Rambus target of FTC antitrust suit

The Federal Trade Commission alleges that the memory-chip designer deliberately deceived the industry by not disclosing its patent plans to a standards body.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
5 min read
The Federal Trade Commission filed an antitrust suit against Rambus on Wednesday, alleging that the controversial memory-chip designer deliberately deceived the industry by not disclosing its patent plans to a standards body.

The FTC, which voted 5-0 to file the lawsuit, alleges that Rambus violated antitrust laws by deliberately not disclosing key patent applications, among other acts, while it was a member of the JEDEC Solid State Technology Association (formerly known as the Joint Electron Device Engineering Council). JEDEC's bylaws required members to disclose or license relevant intellectual property to other members.

According to the suit, JEDEC adopted design specifications for SDRAM, the most common form of memory on the market, that overlapped on patents eventually awarded to Rambus. These patents then gave Rambus an unlawful opportunity to obtain royalty payments from Samsung and Toshiba, among others, worth $50 million to $100 million, and to engage in lawsuits, the FTC alleged.

Rambus also is engaged in lawsuits with Infineon, Micron Technology and Hynix over the same issue.

Infineon prevailed against Rambus in court, but parts of the case are on appeal. The Micron and Hynix suits have been stayed pending the outcome of the Infineon appeal.

"The conduct at issue here has done substantial harm to important technology markets and threatens to undermine participation in industry standard-setting activities more generally," Joseph J. Simons, director of the FTC Bureau of Competition, said in a statement.

"By issuing this complaint, the commission is sending a signal not only to Rambus but also to other companies," Simons continued. "The message is this: If you are going to take part in a standards process, be mindful to abide by the ground rules and to participate in good faith."

In the suit, the FTC seeks an order to prevent Rambus from asserting lawsuits based on the controversial patents and to terminate certain royalty payments, among other relief. The FTC has been investigating Rambus for more than a year.

Rambus defended its actions and predicted that it would be able to fend off the FTC suit.

"We believe we have established that Rambus fully complied with JEDEC's disclosure policy and that Rambus had no undisclosed patents, or even applications, during the relevant time period that (overlapped) on any proposed JEDEC standard," John Danforth, general counsel for Rambus, said in a statement. "At the end of the day, we believe that the FTC process, either at the administrative level or on appeal, will conclude that our actions were entirely appropriate and lawful."

At least one analyst, though, said the FTC actions are largely irrelevant. Rambus has already been pushed toward the fringes of the PC market, and the company has largely lost its ability to collect royalties because of adverse verdicts.

"The competitive dynamics have already run their course," said Bert McComas, an analyst at market researcher InQuest. "They will still do well in other markets like communications and consumer electronics."

Added Peter Glaskowsky, editor in chief of Microprocessor Report, an influential industry newsletter, "I don't think this action by the FTC says much about the merits of the Rambus case, but I do think it shows that we have too many government agencies with overlapping responsibilities."

The FTC's complaint is the latest event in the long melodrama surrounding the Los Altos, Calif.-based company. Less than three years ago, it appeared that high-speed memory based on the company's designs would be commonplace in PCs. Intel's plans at the time dictated that all Pentium III and Pentium 4 computers, as well as many budget PCs, would contain Rambus memory, called RDRAM. Many memory manufacturers and PC makers adjusted their plans to adopt it.

The company's stock soared as experts predicted that Rambus could receive billions of dollars in royalties.

Rambus memory, however, proved more difficult to accommodate than anticipated. Memory manufacturers, already mired in an industry downturn, did not heavily invest in the equipment and engineering required to make RDRAM. As a result, RDRAM prices were two to four times as expensive as SDRAM.

In 1999 and 2000, Intel was beset by product recalls, delays and cancellations that all had a Rambus root. PC makers, which complained about the high prices and delays, wanted to adopt DDR DRAM, a faster version of SDRAM.

Intel eventually veered from its Rambus-only plans and produced chipsets that let PC makers use SDRAM or DDR DRAM in Pentium III and 4 computers. These chipsets have proven extremely popular.

In response, Rambus concurrently began to pressure memory manufacturers to pay it royalties, claming that SDRAM and DDR DRAM infringed upon its patents. Toshiba, Samsung and others signed settlement agreements.

Three companies--Micron, Hynix and Infineon--decided to take the cases to court and filed countersuits alleging that Rambus committed fraud by violating the JEDEC rules. The verdicts would inevitably have impact beyond the parties in the suit: The settlement agreements contained provisions that royalty payments would be reduced if Rambus were to lose its suit.

Infineon won its lawsuit filed in federal court in Virginia.

The timeline
The controversies surrounding Rambus' conduct at JEDEC go back 12 years.

Rambus first filed the specifications for its memory patents in April 1990. In February 1992, it joined JEDEC. The group subsequently adopted standards relating to SDRAM. In 1996, Rambus left JEDEC.

While a member of JEDEC, Rambus didn't try to persuade JEDEC memory committees to vote on proposals that would affect its patents and didn't vote on any, Rambus officials have said.

Doing nothing, however, was a violation of the law, the memory makers have claimed. Although the original claim was filed in 1990, Rambus didn't receive its patents, or make them fully public, until after it left JEDEC. By then, SDRAM was already established as the next standard for memory.

"If Rambus had disclosed these patents at JEDEC, we contend that these standards would never have been adopted," Patrick Lynch, a lawyer for Hynix, said in one of the hearings in the Rambus-Hynix lawsuits. "The intent was to have an open standard."

The memory manufacturers also have alleged in court that Rambus adjusted its patents based on information it gained by being a member of JEDEC.

Privately, however, some memory executives and sources close to JEDEC have said that the organization's bylaws could have been clearer. JEDEC required that members disclose and license relevant patents but often didn't enforce the rule. The group's bylaws also are vague on what sort of penalties could be imposed on violators.

Since then, the organization and its members have more vigorously followed the guidelines, one source said.

The issue continues to spark disagreements.

"I don't think I've seen anything in particular that shows Rambus did anything illegal, but they should have been more forthcoming in explaining their situation when they were at JEDEC," Microprocessor Report's Glaskowsky said.