United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 14, 2008 Decided April 22, 2008
No. 07-1086
RAMBUS INCORPORATED,
PETITIONER
v.
FEDERAL TRADE COMMISSION,
RESPONDENT
Consolidated with
07-1124
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
2
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.
Alan J. Weinschel, Daniel I. Prywes, and Daniel T.
O'Connor were on the brief of amici curiae JEDEC Solid
State Technology Association, et al. in support of respondent
and affirmance. Amber H. Rovner and Carmen E. Bremer
entered appearances.
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
3
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.
4
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
5
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
6
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
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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
PLL/DLL”) and dual-edge clocking. The Committee tallied
and discussed the survey results at its December 1995
meeting, which was Rambus’s last as a JEDEC member.
Rambus formally withdrew from JEDEC by letter dated June
17, 1996, saying (among other things) that the terms on which
it proposed to license its proprietary technology “may not be
consistent with the terms set by standards bodies, including
JEDEC.” Complaint Counsel’s Exhibit (“CX”) 887.
JC 42.3’s work continued after Rambus’s departure. In
March 1998 the committee adopted the DDR SDRAM
standard, and the JEDEC Board of Directors approved it in
1999. This standard retained SDRAM features including
programmable CAS latency and programmable burst length,
and it added on-chip PLL/DLL and dual-edge clocking; DDR
SDRAM, therefore, included all four of the technologies at
issue here.
Starting in 1999, Rambus informed major DRAM and
chipset manufacturers that it held patent rights over
technologies included in JEDEC’s SDRAM and DDR
SDRAM standards, and that the continued manufacture, sale,
or use of products compliant with those standards infringed its
rights. It invited the manufacturers to resolve the alleged
infringement through licensing negotiations. A number of
manufacturers agreed to licenses, see Opinion of the
Commission (“Liability Op.”), In re Rambus, Docket No.
9302, at 48 n.262 (July 31, 2006) (discussing cases); others
did not, and litigation ensued, see id. at 17-21.
8
On June 18, 2002, the Federal Trade Commission filed a
complaint under § 5(b) of the FTC Act, 15 U.S.C. § 45(b),
charging that Rambus engaged in unfair methods of
competition and unfair or deceptive acts or practices in
violation of the Act, see id. § 45(a). Specifically, the
Commission alleged that Rambus breached JEDEC policies
requiring it to disclose patent interests related to
standardization efforts and that the disclosures it did make
were misleading. By this deceptive conduct, it said, Rambus
unlawfully monopolized four technology markets in which its
patented technologies compete with alternative innovations to
address technical issues relating to DRAM design—markets
for latency, burst length, data acceleration, and clock
synchronization technologies. Compl. at 1-2, 28-29 (June 18,
2002); see also Liability Op. at 5.
Proceedings began before an administrative law judge,
who in due course dismissed the Complaint in its entirety.
Initial Decision (“ALJ Op.”) at 334 (Feb. 23, 2004). He
concluded that Rambus did not impermissibly withhold
material information about its intellectual property, id. at 260-
86, and that, in any event, there was insufficient evidence that,
if Rambus had disclosed all the information allegedly required
of it, JEDEC would have standardized an alternative
technology, id. at 310-23.
Complaint Counsel appealed the ALJ’s Initial Decision to
the Commission, which reopened the record to receive
additional evidence and did its own plenary review. See
Liability Op. at 17, 21. On July 31, 2006 the Commission
vacated the ALJ’s decision and set aside his findings of fact
and conclusions of law. Id. at 21. The Commission found
that while JEDEC’s patent disclosure policies were “not a
model of clarity,” id. at 52, members expected one another to
disclose patents and patent applications that were relevant to
technologies being considered for standardization, plus
9
(though the Commission was far less clear on these latter
items) planned amendments to pending applications or
“anything they’re working on that they potentially wanted to
protect with patents down the road,” id. at 56; see generally
id. at 51-59, 66. Based on this interpretation of JEDEC’s
disclosure requirements, the Commission held that Rambus
willfully and intentionally engaged in misrepresentations,
omissions, and other practices that misled JEDEC members
about intellectual property information “highly material” to
the standard-setting process. Id. at 68; see also id. at 37-48
(outlining Rambus’s “Chronology of Concealment”).
