The Antitrust Risks of Unilateral Conduct in Standard Setting, in the Light of the Ftc S Case against Rambus Inc.

• Author: Michael C. Naughton,Richard Wolfram
• Published date: 01 September 2004
• Date: 01 September 2004
• DOI: http://doi.org/10.1177/0003603X0404900307
• Subject Matter: Article

The Antitrust Bulletill/Fall 2004

The antitrust risks

of

unilateral

conduct in standard setting,

in the light

of

the FTC s case

against Rambus Inc.

BY MICHAEL C. NAUGHTON* and RICHARD WOLFRAM**

I.

Introduction

699

Standard setting is an unheralded but vitally important engine in

today's high-tech economy.IThe most common vehicle for standard

setting is private standard-setting organizations

(5S0s),

which the

Supreme Court has characterized as wielding "great power in the

Nation's economy.'? SSOs provide astructure and procedure for

firms, which in other respects may compete among themselves, to

collaborate in the selection

of

standards. The process is often an

* Partner in the New York office

of

Clifford Chance US LLP.

** Independent antitrust practitioner based in New York.

AUTHORS'

NOTE: We thank Maurice N. Ross

for

his contributions to this

article, and James C. Egan, Jr., Victor Siber

and

a referee

for

their com-

ments and suggestions.

Everyone is familiar with common examples

of

standards, from

the most

basic-say,

the two-prong

plug-to

the more sophisticated. such

as VHS (for video recorders) and GSM (for cell telephones).

Am.

Soc'y

of

Mech.

Eng'rs,

Inc. v. Hydrolevel Corp., 456 U.S.

556, 570 (1982).

© 2004 by Federal Legal Publications. Inc.

700

The antitrust bulletin

efficient method for selecting common technological platforms (i.e.,

the standards) for further proprietary innovation.

The standard-setting process has become the latest crucible for the

sometimes contradictory principles of intellectual property (IP) and

antitrust law.

Even

as firms participate in collaborative standard

setting in order to forge common standards, they often seek at the

same time to maintain control over their own proprietary rights and to

continue to innovate and seek intellectual property protection for their

innovations. The selection of standards through collaboration, of

course, requires some degree of sharing

of

information. Because

participants in SSOs typically have portfolios

of

pending

and/or

issued patents, protection of these rights often creates an incentive for

SSO participants to limit disclosure. At the same time, there is an

antitrust risk that participants in an SSO may unilaterally subvert or

manipulate

an

otherwise

objective

standard-setting

process

by

withholding information pertaining to relevant intellectual property

where the

SSO

requires-as

often is the

case-that

participants

disclose any intellectual property they have that may relate to a

standard proposed by the organization.'

The recent case by the Federal Trade Commission (FTC) against

semiconductor

designer

Rambus

Inc.

iRambusv'

for

allegedly

subverting a private standard-setting process by means of an alleged

anticompetitive patent holdup highlights a number of difficult issues

that

firms

may

face

when

they

choose

to

participate

in

SSOs.

Although the facts and circumstances of the case are unique, as we

will discuss, it is no less instructive on a number of broad questions

for

firms

weighing

the

possible

antitrust

implications

of

their

participation, and the terms of their participation, in SSOs.

Similarly, antitrust issues arise over the sharing of competitive

information, as well as the potential for exclusionary conduct by the SSO

with regard to nonmembers of the SSO. Although these issues of

concerted conduct are important, the focus of this article is on the

antitrust risks of unilateral nondisclosure.

4In re Rambus Inc., Dkt. No. 9302, Initial Decision (FTC Office of

Administrative

Law

Judges,

Feb. 17, 2004) (S. McGuire,

Chief

Administrative Law Judge) [hereinafter Rambus Initial Decision].

Standard setting :70 I

This

article

explores

the

current

state

of

tension

between

intellectual property rights and antitrust in the SSO context, in light

of

Rambus in particular, and offers suggestions for avoiding attendant

antitrust risks. We begin with background on the tension between

standard setting and antitrust (section II), and then tum to a discussion

of

past and present FTC

enforcement

issues

in

standard

setting

(section III). We then discuss Rambus in more detail (section IV).

Next, we examine the issues of causation and the required standard of

proof to establish competitive harm in antitrust actions aimed at patent

holdups in standard setting, focusing on a key issue in dispute in

Rambus-s-tue extent to which causation can be inferred or assumed

from the anticompetitive conduct (section V). Drawing from and

contrasting elements

of

Rambus, we outline typical SSO rules on

search, disclosure and licensing (section VI). We then assess some of

the choices and potential antitrust pitfalls facing SSO participants

when they have intellectual property related to a proposed standard

and offer some guidance on dealing with these choices and pitfalls

(section VII). Finally, with an eye to these same choices and pitfalls,

we

discuss

some

issues

that

SSOs

themselves

should

take

into

consideration (section VIII).

II. Background on standard setting and antitrust

From

an

antitrust

perspective,

the

typical

standard-setting

situation

is

benign:

owners

of

intellectual

property

rights

who

participate in standard setting seek to influence their SSO to select a

standard-on

the

merits-that

incorporates (i.e., reads on) their rights,

without concealing those rights and in compliance with the SSO's

rules.s It may also happen that the SSO selects proprietary standards

that

inadvertently

incorporate

a

member's

intellectual

property,

because the representative

of

the

SSO

member

is not thoroughly

familiar with the contents

of

his firm's (often large) patent portfolio.

Further down the scale

of

acceptable conduct, an SSO member may

make

a

deliberate

effort

to

influence

the

standard

setting

to

incorporate

its

intellectual

property,

while

at

the

same

time

it

SThey are motivated, in part, by the fact that the incorporation of

their intellectual property into a standard may give them market power.