VoluntaryTrade.org

On June 12, 2008, S.M. Oliva, president of the Voluntary Trade Council, filed his second amicus brief with the U.S. Court of Appeals for the District of Columbia Circuit in Rambus Incorporated v. Federal Trade Commission. This brief addresses the FTC's Petition for Rehearing En Banc, which seeks to vacate the April 22, 2008, decision by a three-judge panel of the Court in favor of Rambus. Below is the text of Oliva's brief (with citations and footnotes omitted.)

Brief of S.M. Oliva as Amicus Curiae in Opposition to the Petition of the Federal Trade Commission for Rehearing En Banc:

The panel decision correctly rejected the Federal Trade Commission’s novel theory of antitrust liability. “Deception” by a lawful patent-holder in the context of a standard-setting organization (SSO) does not authorize the FTC to impose ex post price controls over the licensing of such patents. To hold otherwise undermines the constitutional framework providing for patents and the resolution of cases or controversies within the Article III courts. While the antitrust community and its corporate benefactors – such as the memory manufacturers that initiated the FTC’s prosecution of Rambus – might benefit from such an extra-constitutional scheme, other market participants will be irreparably harmed.

At the outset, it cannot be emphasized enough that Rambus did not deceive JEDEC. The panel opinion never reached the question of whether the FTC’s “deceptive conduct” findings were supported by substantial evidence. But several independent tribunals have already concluded that no such conduct occurred, including the Federal Circuit in the Infineon litigation , the Northern District of California in the Hynix litigation  and Chief Administrative Law Judge McGuire’s initial decision earlier in this proceeding.

Even assuming that there was “deceptive conduct,” however, it does not abrogate Rambus’ patent rights. The FTC has never, in six years of litigation, alleged that Rambus’ patents were fraudulent or unlawful. The Commission’s entire case rests on the premise – unsupported by any controlling authority – that mere attendance at a standard-setting organization’s meetings creates an obligation under Section 2 of the Sherman Act, 15 U.S.C. § 2, to disclose all potential inventions that a participant might be developing.  Neither this Court’s en banc opinion in United States v. Microsoft Corp. nor the Supreme Court’s decision in NYNEX Corp. v. Discon, Inc., require such disclosure. To the contrary, the FTC’s interpretation of Section 2 would violate Section 1 of the Sherman Act, 15 U.S.C. § 1, by requiring patent-holders to collude with potential competitors over standardization of technologies.

The FTC is not protecting the competitive process, but rather forcing the market to reach particular outcomes, namely the avoidance of patented technologies by SSOs or, alternatively, licensing of patents on terms that the Commission deems “reasonable.” The “but for” analysis that the Commission relies upon for its remedy is nothing more than an attempt to re-write market outcomes to satisfy the personal preferences of the commissioners. This far exceeds the constitutionally permissible scope of Commission conduct.

Patents, unlike antitrust regulations, are expressly contemplated and authorized by the Constitution. Article I, Section 8 grants Congress the power “[t]o promote the Progress of Science and Useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” Conversely, there is no constitutional protection for standard-setting organizations that seek to market the inventions of others without the inventor’s consent. Yet this is precisely the position advanced by the FTC.

The FTC ultimately wants to eliminate Rambus’ business model – an “upstream” firm that exclusively develops and licenses inventions to vertically integrated firms and “downstream” manufacturers – from the marketplace. With Rambus gone, the vertically integrated and downstream firms that dominate JEDEC can more easily collude on product design and repackage the inventions of others as “open” standards. The FTC would frankly prefer the market to be dominated by such cartels because they are easier to regulate – and easier to extract rents from in the form of increased demand for antitrust services.

It was JEDEC and the memory manufacturers, not Rambus, who controlled the standard-setting process and determined its outcomes. And it was JEDEC and the memory manufacturers, not Rambus, who lobbied the FTC to charge Rambus with antitrust violations while simultaneously committing criminal violations of Section 1 of the Sherman Act. The FTC continued to prosecute Rambus – relying primarily on the testimony of confessed antitrust criminals – despite the company’s vindication before multiple independent triers of fact, particularly Chief ALJ McGuire. By continuing to pursue Rambus even after the panel’s decision, the FTC exposes itself not as an agent of the public interest, but as an un-indicted co-conspirator of the JEDEC/manufacturer cartel.

Given the deluge of prominent amici supporting the FTC, the Court might be tempted to reconsider the panel’s decision as a case of “exceptional importance.” But the Court must also consider those individuals whose voices would be silenced by a rehearing and ultimate decision in the FTC’s favor: The independent inventors like Rambus founders Michael Farmwald and Mark Horowitz, men who lacked the political capital to seek and receive special protection from the antitrust community, but who nonetheless provided the intellectual capital necessary to drive innovation.

The patent system already makes life difficult for small firms and independent inventors. Dropping a new antitrust regime on top of the patent system will crush what few innovators remain. The FTC’s conduct in this case has already sent the unmistakable message that firms should divert capital away from research and development and towards antitrust lobbying and litigation. The public at-large faces an even worse fate: The FTC can ignore the independent, impartial findings of Article III courts and impose its own brand of “vigilante justice” under the pretext of Section 2 enforcement.

SSOs and open standards have managed to survive without the novel theory of Section 2 liability proposed by the FTC in this case.  The panel decision properly refused to expand the FTC’s jurisdiction to address matters that the Constitution delegated to Congress and the Article III courts. The petition for rehearing en banc should be denied.

* * * 

You can download the original PDF of Oliva's amicus brief at this link. If you enjoyed this article, please consider making a contribution to the Voluntary Trade Council.