The Commission focused entirely on the allegation of
monopolization. See id. at 27 n.124. In particular, the
Commission held that the evidence and inferences from
Rambus’s purpose demonstrated that “but for Rambus’s
deceptive course of conduct, JEDEC either would have
excluded Rambus’s patented technologies from the JEDEC
DRAM standards, or would have demanded RAND
assurances [i.e., assurances of “reasonable and non-
discriminatory” license fees], with an opportunity for ex ante
licensing negotiations.” Id. at 74; see also id. at 77, 118-19.
Rejecting Rambus’s argument that factors other than JEDEC’s
standards allowed Rambus’s technologies to dominate their
respective markets, id. at 79-96, the Commission concluded
that Rambus’s deception of JEDEC “significantly contributed
to its acquisition of monopoly power,” id. at 118.
After additional briefing by the parties, see id. at 119-20,
the Commission rendered a separate remedial opinion and
final order. Opinion of the Commission on Remedy
(“Remedy Op.”) (Feb. 2, 2007); Final Order (Feb. 2, 2007). It
held that it had the authority in principle to order compulsory
licensing, but that remedies beyond injunctions against future
anticompetitive conduct would require stronger proof that
they were necessary to restore competitive conditions.
10
Remedy Op. at 2-11. Applying that more demanding burden
to Complaint Counsel’s claims for relief, the Commission
refused to compel Rambus to license its relevant patents
royalty-free because there was insufficient evidence that
“absent Rambus’s deception” JEDEC would have
standardized non-proprietary technologies instead of
Rambus’s; thus, Complaint Counsel had failed to show that
such a remedy was “necessary to restore competition that
would have existed in the ‘but for’ world.” Id. at 12; see also
id. at 13, 16. Instead, the Commission decided to compel
licensing at “reasonable royalty rates,” which it calculated
based on what it believed would have resulted from
negotiations between Rambus and manufacturers before
JEDEC committed to the standards. Id. at 16-25. The
Commission’s order limits Rambus’s royalties for three years
to 0.25% for JEDEC-compliant SDRAM and 0.5% for
JEDEC-compliant DDR SDRAM (with double those royalties
for certain JEDEC-compliant, non-DRAM products); after
those three years, it forbids any royalty collection. Final
Order at 2-4; Remedy Op. at 22-23.
Rambus moved for reconsideration, and the Commission
denied the motion in relevant part on April 27, 2007. Rambus
timely petitioned for our review of both the Commission’s
Final Order and its Denial of Reconsideration, see 15 U.S.C.
§ 45(c), and we consolidated those petitions.
Rambus challenges the Commission’s determination that
it engaged in unlawful monopolization—and thereby violated
§ 5 of the FTC Act—on a variety of grounds, of which two
are most prominent. First, it argues that the Commission
erred in finding that it violated any JEDEC patent disclosure
rules and thus that it breached any antitrust duty to provide
information to its rivals. Second, it asserts that even if its
nondisclosure contravened JEDEC’s policies, the Commission
found the consequences of such nondisclosure only in the
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alternative: that it prevented JEDEC either from adopting a
non-proprietary standard, or from extracting a RAND
commitment from Rambus when standardizing its technology.
As the latter would not involve an antitrust violation, says
Rambus, there is an insufficient basis for liability.
We find the second of these arguments to be persuasive,
and conclude that the Commission failed to demonstrate that
Rambus’s conduct was exclusionary under settled principles
of antitrust law. Given that conclusion, we need not dwell
very long on the substantiality of the evidence, which we
address only to express our serious concerns about the breadth
the Commission ascribed to JEDEC’s disclosure policies and
their relation to what Rambus did or did not disclose.
* * *
In this case under § 5 of the FTC Act, the Commission
expressly limited its theory of liability to Rambus’s unlawful
monopolization of four markets in violation of § 2 of the
Sherman Act, 15 U.S.C. § 2. See Liability Op. at 27 n.124;
see also FTC v. Cement Inst., 333 U.S. 683, 694 (1948) (§ 5
reaches all conduct that violates § 2 of the Sherman Act).
Therefore, we apply principles of antitrust law developed
under the Sherman Act, and we review the Commission’s
construction and application of the antitrust laws de novo.
FTC v. Indiana Fed’n of Dentists, 476 U.S. 447, 454 (1986);
Polygram Holding, Inc. v. FTC, 416 F.3d 29, 33 (D.C. Cir.
2005).
