Rambus Inc. v. F.T.C.

• Decision Date: 22 April 2008
• Docket Number: No. 07-1086.,No. 07-1124.,07-1086.,07-1124.
• Citation: 522 F.3d 456
• Parties: RAMBUS INCORPORATED, Petitioner v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

522 F.3d 456

RAMBUS INCORPORATED, Petitioner v. FEDERAL TRADE COMMISSION, Respondent.

No. 07-1086.

No. 07-1124.

United States Court of Appeals, District of Columbia Circuit.

Argued February 14, 2008.

Decided April 22, 2008.

On Petitions for Review of Final Orders of the Federal Trade Commission.

A. Douglas Melamed argued the cause for petitioner. With him on the briefs were Paul R. Q. Wolfson, Sambhav N. Sankar, Andrew J. Ewalt, and Pratik A. Shah.

S.M. Oliva, appearing pro se, was on the brief for amicus curiae S.M. Oliva in support of petitioner.

John F. Daly, Deputy General Counsel for Litigation, Federal Trade Commission, argued the cause for respondent. With

him on the briefs were John D. Graubert, Principal Deputy General Counsel, William E. Cohen, Deputy General Counsel for Policy Studies, and Leslie R. Melman, Imad D. Abyad, Richard B. Dagen, and Patrick J. Roach, Attorneys.

Jennifer L. Pratt, Assistant Attorney General, Attorney General's Office of the State of Ohio, was on the brief for amici curiae State of Ohio, et al. in support of respondent. With her on the brief were Marc Dann, Attorney General, Talis J. Colberg, Attorney General, Attorney General's Office of the State of Alaska, Terry Goddard, Attorney General, Attorney General's Office of the State of Arizona, Dustin McDaniel, Attorney General, Attorney General's Office of the State of Arkansas, John W. Suthers, Attorney General, Attorney General's Office of the State of Colorado, Linda Singer, Attorney General, Attorney General's Office of the District of Columbia, Bill McCollum, Attorney General, Attorney General's Office of the State of Florida, Mark Bennett, Attorney General, Attorney General's Office of the State of Hawaii, Lawrence G. Wasden, Attorney General, Attorney General's Office of the State of Idaho, Lisa Madigan, Attorney General, Attorney General's Office of the State of Illinois, Thomas J. Miller, Attorney General, Attorney General's Office of the State of Iowa, Paul J. Morrison, Attorney General, Attorney General's Office of the State of Kansas, Charles C. Foti, Jr., Attorney General, Attorney General's Office of the State of Louisiana, G. Steven Rowe, Attorney General, Attorney General's Office of the State of Maine, Douglas F. Gansler, Attorney General, Attorney General's Office of the State of Maryland, Martha Coakley, Attorney General, Attorney General's Office of the Commonwealth of Massachusetts, Michael A. Cox, Attorney General, Attorney General's Office of the State of Michigan, Lori Swanson, Attorney General, Attorney General's Office of the State of Minnesota, Jeremiah W. (Jay) Nixon, Attorney General, Attorney General's Office of the State of Missouri, Catherine Cortez Masto, Attorney General, Attorney General's Office of the State of Nevada, Anne Milgram, Attorney General, Attorney General's Office of the State of New Jersey, Gary King, Attorney General, Attorney General's Office of the State of New Mexico, Andrew M. Cuomo, Attorney General, Attorney General's Office of the State of New York, W.A. Drew Edmondson, Attorney General, Attorney General's Office of the State of Oklahoma, Hardy Myers, Attorney General, Attorney General's Office of the State of Oregon, Roberto J. Sánchez Ramos, Attorney General, Attorney General's Office of the Commonwealth of Puerto Rico, Lawrence E. Long, Attorney General, Attorney General's Office of the State of South Dakota, Mark L. Shurtleff, Attorney General, Attorney General's Office of the State of Utah, William H. Sorrell, Attorney General, Attorney General's Office of the State of Vermont, Robert M. McKenna, Attorney General, Attorney General's Office of the State of Washington, Darrell V. McGraw, Jr., Attorney General, Attorney General's Office of the State of West Virginia, and Arthur Ripley, Jr., Attorney General, Attorney General's Office of the American Samoa Government. Bennett Rushkoff, Assistant Attorney General, Attorney General's Office of the District of Columbia, entered an appearance.

Before: HENDERSON and RANDOLPH, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge WILLIAMS.

