Editors Note: Caroline Horton Rockafellow is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A.

RESEARCH TRIANGLE PARK, N.C. – Earlier this month the Federal Trade Commission (FTC) handed down its ruling in the Matter of Rambus, Inc., a highly publicized case that turned on whether certain actions by Rambus, Inc. were anticompetitive in view of its patent position and its participation in a related standards committee. This case should be of great interest to anyone who participates in committees or groups that advise on industry standards.

Rambus is a computer memory technology company that specializes in the development of DRAM chips, and in particular, technology that significantly increases CPU speeds. Rambus is not a manufacturer of technology, but rather is focused on technology development and licensing. In fact, Rambus’ primary revenues are earned through the licensing of its patents.

In 1991 Rambus became a member of the JEDEC Solid State Technology Association (formerly the Joint Electron Device Engineering Council) and began serving on its committee working on standardization of DRAM chips. JEDEC, which is the semiconductor engineering standardization body of the Electronic Industries Alliance was formed in 1960 to work on the standardization of semiconductor devices. In 1970, JEDEC expanded its work to include integrated circuits and is now the leading developer of standards for the solid-state industry.

At the same time as Rambus was a member of JEDEC it continued to file and prosecute certain patents and patent applications related to the technology under review by JEDEC. Ultimately, JEDEC released standards that read on the claims of certain Rambus patents. Although, Rambus claimed that it provided JEDEC with notice of its patents and applications prior to the release of the JEDEC standards, the FTC found that the information provided to JEDEC by Rambus was evasive and misleading. As a result of Rambus’ failure to provide JEDEC with proper notice of such patents, Rambus was found to have unlawfully obtained monopoly power for computer memory technology.

JEDEC Patent Disclosures

Standardization committees have long been closely analyzed by the FTC and other organizations that regulate antitrust and anticompetitive matters in the United States. The concern has always been that when competitors meet to discuss technology, there is a risk that anticompetitive activity will result. In general, the FTC has supported standardization committees, since the end result of standards is commonly greater competition, however, standards committees still remain suspect organizations.

The most obvious risk of any standardization committee is that a proprietary technology will be selected as the standard and one or more entities will unfairly benefit by extracting patent license fees for the use of such technology. If the standardization choice was a result of the activities of the entities that would benefit from the selection, then in addition to being unfair, the activities would most likely been deemed to be an antitrust violation. For this reason, all participants in any JEDEC committee must comply with its patent policy, which explicitly requires “the early disclosure of known patents and patent applications that are or may be relevant to the work of the formulating committee.” FTC rulings have gone on to find that where there is a failure to disclose relevant patents or pending patents, the patent holder may lose rights in such patents.

This requirement would appear to be a rather simple undertaking, but it is a potentially onerous burden. It is important to realize that this policy requires all participants to have a full and complete understanding of all issued and pending patents of their own company as well as all patents disclosed to them by third parties. Of course, many of the third party disclosures are likely confidential, so this creates additional liability if the third party information is disclosed, yet the parties will be in violation of the policy if they fail to disclose the information. In addition, since the work of the committee takes place over many years, it may not always be apparent to all participants which technologies may be relevant in the future. The risk is that a failure to recognize that a technology may be relevant and the subsequent failure to disclose patents covering such technology, could result in a loss of patent rights. More importantly, this burden applies to all that are members of the committee, regardless of their participation in the applicable committee. In other words, a company that becomes a member, but does not actively participate and does not have any hand in influencing the ultimate decision of the committee, is still at risk for a failure to disclose.

Since a failure to disclose these patents and applications could result in a loss of rights, participants must take these disclosures very seriously and should in all cases closely and carefully monitor the status of all disclosures, applications and patents in view of the work of the committee. An analysis of what might be relevant must be periodically considered. The obvious risk is that disclosure of applications prior to publication not only reveals an insight into the development activities of a company, but may also risk a loss of confidential information. Accordingly, if a company intends to enforce its patent rights in these areas, it should seriously consider whether it or its employees should participate in such a committee.

FTC Findings

The Rambus decision supports the earlier decision in the Federal Trade Commission v. Dell Computer Corp, which found that “[W]here there is evidence that the [Video Electronics Standard] Association would have implemented a different non-proprietary design had it been informed of the patent conflict during the certification process, and where Dell failed to act in good faith to identify and disclose patent conflicts – enforcement action is appropriate to prevent harm to competition and consumers.” This matter was decided in 1996, five years after Rambus became involved with JEDEC. Following the Dell ruling, Rambus terminated its membership with JEDEC, which tends to support the argument that Rambus understood the ramifications of its knowledge and the risk of participation in JEDEC.

What is most interesting is that the anticompetitive actions are based on the fact that Rambus remained silent when the technologies were discussed by JEDEC and voted on the inclusion of technology that would be covered by its patents. Rambus was not found to have heavily lobbied for inclusion of these technologies. Rather, the guilt was in Rambus silence and in its apparent use of information learned in the JEDEC meetings to amend its pending applications.

Although it appears that the actions of Rambus may very well have been intentionally anticompetitive and deceitful, the language of this ruling should nevertheless serve as a caution for any company or individual that participates in or is a member of any standards committee. Regardless of the conduct of the company or individual, the mere membership in a standards organization may result in an inability to later enforce patents that claim any portion of the approved standard. Accordingly, participation in such committees should always be carefully considered and monitored at the highest executive levels of any participating company.

Daniels Daniels & Verdonik, P.A. has been serving the legal needs of entrepreneurial and high technology clients for more than 20 years. Caroline Horton Rockafellow concentrates her practice in the representation of entrepreneurial and technology-based business, focusing on corporate, technology and licensing matters. Questions or Comments can be sent to crockafellow@d2vlaw.com.