It is settled law that the mere existence of a monopoly
does not violate the Sherman Act. See Verizon Commc’ns,
Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398,
407 (2004); United States v. Microsoft Corp., 253 F.3d 34, 58
(D.C. Cir. 2001) (en banc) (per curiam). In addition to “the
12
possession of monopoly power in the relevant market,” the
offense of monopolization requires “‘the willful acquisition or
maintenance of that power as distinguished from growth or
development as a consequence of a superior product, business
acumen, or historical accident.’” Trinko, 540 U.S. at 407
(quoting United States v. Grinnell Corp., 384 U.S. 563, 570-
71 (1966)); Microsoft, 253 F.3d at 50 (same). In this case,
Rambus does not dispute the nature of the relevant markets or
that its patent rights in the four relevant technologies give it
monopoly power in each of those markets. See Liability Op.
at 72-73. The critical question is whether Rambus engaged in
exclusionary conduct, and thereby acquired its monopoly
power in the relevant markets unlawfully.
To answer that question, we adhere to two antitrust
principles that guided us in Microsoft. First, “to be
condemned as exclusionary, a monopolist’s act must have
‘anticompetitive effect.’ That is, it must harm the competitive
process and thereby harm consumers. In contrast, harm to
one or more competitors will not suffice.” Microsoft, 253
F.3d at 58; see also Trinko, 540 U.S. at 407; Brooke Group
Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209,
224 (1993); Covad Commc’ns. Co. v. Bell Atlantic Corp., 398
F.3d 666, 672 (D.C. Cir. 2005). Second, it is the antitrust
plaintiff—including the Government as plaintiff—that bears
the burden of proving the anticompetitive effect of the
monopolist’s conduct. Microsoft, 253 F.3d at 58-59.
The Commission held that Rambus engaged in
exclusionary conduct consisting of misrepresentations,
omissions, and other practices that deceived JEDEC about the
nature and scope of its patent interests while the organization
standardized technologies covered by those interests.
Liability Op. at 28, 68. Had Rambus fully disclosed its
intellectual property, “JEDEC either would have excluded
Rambus’s patented technologies from the JEDEC DRAM
13
standards, or would have demanded RAND assurances, with
an opportunity for ex ante licensing negotiations.” Liability
Op. at 74. But the Commission did not determine that one or
the other of these two possible outcomes was the more likely.
See Transcript of Oral Argument at 43 (Commission’s
counsel confirming that the Commission was unable to decide
which of the two possible outcomes would have occurred had
Rambus disclosed). The Commission’s conclusion that
Rambus’s conduct was exclusionary depends, therefore, on a
syllogism: Rambus avoided one of two outcomes by not
disclosing its patent interests; the avoidance of either of those
outcomes was anticompetitive; therefore Rambus’s
nondisclosure was anticompetitive.
We assume without deciding that avoidance of the first of
these possible outcomes was indeed anticompetitive; that is,
that if Rambus’s more complete disclosure would have caused
JEDEC to adopt a different (open, non-proprietary) standard,
then its failure to disclose harmed competition and would
support a monopolization claim. But while we can assume
that Rambus’s nondisclosure made the adoption of its
technologies somewhat more likely than broad disclosure
would have, the Commission made clear in its remedial
opinion that there was insufficient evidence that JEDEC
would have standardized other technologies had it known the
full scope of Rambus’s intellectual property. See Remedy Op.
12. Therefore, for the Commission’s syllogism to survive—
and for the Commission to have carried its burden of proving
that Rambus’s conduct had an anticompetitive effect—we
must also be convinced that if Rambus’s conduct merely
enabled it to avoid the other possible outcome, namely
JEDEC’s obtaining assurances from Rambus of RAND
licensing terms, such conduct, alone, could be said to harm
competition. Cf. Avins v. White, 627 F.2d 637, 646 (3d Cir.
1980) (“Where . . . a general verdict may rest on either of two
claims—one supported by the evidence and the other not—a
14
judgment thereon must be reversed.” (quoting Allbergo v.
Reading Co., 372 F.2d 83, 86 (3d Cir. 1966))). We are not
convinced.
