practiced the standard.”
The Commission also held that Rambus’s acts of deception constituted exclusionary conduct under Section 2 of the Sherman Act and contributed significantly to Rambus’s acquisition of monopoly power in the four relevant markets relating to SDRAM and DDR SDRAM standards.
The FTC’s decision contrasts with the Federal Circuit’s decision in 2003 however, which found in favour of Rambus in a patent infringement suit against Infineon. In that case, Infineon had filed a fraud claim against Rambus for trying to obtain royalties for Rambus patents – patents that Infinoen claimed Rambus had withheld from JEDEC. Infineon suggested that Rambus took part in JEDEC’s work without revealing that it was separately working on patents involving the very technologies proposed by JEDEC. In essence, Infineon argued that Rambus’ failure to disclose put Rambus in a position to assert patent rights over the new JEDEC standards. The court ruled, however, that Rambus had not breached its disclosure duty – a finding that was based on its reading of JEDEC policies in this respect, prompting observers to suggest that Rambus exploited loopholes in the standard body’s constitution. A federal appeals court dismissed Infineon’s fraud claim, ruling that Rambus had a valid patent infringement claim against Infineon.
Prior to this, in May 2001, an Eastern District of Virginia jury found Rambus engaged in fraud and awarded $3.5 million in punitive damages against the company. In August 2001, this was cut to $350,000.
In March 2005 a US federal judge dismissed the patent infringement case brought by Rambus against Infineon Technologies, following a request by Infineon had asked that the case be dismissed, alleging litigation misconduct by Rambus.
Rambus now has has nine weeks to reply to the European Commission charges, after which it will have the right to be heard. If it fails to satisfy regulators, it could be fined up to 10% of its annual worldwide turnover.
It seems to me with a remedy of offering a reasonable and non-discriminatory royalty rate that Rambus stands to get off quite lightly here.