Holiday Matinee, Inc. v. Rambus, Inc.

Decision Date27 May 2004
Docket NumberNo. H026142.,H026142.
CourtCalifornia Court of Appeals Court of Appeals
PartiesHOLIDAY MATINEE, INC., Plaintiff and Appellant, v. RAMBUS, INC, Defendant and Respondent.

Robert S. Green, San Francisco, Jenelle Welling, Green & Jigarjian, Shannon Patricia Keniry, Finkelstein, Thompson & Loughran — SF, Doug G. Thompson, Mila F. Bartos, Finkelstein, Thompson & Loughran — Washington DC, for Plaintiff and Appellant.

Robert P. Feldman, Maura L. Rees, Douglas J. Clark, Palo Alto, Wilson, Sonsini, Goodrich & Rosati, for Defendant and Respondent.

ELIA, J.

This consumer class action arises out of alleged anticompetitive conduct in connection with patents on certain computer memory chip technology obtained by defendant and respondent, Rambus, Inc. (Rambus). Plaintiff and appellant Holiday Matinee, Inc. (Holiday) alleged three causes of action in its second amended complaint (Complaint): a claim for violation of the Cartwright Act (Bus. & Prof.Code § 16720 et seq.); a claim for violation of California's Unfair Competition Law (Bus. & Prof.Code, § 17200 et seq.); and a claim for unjust enrichment.

The case is before us as a result of a stipulated judgment of dismissal that was entered after the court below sustained Rambus's demurrer to each cause of action of the Complaint. Rambus's challenges to the Complaint included lack of subject matter jurisdiction, litigation privilege (Civ.Code, § 47, subd. (b)), privilege under the Noerr-Pennington doctrine,1 and failure to allege facts sufficient to constitute a cause of action. Holiday contends that the trial court erred in concluding that the Complaint failed to allege facts sufficient to constitute a cause of action.

For the reasons stated below, we conclude that the trial court correctly sustained the demurrer to the Complaint. We therefore affirm the judgment.

FACTS

The facts recited below are from the allegations made by Holiday in the Complaint. In reviewing the propriety of the trial court's sustaining of the demurrer, we, of course, accept as true the factual allegations properly pleaded in the Complaint. (See Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 193, 126 Cal.Rptr.2d 908, 57 P.3d 372; Cryolife, Inc. v. Superior Court (2003) 110 Cal.App.4th 1145, 1152, 2 Cal.Rptr.3d 396.)

I. General Allegations.

Holiday is an independent publicity and marketing company that is based in San Diego. Rambus is a Delaware corporation with its principal place of business in Los Altos, California.

The relevant product market at issue is the market for certain computer memory chip technology, i.e., dynamic random access memory (DRAM). The DRAM technology market comprises three distinct technologies: (1) Rambus dynamic random access memory technology (RDRAM); (2) synchronous dynamic random access memory (SDRAM); and (3) double-data synchronous dynamic access memory technologies (DDR). The relevant geographic market is worldwide. Rambus is alleged to have a monopoly market share of the relevant product and geographic markets, in that Rambus (a) has a 100 percent share of RDRAM technology, and (b) holds approximately 70 percent of the overall DRAM technology market (RDRAM, SDRAM, and DDR technologies).

The claims asserted in the Complaint arise out of Rambus's "anticompetitive use of its wrongfully obtained market power in the relevant market for ... [DRAM] to coerce DRAM manufacturers into license agreements in restraint of trade." This anticompetitive scheme occurred (as detailed below) as a result of Rambus's participation in an open forum of DRAM manufacturers called JEDEC (Joint Electronics Devices Engineering Council). Rambus participated in JEDEC to influence "the evolution of industry-standard (`JEDEC compliant') DRAM architecture, all the while concealing from JEDEC and its members that it was obtaining patents to cover features of these new industry standard technologies." Rambus concealed these patents in violation of JEDEC rules, and then "sought to enforce its patent rights against DRAM manufacturers" through various anticompetitive means.

On April 18, 1990, Rambus filed a patent application, number 07/510,898 ('898 application). The '898 application "is alleged to be the essential innovation" for the development of synchronous DRAM (SDRAM) devices. Beginning in March 1992, "Rambus filed several piggy-back patent applications to the '898 application to ensure its own patents would include the features of the underlying architecture required to manufacture JEDEC compliant SDRAM and DDR."