Deceptive conduct—like any other kind—must have an
anticompetitive effect in order to form the basis of a
monopolization claim. “Even an act of pure malice by one
business competitor against another does not, without more,
state a claim under the federal antitrust laws,” without proof
of “a dangerous probability that [the defendant] would
monopolize a particular market.” Brooke Group, 509 U.S. at
225. Even if deception raises the price secured by a seller, but
does so without harming competition, it is beyond the antitrust
laws’ reach. Cases that recognize deception as exclusionary
hinge, therefore, on whether the conduct impaired rivals in a
manner tending to bring about or protect a defendant’s
monopoly power. In Microsoft, for example, we found
Microsoft engaged in anticompetitive conduct when it tricked
independent software developers into believing that its
software development tools could be used to design cross-
platform Java applications when, in fact, they produced
Windows-specific ones. The deceit had caused “developers
who were opting for portability over performance . . .
unwittingly [to write] Java applications that [ran] only on
Windows.” 253 F.3d at 76. The focus of our antitrust
scrutiny, therefore, was properly placed on the resulting harms
to competition rather than the deception itself.
Another case of deception with an anticompetitive
dimension is Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768
(6th Cir. 2001), where the Sixth Circuit found that U.S.
Tobacco’s dominance of the moist snuff market caused
retailers to rely on it as a “category manager” that would
provide trusted guidance on the sales strategy and in-store
display for all moist snuff products, id. at 773-78. Under
those circumstances, the court held that its misrepresentations
15
to retailers about the sales strength of its products versus its
competitors’ strength reduced competition in the monopolized
market by increasing the display space devoted to U.S.
Tobacco’s products and decreasing that allotted to competing
products. Id. at 783, 785-88, 790-91; see also LePage’s Inc. v.
3M, 324 F.3d 141, 153 (3d Cir. 2003) (calling Conwood “a
good illustration of the type of exclusionary conduct that will
support a § 2 violation”).
But an otherwise lawful monopolist’s use of deception
simply to obtain higher prices normally has no particular
tendency to exclude rivals and thus to diminish competition.
Consider, for example, NYNEX Corp. v. Discon, Inc., 525
U.S. 128 (1998), in which the Court addressed the antitrust
implications of allegations that NYNEX’s subsidiary, New
York Telephone Company, a lawful monopoly provider of
local telephone services, charged its customers higher prices
as result of fraudulent conduct in the market for the service of
removing outdated telephone switching equipment (called
“removal services”). Discon had alleged that New York
Telephone (through its corporate affiliate, Materiel
Enterprises) switched its purchases of removal services from
Discon to a higher-priced independent firm (AT&T
Technologies). Materiel Enterprises would pass the higher
fees on to New York Telephone, which in turn passed them on
to customers through higher rates approved by regulators. Id.
at 131-32. The nub of the deception, Discon alleged, was that
AT&T Technologies would provide Materiel Enterprises with
a special rebate at year’s end, which it would then share with
NYNEX. Id. By thus hoodwinking the regulators, the scam
raised prices for consumers; Discon, which refused to play the
rebate game, was driven out of business.1 Discon alleged that
1
The scheme alleged by Discon is a spin on a familiar
problem of cost-based price regulation—its tendency to dilute a
16
this arrangement was anticompetitive and constituted both an
agreement in restraint of trade in violation of § 1 of the
Sherman Act and a conspiracy to monopolize the market for
removal services in violation of § 2. Id. at 132.
As to Discon’s § 1 claim, the Court held that where a
single buyer favors one supplier over another for an improper
reason, the plaintiff must “allege and prove harm, not just to a
single competitor, but to the competitive process.” Id. at 135;
see generally id. at 133-37. Nor, as Justice Breyer wrote for a
unanimous Court, would harm to the consumers in the form of
higher prices change the matter: “We concede Discon’s claim
that the [defendants’] behavior hurt consumers by raising
telephone service rates. But that consumer injury naturally
flowed not so much from a less competitive market for
removal services, as from the exercise of market power that is
lawfully in the hands of a monopolist, namely, New York
Telephone, combined with a deception worked upon the
regulatory agency that prevented the agency from controlling
monopolist’s incentive to seek the best price for inputs. Even
where it cannot channel above-market prices to itself (either by
corporate affiliation or, as here, by rebates and affiliation),
regulation will have been holding the monopolist’s selling prices
below profit-maximizing rates, and it can therefore raise them
without loss of net revenue. Where, as here, the input charges are
being flowed back to the regulated monopolist (or its affiliate),
payment of above-market prices even provides a profit opportunity,
as it more than recovers the artificial hike in input prices (via
increased final prices and flowback of the input prices). See IIIA
Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An
Analysis of Antitrust Principles and Their Application ¶ 787b, at
295-301 (2d ed. 2002); see also Assoc. Gas Dist. v. FERC, 824 F.2d
981, 995 (D.C. Cir. 1987); cf. Nat’l Rural Telecom Ass’n v. FCC,
988 F.2d 174, 178 (D.C. Cir. 1993).
17
New York Telephone’s exercise of its monopoly power.” Id.
at 136.
