Wednesday, April 30, 2003

FTC v. Rambus

Contrary to popular belief, not every company falsely accused by the Federal Trade Commission settles without a fight. Rambus, a California-based technology firm, is currently fighting FTC staff lawyers tooth-and-nail over charges they committed fraud. The Rambus trial opens later this morning before an administrative (i.e. FTC-appointed) judge. Here's a good summary of the case from George Leopold of EE Times:

Rambus Inc. heads to trial on Wednesday (April 30) before a Federal Trade Commission judge as the company digs in to defend itself against antitrust charges brought by the agency last June.

FTC lawyers will argue that Rambus (Los Altos, Calif.) violated U.S. antitrust laws “by deliberately engaging in a pattern of anticompetitive acts and practices that served to deceive an industry-wide standard-setting organization,” the Joint Electron Device Engineering Council (Jedec).

The group was developing an industry SDRAM standard. The U.S. alleges that during the four years Rambus participated in Jedec's deliberations it concealed patents and pending patent applications involving specific technologies that eventually become part of Jedec's SDRAM spec. The alleged non-disclosure violated the group's rules, and FTC attorneys charged Rambus with violating U.S. antitrust laws.

Rambus has denied it deceived the Jedec group. It has also continued to appeal an adverse 2001 ruling in a federal court brought by other Infineon Technologies AG and has steadfastly refused to settle the FTC complaint prior to this week's trial before Chief Administrative Law Judge James Timony.

“The fact that Rambus's founders believed they had conceived the inventions in question was public information,” the company said in a pre-trial statement. “The inventions were described in detail in publicly available patent documents that were discussed at Jedec and that were closely scrutinized by engineers and lawyers employed by Jedec members.”

In January, a federal appeals panel here reversed a lower-court ruling that Rambus had committed fraud. The decision also reversed a trial court ruling that Infineon hadn't infringed Rambus patents, sending the patent infringement issue back to the lower court.

Shareholders have also rallied on behalf of Rambus, accusing the FTC of harassing the company and urging lawmakers to call off the agency. Those efforts have so far attracted little congressional support.

The FTC trial could last from five to eight weeks.

The problem is not that Jedec doesn't have a debatable claim against Rambus. The problem is Jedec already went to court and lost (at the appellate level) on their claims. The FTC's case is nothing more than an effort by the federal government to interfere with a private breach-of-contract proceeding. If the FTC is successful, you can be sure more businesses in the future will seek FTC intervention instead of going through the normal judicial channels. This is particularly dangerous given the FTC staff's total lack of qualifications to judge industries like Rambus's. It's also a separation-of-powers problem, given that the FTC is attempting to undo a federal appellate court's ruling in favor of Rambus. You may believe the FTC has the better argument, but who should decide these legal questions, an impartial federal court or a politically-motivated group of FTC prosecutors?

I suspect Rambus will ultimately be vindicated, if for no other reason than the FTC's decision is subject to review by a federal court of appeals. The FTC's recent track record before actual judges is pretty bad, and the Article III courts in recent years have been particularly hostile to the FTC's efforts to invent new legal theory. Rambus will no doubt waste thousands on legal fees for the next couple of years, but in the end it's worth it if the FTC is stopped.

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