WILLIAMS, Senior Circuit Judge:

Rambus Inc. develops computer memory technologies, secures intellectual property rights over them, and then licenses them to manufacturers in exchange for royalty payments. In 1990, Rambus's founders filed a patent application claiming the invention of a faster architecture for dynamic random access memory ("DRAM"). In recent years, Rambus has asserted that patents issued to protect its invention cover four technologies that a private standard-setting organization ("SSO") included in DRAM industry standards.

Before an SSO adopts a standard, there is often vigorous competition among different technologies for incorporation into that standard. After standardization, however, the dynamic typically shifts, as industry members begin adhering to the standard and the standardized features start to dominate. In this case, 90% of DRAM production is compliant with the standards at issue, and therefore the technologies adopted in those standards—including those over which Rambus claims patent rights—enjoy a similar level of dominance over their alternatives.

After lengthy proceedings, the Federal Trade Commission determined that Rambus, while participating in the standard-setting process, deceptively failed to disclose to the SSO the patent interests it held in four technologies that were standardized. Those interests ranged from issued patents, to pending patent applications, to plans to amend those patent applications to add new claims; Rambus's patent rights in all these interests are said to be sufficiently connected to the invention described in Rambus's original 1990 application that its rights would relate back to its date. Commission Br. at 46-47; Transcript of Oral Argument at 35-36; see also 35 U.S.C. §§ 120, 132. Finding this conduct monopolistic and in violation of § 2 of the Sherman Act, 15 U.S.C. § 2, the Commission went on to hold that Rambus had engaged in an unfair method of competition and unfair or deceptive acts or practices prohibited by § 5(a) of the Federal Trade Commission Act ("FTC Act"), id. § 45(a).

Rambus petitions for review. We grant the petition, holding that the Commission failed to sustain its allegation of monopolization. Its factual conclusion was that Rambus's alleged deception enabled it either to acquire a monopoly through the standardization of its patented technologies rather than possible alternatives, or to avoid limits on its patent licensing fees that the SSO would have imposed as part of its normal process of standardizing patented technologies. But the latter—deceit merely enabling a monopolist to charge higher prices than it otherwise could have charged—would not in itself constitute monopolization. We also address whether there is substantial evidence that Rambus engaged in deceptive conduct at all, and express our serious concerns about the sufficiency of the evidence on two particular points.

* * *

During the early 1990s, the computer hardware industry faced a "memory bottleneck": the development of faster memory lagged behind the development of faster central processing units, and this risked limiting future gains in overall computer performance. To address this problem, Michael Farmwald and Mark Horowitz began collaborating during the late 1980s and invented a higher-performance DRAM architecture. Together, they founded Rambus in March 1990 and filed Patent Application No. 07/510,898 ("the '898 application") on April 18, 1990.

As originally filed, the '898 application included a 62-page written description of Farmwald and Horowitz's invention, 150 claims, and 15 technical drawings. Under the direction of the Patent Office, acting pursuant to 35 U.S.C. § 121, Rambus effectively split the application into several (the original one and 10 "divisionals"). Thereafter, Rambus amended some of these applications and filed additional continuation and divisional applications.

While Rambus was developing a patent portfolio based on its founders' inventions, the computer memory industry was at work standardizing DRAM technologies. The locus of those efforts was the Joint Electron Device Engineering Council ("JEDEC")—then an "activity" of what is now called the Electronics Industries Alliance ("EIA") and, since 2000, a trade association affiliated with EIA and known as the JEDEC Solid State Technology Association. Any company involved in the solid state products industry could join JEDEC by submitting an application and paying annual dues, and members could receive JEDEC mailings, participate in JEDEC committees, and vote on pending matters.

One JEDEC committee, JC 42.3, developed standards for computer memory products. Rambus attended its first JC 42.3 meeting as a guest in December 1991 and began formally participating when it joined JEDEC in February 1992. At the time, JC 42.3 was at work on what became JEDEC's synchronous DRAM ("SDRAM") standard. The committee voted to approve the completed standard in March 1993, and JEDEC's governing body gave its final approval on May 24, 1993. The SDRAM standard includes two of the four technologies over which Rambus asserts patent rights — programmable CAS latency and programmable burst length.

Despite SDRAM's standardization, its manufacture increased very slowly and asynchronous DRAM continued to dominate the computer memory market, so JC 42.3 began to consider a number of possible responses — among them specifications it could include in a next-generation SDRAM standard. As part of that process, JC 42.3 members received a survey ballot in October 1995 soliciting their opinions on features of an advanced SDRAM—which ultimately emerged as the double data rate ("DDR") SDRAM standard. Among the features voted on were the other two technologies at issue here: on-chip phase lock and delay lock loops ("on-chip...