Because Discon based its § 2 claim on the very same
allegations of fraud, the Court vacated the appellate court’s
decision to uphold that claim because “[u]nless those
agreements harmed the competitive process, they did not
amount to a conspiracy to monopolize.” Id. at 139; see also
Forsyth v. Humana, Inc., 114 F.3d 1467, 1477-78 (9th Cir.
1997) (rejecting a claim that an insurance company’s alleged
kickback scheme caused antitrust injury to group health
insurance customers where the evidence showed the scheme
caused higher copayments and premium payments, but did
“not explain how the scheme reduced competition in the
relevant market”), aff’d on other grounds, 525 U.S. 299
(1999); Schuylkill Energy Res., Inc. v. Penn. Power & Light
Co., 113 F.3d 405, 414 (3d Cir. 1997) (finding conduct did
not violate antitrust laws where absent that conduct consumers
would still receive the same product and the same amount of
competition).
While the Commission’s brief doesn’t mention NYNEX,
much less try to distinguish it, it does cite Broadcom Corp. v.
Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007), which in turn
had cited the Commission’s own “landmark” decision in the
case under review here, id. at 311. There the court held that a
patent holder’s intentionally false promise to a standard-
setting organization that it would license its technology on
RAND terms, “coupled with [the organization’s] reliance on
that promise when including the technology in a standard,”
was anticompetitive conduct, on the ground that it increased
“the likelihood that patent rights will confer monopoly power
on the patent holder.” Id. at 314; accord id. at 315-16. To the
extent that the ruling (which simply reversed a grant of
dismissal) rested on the argument that deceit lured the SSO
away from non-proprietary technology, see id., it cannot help
18
the Commission in view of its inability to find that Rambus’s
behavior caused JEDEC’s choice; to the extent that it may
have rested on a supposition that there is a cognizable
violation of the Sherman Act when a lawful monopolist’s
deceit has the effect of raising prices (without an effect on
competitive structure), it conflicts with NYNEX.
Here, the Commission expressly left open the likelihood
that JEDEC would have standardized Rambus’s technologies
even if Rambus had disclosed its intellectual property. Under
this hypothesis, JEDEC lost only an opportunity to secure a
RAND commitment from Rambus. But loss of such a
commitment is not a harm to competition from alternative
technologies in the relevant markets. See 2 Hovenkamp et al.,
IP & Antitrust § 35.5 at 35-45 (Supp. 2008) [hereinafter “IP &
Antitrust”] (“[A]n antitrust plaintiff must establish that the
standard-setting organization would not have adopted the
standard in question but for the misrepresentation or
omission.”). Indeed, had JEDEC limited Rambus to
reasonable royalties and required it to provide licenses on a
nondiscriminatory basis, we would expect less competition
from alternative technologies, not more; high prices and
constrained output tend to attract competitors, not to repel
them.
Scholars in the field have urged that if nondisclosure to
an SSO enables a participant to obtain higher royalties than
would otherwise have been attainable, the “overcharge can
properly constitute competitive harm attributable to the
nondisclosure,” as the overcharge “will distort competition in
the downstream market.” 2 IP & Antitrust § 35.5 at 35-47.
The contention that price-raising deception has downstream
effects is surely correct, but that consequence was equally
surely true in NYNEX (though perhaps on a smaller scale) and
equally obvious to the Court. The Commission makes the
related contention that because the ability to profitably restrict
19
output and set supracompetitive prices is the sine qua non of
monopoly power, any conduct that permits a monopolist to
avoid constraints on the exercise of that power must be
anticompetitive. But again, as in NYNEX, an otherwise lawful
monopolist’s end-run around price constraints, even when
deceptive or fraudulent, does not alone present a harm to
competition in the monopolized market.
