Rambus may forfeit royalties after deceiving committee, FTC rules
SAN FRANCISCO – Rambus Inc. may not be able to collect royalties on some patents because of a Federal Trade Commission ruling that the company deceived a standards-setting committee and created a monopoly in the memory chip industry. Rambus stock tumbled more than 20 percent in trading Wednesday.The ruling, which was signed Monday and released Wednesday, reverses a decision from 2004, when an FTC administrative law judge ruled that Rambus was not liable in the matter. Rambus senior legal adviser John Danforth said the Los Altos, Calif.-based company plans to appeal.The case hinges on whether Rambus illegally obtained a monopoly in the 1990s by securing patents for some of the technology that computers use to store data in active memory.Federal prosecutors say Rambus concealed information about patents it had already secured or knew it would be able to secure. Meanwhile, an important engineering council – which counted Rambus as a member – was trying to develop a set of technical standards that all companies in the computer memory industry should use.In the unanimous opinion, Commissioner Pamela Jones Harbour wrote that Rambus deliberately withheld information from the Joint Electron Device Engineering Council (JEDEC) and fostered a belief that the company didn’t have and wouldn’t seek patents that could be enforced against JEDEC-compliant products. The council then adopted industry-wide standards that essentially forced other companies to either infringe on Rambus’ patents or buy expensive licenses to use Rambus’ technology.The company’s scheme constituted a gross violation of the Sherman Act and an anticompetitive “hold up” of the computer memory industry, according to the FTC.”Rambus’s abuse of JEDECs standard-setting process was intentional, inappropriate, and injurious to competition and consumers alike,” wrote Commissioner Jon Leibowitz in a separate, concurring ruling to Harbour’s decision.Rambus has argued for several years that it disclosed the patents to rivals Micron Technology Inc. and Hitachi Ltd. before the standards-setting discussions begun.Rambus attorneys have also argued that the reason JEDEC used Rambus’ technology was because it was the best in the industry – not because executives wanted to hoodwink the council into adopting it. They also said JEDEC’s nebulous disclosure policies failed to specify precisely what it should have revealed to the standards committee.The 119-page ruling reserves the right to impose remedies to be determined by a judge.The company and the FTC, which investigates allegations of unfair competition or business practices, must file briefs on the newest ruling by Sept. 15. Replies are due Sept. 29.”This looks like a major setback,” said analyst Daniel Amir of investment bank WR Hambrecht.It’s unclear exactly how much money Rambus has made from licenses on patents secured during the company’s membership in JEDEC, which ended in 1996. The FTC could rule that Rambus must forego profits on pre-1996 licenses and a limited amount of technology developed afterward.The FTC does not have the authority to impose financial damages, but it can require companies to pay back profits that the agency determines were ill-gotten. The FTC ruling did not specify whether it would impose such penalties, known in the legal profession as “disgorgement.”A decision on remedies would come after the Sept. 29 deadline. Although disgorgement fines are considered unlikely, the agency could prevent Rambus from collecting more royalties on technology involved in the JEDEC dispute, said M. Sean Royall, who was the deputy director for the FTC’s Bureau of Competition and the lead lawyer in the case against Rambus in 2002 and 2003.”I’d think the company would consider that remedy unduly harsh,” said Royall, now co-chair of the antitrust practice of the Washington law firm Gibson, Dunn & Crutcher LLP. “It’s a technology company, and they live and die on royalties.”Rambus would not comment on the scope of the potential remedy.Rambus is fighting legal battles on several fronts. Last week, the company said it would accept $134 million in damages from Hynix Semiconductor Inc., less than half of the $307 million a jury had ordered Hynix to pay for 10 patent infringements. Rambus is also suing the Korean chip maker for alleged patent infringements on products shipped this year. The next hearing in the Hynix lawsuit is scheduled for Aug. 21.Rambus also is one of several dozen companies embroiled in a federal investigation of stock options. A company audit committee concluded that Rambus executives awarded some options on dates that differed from the moments those benefits were recorded in accounting books. The practice, known as backdating, attempts to boost an option’s value by retroactively pinning its exercise price to a day when the stock price was lower.News of the ruling sent Rambus stock sliding $4.14 per share to $12.84, a loss of 24.4 percent, in afternoon trading on the Nasdaq Stock Market.—On the Net:http://www.rambus.com
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