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In the Matter of Rambus, Inc. Docket No. 9302 FTC Directs Compulsory License to Remedy Anticompetitive Conduct

9 February 2007
Mayer, Brown, Rowe & Maw LLP
The Federal Trade Commission held recently that it may order compulsory licensing with maximum royalty rates calculated through agency-directed ratemaking to remedy the anticompetitive effects of deceptive conduct during standard setting proceedings.In the Matter of Rambus, Inc., Docket No. 9302, Opinion of the Commission on Remedy (Feb. 5, 2007), available at

In a prior opinion, the Commission held that Rambus, Inc., had engaged in unlawful monopolization by concealing patents it owned that read on computer memory standards being developed by the Joint Electronic Device Engineering Council ("JEDEC").In the Matter of Rambus, Inc., Docket No. 9302, Opinion of the Commission (Aug. 2, 2007), available at Commission had held that JEDEC participants expected Rambus to reveal the existence of these patents, and that Rambus did not inform JEDEC members of them until after the members had adopted and become "locked in" to JEDEC's SDRAM and DDR SDRAM standards.

The Commission's prior opinion left open the issue of remedy, and the Commission sought additional briefing.Rambus argued that its current royalty rates were actually competitive, so that any remedy should be limited to an order directing Rambus not to engage in deceptive conduct in standard setting.Commission staff argued that the Commission should impose a compulsory, royalty-free license because, had Rambus disclosed its patents, JEDEC members would have designed a standard that did not infringe Rambus' patents.

The Commission staked out a middle ground, setting maximum royalty rates that were greater than zero but less than Rambus' current rates.Chairman Majoras, writing for the majority, stated that the Commission did not "relish imposing a compulsory licensing remedy," but that Rambus' deceptive conduct made a private determination of a royalty rate by market participants impossible.To calculate its reasonable royalty rate, the majority considered royalty rates for similar technologies and then made downward adjustments.The majority concluded that a rate of one percent or less (depending on the technology) was appropriate, but that after three years the royalty would drop to zero.The Commission declined to apply this maximum royalty to JEDEC's next generation DDR2-SDRAM standard, holding that the Staff had not established a sufficient causal nexus between Rambus' conduct and the choice of that standard.The Commission ordered other relief as well, including barring Rambus from making misrepresentations or omissions to standard setting organizations, and requiring it to employ a Commission-approved compliance officer to ensure that Rambus discloses its patents and patent applications to industry standard setting bodies in which it participates.

The key to the decision was the compulsory license with an imposed "reasonable" rate, a remedy that has rarely been employed.In its decision, the Commission enunciated a number of significant principles, including the following:

  • The Commission's authority to issue orders extends to the authority to impose compulsory licenses and establish reasonable rates;
  • The Commission will, under the proper factual circumstances, impose a royalty-free license to remedy anticompetitive conduct; and
  • The Commission can extend a compulsory license, including a zero royalty license, to next generation technologies if there is a sufficient causal link between alleged misconduct and the development of the standard.

Two commissioners filed separate opinions, both concurring in part and dissenting in part.Commissioner Rosch argued that the majority opinion should have ordered Rambus to license its technologies royalty-free to users of the JEDEC standards.Commissioner Rosch found that the record supported the Staff's contention that, but for Rambus' deception, JEDEC would not have incorporated Rambus' technologies and accordingly Rambus would not be in a position to collect royalties from users of the standards.

Commissioner Harbour agreed with Commissioner Rosch, but went a step further, arguing that a royalty-free license should have been imposed on technologies included in all JEDEC standards that were developed or in development at the time Rambus began enforcing its patents, including the next generation DDR2-SDRAM standard.

This is not the first case that has directed a compulsory license to remedy anticompetitive conduct.However, currently it is unusual for an antitrust enforcement agency or a court to require a compulsory license and set a "reasonable" rate as an antitrust remedy.Prior antitrust cases and consent decrees that have required a compulsory license have generally imposed no royalties.The Commission's middle ground approach may validate a less drastic remedy for companies accused of violating the antitrust laws, but also creates more uncertainty because of the many factors associated with deciding what rate is reasonable.

Rambus has already announced its intention to appeal the decision.It may appeal to any one of the 12 circuit courts of general jurisdiction, but may not appeal to the Federal Circuit, which lacks jurisdiction to hear an appeal of a Commission decision.On appeal, the Commission's findings of facts will be affirmed if supported by "substantial evidence," while its legal determinations will be considered de novo but with some deference.The appeals court will certainly have to grapple with balancing the Commission's desire to remedy anticompetitive conduct with the antitrust law's general hostility to judicial ratemaking.

If you have any questions about this opinion, please feel free to contact in our Washington, DC office.

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