Thus, if JEDEC, in the world that would have existed but
for Rambus’s deception, would have standardized the very
same technologies, Rambus’s alleged deception cannot be
said to have had an effect on competition in violation of the
antitrust laws; JEDEC’s loss of an opportunity to seek
favorable licensing terms is not as such an antitrust harm. Yet
the Commission did not reject this as being a possible—
perhaps even the more probable—effect of Rambus’s conduct.
We hold, therefore, that the Commission failed to demonstrate
that Rambus’s conduct was exclusionary, and thus to establish
its claim that Rambus unlawfully monopolized the relevant
markets.
* * *
Our conclusion that the Commission failed to
demonstrate that Rambus inflicted any harm on competition
requires vacatur of the Commission’s orders. But the original
complaint also included a count charging Rambus with other
unfair methods of competition in violation of § 5(a) of the
FTC Act, 15 U.S.C. § 45(a). See Compl. at 32 ¶ 124. While
the Commission dropped this aspect of its case and focused on
a theory of liability premised on unlawful monopolization, see
Liability Op. at 27 n.124, at least one Commissioner
suggested that a “stand-alone” § 5 action would have had a
“broader province” than a Sherman Act case. See Concurring
Opinion of Commissioner Jon Leibowitz at 18, 21, Docket
No. 9302 (Jul. 31, 2006). Because of the chance of further
20
proceedings on remand, we express briefly our serious
concerns about strength of the evidence relied on to support
some of the Commission’s crucial findings regarding the
scope of JEDEC’s patent disclosure policies and Rambus’s
alleged violation of those policies.
In noting our concerns, we recognize, of course, that the
Commission’s findings are conclusive so long as they are
supported by substantial evidence. See 15 U.S.C. § 45(c); see
also Polygram Holding, 416 F.3d at 33. The Commission’s
findings are murky on both the relevant margins: what
JEDEC’s disclosure policies were, and what, within those
mandates, Rambus failed to disclose.
First, the Commission evidently could find that Rambus
violated JEDEC’s disclosure policies only by relying quite
significantly on participants’ having been obliged to disclose
their work in progress on potential amendments to pending
applications, as that work became pertinent. The
Commission’s counsel confirmed as much at oral argument.
Transcript of Oral Argument at 37-38. Indeed, the parties
stipulated that as of Rambus’s last JEDEC meeting it held no
patents that were essential to the manufacture or use of
devices complying with any JEDEC standard, and that when
JEDEC issued the SDRAM standard Rambus had no pending
patent claims that would necessarily have been infringed by a
device compliant with that standard. Parties’ First Set of
Stipulations ¶¶ 9-10.
The case appears (and we emphasize appears, as the
Commission’s opinion leaves us uncertain of its real view) to
turn on the idea that JEDEC participants were obliged to
disclose not merely relevant patents and patent applications,
but also their work in progress on amendments to pending
applications that included new patent claims. We do not see
in the record any formal finding that the policies were so
21
broad, but the Commission’s opinion points to testimony of
witnesses that might be the basis of such a finding. Five
former JC 42.3 participants testified (in some cases
ambiguously) that they understood JEDEC’s written policies,
requiring the disclosure of pending applications, to also
include a duty to disclose work in progress on unfiled
amendments to those applications, and JEDEC’s general
counsel testified that he believed a firm was required to
disclose plans to amend if supported by the firm’s current
interpretation of an extant application. See Liability Op. at 56
& nn.303-05. JEDEC participants did not have unanimous
recollections on this point, however, and the Commission
noted that another JC 42.3 member testified that there was no
duty to disclose work on future filings. Id. at 56 n.305.
Reading these statements as interpretations of JEDEC’s
written policies seems to significantly stretch the policies’
language. The most disclosure-friendly of those policies is
JEDEC Manual No. 21-I, published in October 1993, which
refers to “the obligation of all participants to inform the
meeting of any knowledge they may have of any patents, or
pending patents, that might be involved in the work they are
undertaking.” CX 208 at 19; see also id. at 19 n.** (“For the
purpose of this policy, the word ‘patented’ also includes items
and processes for which a patent has been applied and may be
pending.”), 27 (referring to “technical information covered
by [a] patent or pending patent”).2 This language speaks
2
Rambus notes that Manual 21-I was only adopted after
JEDEC approved the SDRAM standard; the Manual came in
October 1993 after JC 42.3 approved the SDRAM standard in
March 1993 and JEDEC’s governing body adopted it that May. But
we will assume arguendo that the Commission could reasonably
find that this new policy language merely formalized a preexisting
understanding.
