Standards, Intellectual Property Disclosure, and Patent Royalties After Rambus

June 16, 2012

The U.S. Federal Trade Commission found that Rambus, a developer of computer memory technologies, failed to disclose information about its intellectual property holdings to other participants in the Joint Electron Device Engineering Council (JEDEC), a private standard-setting organization, during the period in which JEDEC was developing Dynamic Random Access Memory (DRAM) standards. According to the Commission, this failure prevented JEDEC from considering the patent royalties that Rambus would charge in determining whether to incorporate its technology into the standard. The Commission also found that Rambus, once its technology had been selected and users were “locked-in” to that standard, exploited its market power by demanding high license fees. The Commission concluded that lock-in might have been prevented if all technology sponsors, including Rambus, had disclosed their intellectual property holdings and negotiated license fees before the adoption of the standard. In the wake of the FTC’s decision, the U.S. Department of Justice (DOJ) issued Business Review Letters in which it attempted to clarify the manner in which standard-setting organizations (SSOs) could take patent license fees into account in setting standards without incurring antitrust liability. Subsequently, however, the Court of Appeals for the D.C. Circuit struck down the FTC’s decision on the grounds that JEDEC’s disclosure rules were unclear, and that the FTC had failed to show that JEDEC would not have included the Rambus technology in its standard even if Rambus had disclosed its patent holdings. The U.S. Supreme Court recently denied the FTC’s petition for review of the D.C. Circuit’s decision. This article examines the logic of both the FTC’s and the D.C. Circuit’s decisions. It also explains why collective negotiations may be necessary to exploit fully ex ante competition among technology sponsors, explores the complications posed for collective negotiations by heterogeneity among technology users, and analyzes the effects of collective negotiations on the incentives of sponsors to develop technologies for inclusion in future standards. Finally, it examines the implications of the decision by the D.C. Circuit for the future behavior of participants in SSOs and for patent royalties for technologies that are included in standards.