EU Charges Rambus with Abuse of Dominance for Patent Ambush
August 28, 2007
Companies may have opportunity to seek damages in an EU national court.The European Commission has confirmed that it sent a Statement of Objections (SO) to Rambus on 30 July 2007, in which it alleges that Rambus concealed key patents and patent applications for Dynamic Random Access Memory (DRAM) chips from Joint Electron Device Engineering Council (JEDEC)—a private standard-setting organisation in the computer chip industry—and enforced those intellectual property rights after they were incorporated into JEDEC’s standards. The action marks the first time the Commission has accused a company of breaching European Union competition law for a patent ambush.
According to its press release, the Commission has made a number of key preliminary conclusions. These are as follows:
- Rambus engaged in a patent ambush—i.e., it did not disclose during the standard-setting process the existence of patents or pending patent applications which were relevant to the adopted standard.
- Rambus has breached the EU’s rules on abuse of a dominant market position (Article 82 EC Treaty) by subsequently claiming unreasonable royalties for the use of those patents.
- Without its patent ambush, Rambus would not have been able to charge the royalty rates it currently does.
- The appropriate remedy to such an abuse would be for Rambus to charge a reasonable and non-discriminatory royalty rate.
The Commission’s investigation is largely a mirror image of the case against Rambus by the US Federal Trade Commission (FTC). In February 2007, the FTC issued a final order whereby it found that Rambus had engaged in illegal monopolisation. (Rambus’ appeal is currently before the US Court of Appeals for the District of Columbia Court.) The FTC order imposes maximum royalty rates that are less than Rambus’ current rates in relation to its US patents and its foreign patents relating to goods imported into or from the United States for three years. (Afterward, Rambus must not collect royalties on those patents.) The Commission has had to act because the US decision would not grant relief to companies active in Europe.
Sending an SO is the first formal step in Commission antitrust investigations in which the Commission informs Rambus in writing of the objections raised against it. Rambus will have nine weeks to reply to the SO, after which it will have the right to be heard. If the preliminary views expressed in the SO are confirmed, the Commission may require Rambus to license on Reasonable and Non-Discriminatory (RAND) terms and may impose a fine of up to 10 per cent of its global turnover for each year it infringed.
Implications
Companies active in the EU who have found themselves forced to pay exorbitant prices for use of Rambus’ European patents may be provided with the opportunity to seek damages by bringing an action for damages in an EU national court (and, in some countries, a specialist competition tribunal) relying on the Commission’s decision, assuming the Commission ultimately rules against Rambus. A Commission decision finding infringement would constitute prima facie proof of competition law violation. Accordingly, a complainant’s case would be focused largely on proving causation and damages/loss. Certainly, the EU is seeing increased private enforcement in recent years. This is particularly true of the United Kingdom, where follow-on actions are increasingly frequent in the Competition Appeal Tribunal as well as in the English courts. Recent examples include Burgess v Austin and others (UK funeral homes cartel), The Consumers Association v JJB Sports (UK football shirts price fixing) and Provimi v Aventis (EU-wide vitamins cartel).
More broadly, this action is a reminder to standards setting bodies to exercise precision in defining what they expect participants to disclose, and when. This case should be considered an invitation to those bodies to review their patent policies, noting the deficiencies in policy that created failure in Rambus, and to consider whether their particular policies meet their needs and objectives.
Companies involved in such standards setting bodies should take away the following lessons. First, when forming a standards setting body, companies should make sure that the rules regarding patent disclosures and other issues are clear. It is important that the rules not only clearly establish whether disclosure of intellectual property is mandatory, but also clearly articulate rules relating to other critical issues, such as whether the disclosure obligations apply to non-essential patents. Second, if an employee is to participate in standards setting, the company must look to the written patent policy of the standards setting body for guidance on its duty to disclose its patent position, and make sure it conducts itself accordingly. Third, if existing rules are unclear, or if companies are not comfortable with the level of duty of disclosure imposed by the body, companies should be careful about permitting their employees to participate in standard-setting activities.