22
fairly clearly of disclosure obligations related to patents and
pending patent applications, but says nothing of unfiled work
in progress on potential amendments to patent applications.
We don’t see how a few strands of trial testimony would
persuade the Commission to read this language more broadly,
especially as at least two of the five participants cited merely
stated that disclosure obligations reached anything in the
patent “process”—which leaves open the question of when
that “process” can be said to begin. See Joint Appendix 1908-
09 (testimony of Desi Rhoden); id. at 2038 (testimony of Brett
Williams).
Alternatively, to the extent the Commission reads this
testimony not to broaden the interpretation of Manual 21-I,
but rather to provide evidence of disclosure expectations that
extended beyond those incorporated into written policies, a
different problem may arise. As the Federal Circuit has said,
JEDEC’s patent disclosure policies suffered from “a
staggering lack of defining details.” Rambus Inc. v. Infineon
Technologies AG, 318 F.3d 1081, 1102 (Fed. Cir. 2003); see
also Liability Op. at 52 (stating that the record shows that
JEDEC’s patent policies “are not a model of clarity”). Even
assuming that any evidence of unwritten disclosure
expectations would survive a possible narrowing effect based
upon the written directive of Manual 21-I, the vagueness of
any such expectations would nonetheless remain an obstacle.
One would expect that disclosure expectations ostensibly
requiring competitors to share information that they would
otherwise vigorously protect as trade secrets would provide
“clear guidance” and “define clearly what, when, how, and to
whom the members must disclose.” Infineon, 318 F.3d at
1102. This need for clarity seems especially acute where
disclosure of those trade secrets itself implicates antitrust
concerns; JEDEC involved, after all, collaboration by
competitors. Cf. Allied Tube & Conduit Corp. v. Indian
Head, Inc., 486 U.S. 492, 500 (1988) (stating that because
23
SSO members have incentives to restrain competition, such
organizations “have traditionally been objects of antitrust
scrutiny”); Am Soc’y of Mech. Eng’rs v. Hydrolevel Corp.,
456 U.S. 556, 571 (1982) (noting that SSOs are “rife with
opportunities for anticompetitive activity”). In any event, the
more vague and muddled a particular expectation of
disclosure, the more difficult it should be for the Commission
to ascribe competitive harm to its breach. See 2 IP &
Antitrust § 35.5 at 35-51 (“[A]lthough antitrust can serve as a
useful check on abuses of the standard-setting process, it
cannot substitute for a general enforcement regime for
disclosure rules.”).
The Commission’s conclusion that Rambus engaged in
deceptive conduct affecting the inclusion of on-chip PLL/DLL
and dual-edge clocking in the DDR SDRAM standard, which
JEDEC adopted more than two years after Rambus’s last JC
42.3 meeting, presents an additional, independent concern.
To support this conclusion, the Commission looked to a
technical presentation made to JC 42.3 in September 1994,
and the survey balloting of that committee in October 1995 on
whether to proceed with the consideration of particular
features (including the two Rambus technologies ultimately
adopted), finding that Rambus deliberately failed to disclose
patent interests in any of the named technologies. Liability
Op. 42-44. This finding is evidently the basis, so far as DDR
SDRAM is concerned, of its conclusion that Rambus breached
a duty to disclose. Id. at 66-68.
Once again, the Commission has taken an aggressive
interpretation of rather weak evidence. For example, the
October 1995 survey ballot gauged participant interest in a
range of technologies and did not ask those surveyed about
their intellectual property (as did the more formal ballots on
proposed standards). See CX 260. The Commission
nonetheless believes that every member of JC 42.3—
24
membership that included most of the DRAM industry—was
duty-bound to disclose any potential patents they were
working on that related to any of the questions posed by the
survey. The record shows, however, that the only company
that made a disclosure at the next meeting was the one that
formally presented the survey results. See Liability Op. at 44-
45; ALJ Op. at 58 ¶ 401 (citing Joint Exhibit 28, at 6). For
reasons similar to those that make vague but broad disclosure
obligations among competitors unlikely, it seems to us
unlikely that JEDEC participants placed themselves under
such a sweeping and early duty to disclose, triggered by the
mere chance that a technology might someday (in this case,
more than two years later) be formally proposed for
standardization.
* * *
We set aside the Commission’s orders and remand for
further proceedings consistent with this opinion.
So ordered.