II. Rambus's Participation In JEDEC.

In 1991, JEDEC began formulating industry-wide technical open standards for the purpose of ensuring that various SDRAM technologies would be compatible with the architecture of each DRAM manufacturer. JEDEC had "a `basic rule' that the standardization process must be conducted in a manner that `shall not be proposed for or indirectly result in ... restricting competition, giving a competitive advantage to any manufacturer, [and/or] excluding competitors from the market.'" Consistent with its governing rules, JEDEC had attempted to avoid incorporating patented technologies into its standards, so that the standards would "be available to all on royalty-free terms or otherwise reasonable and non-discriminatory terms." In accordance with this policy, JEDEC required that its members disclose all existing and pending patents that covered technologies being considered by the body as the industry standard.

Rambus joined JEDEC in early 1992 and withdrew from the organization in June 1996. Rambus used various subcommittee forums for the purpose of incorporating technical information about SDRAM and DDR technologies into Rambus's own patents, and in order to promote its own RDRAM technologies.

Rambus regularly attended the JEDEC committee meetings, during which the members discussed SDRAM technologies and future industry standards for SDRAM and DDR. On June 11, 1992, Richard Crisp, a Rambus executive, completed four JEDEC ballots. On each ballot, Rambus "intentionally failed to disclose to the JEDEC committee the existence of the '898 application or any of the new patent applications that lay claim to the architecture being developed as the open standards." This intentional omission by Rambus occurred, notwithstanding the fact that JEDEC ballots stated: "`If anyone receiving this ballot is aware of patents involving this ballot, please alert the Committee according to your voting response.'"2 In March 1993, Billy Garrett, another Rambus executive, attended a JEDEC committee meeting in which the members approved an SDRAM standard and forwarded it to the JEDEC Council for final review.

On June 26, 1996, Rambus advised JEDEC in writing that it would not be renewing its JEDEC membership. In that notice, Rambus referred to 23 DRAM technology patents and made "a vague reference to additional patent applications." Rambus, however, omitted from the notice "one particular '898 piggy-back patent issued in April 1996 ... cover[ing] the architecture in JEDEC compliant SDRAM and DDR technologies."

III. Claims Against Rambus.

The Complaint alleges that Rambus intentionally defrauded JEDEC members, inter alia, by failing to disclose information about its patents, by obtaining additional patents covering features of JEDEC standards for SDRAMs, and by urging JEDEC members to adopt into JEDEC standards at least four core technologies. Rambus did not reveal its SDRAM and DDR patents until November 1999; at that point, JEDEC had already adopted Rambus's patents as the industry standard, and "DRAM manufacturers and consumers had [long since] become `locked in' to the JEDEC compliant architecture." The Complaint alleges, as an example, that Infineon designed new products consistent with the JEDEC standard and built production lines in this country and in Germany to make those products. When Rambus disclosed its patents, Infineon (alternatively) was forced to abandon its products and investment in the production lines, pay "exorbitant royalties" to Rambus, or engage in litigation with Rambus concerning claims that Infineon's products infringed Rambus's patents.

Rambus used its patents to "coerce DRAM manufacturers into unfair and deceptive license agreements after they were locked in to manufacturing the JEDEC compliant SDRAM and DDR architecture." This "coercive scheme" was accomplished by Rambus making demands that DRAM manufacturers enter into agreements with it to license SDRAM, DDR, or RDRAM technology. Rambus attempted to move the manufacturers away from SDRAM and DDR technology to the more expensive RDRAM technology by charging royalty rates on RDRAM technology that were significantly lower than the rates it charged for the alternative DRAM technologies.

Rambus's "licensing scheme" (the Complaint alleges) was unlawful, in that Rambus was not entitled to charge any royalties for the licensing of SDRAM or DDR technologies, because "any patent protection that Rambus obtained for those technologies was procured through fraud." Therefore, the royalty rates Rambus charged for licensing RDRAM technology were improperly inflated, because DRAM manufacturers — had they not been faced with Rambus's wrongful royalty claims for SDRAM and DDR technologies — would have chosen to use either DDR technology (with no licensing fees), or RDRAM technology at lower licensing rates than those ultimately charged by Rambus.

Rambus carried out the alleged "coercive licensing scheme" by threatening and/or filing baseless infringement litigation against manufacturers that refused its demands for royalties. Rambus did so despite knowing that its claims for royalties against JEDEC members were "wrongful and unenforceable," as a result of Rambus's actions in the development of JEDEC's open standards policies. The Complaint alleges that Rambus filed patent infringement actions against several DRAM manufacturers, including...

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