Rambus

Impact of the Decision

While the Rambus decision provides some momentary comfort for patent holders involved in standard setting, substantial uncertainty regarding the applicable legal rules remains. Parties engaged in standard setting efforts on a going forward basis should therefore consider the following:

The Rambus Clarification May Be Short-Lived

The D.C. Circuit's opinion is unlikely to be the final word, even in this case. The potential next steps, in order of likelihood, include:

Rehearing By the Full D.C. Circuit. The current panel's decision is based on an extremely thin reed. The FTC will likely ask the full court to consider its argument that the distinction between an SSO's evaluation of competing technologies and related royalty negotiations is logically unsound, as the royalty to be charged is often a key factor in deciding which technology will ultimately be incorporated into a standard.

Appeal to the Supreme Court. The current panel's decision, which holds that there is no competitive problem with delaying royalty negotiations until after lock-in through adoption of a standard, appears to be in conflict with the Third Circuit's decision in Broadcom. The Supreme Court may be called upon to resolve the discrepancy.

Remand to the FTC. Even if the D.C. Circuit's opinion marks the end of the road for the FTC's Sherman Act claims against Rambus, the Commission may argue that the same conduct constitutes a stand-alone violation of Section 5 of the FTC Act. Although the FTC has historically hesitated to argue that its antitrust authority under Section 5 extends beyond the Sherman Act, it recently did so in Negotiated Data Solutions, LLC, File No. 051-094 (Jan. 23, 2008) ' another case involving deceit that allegedly affected patent royalty negotiations, which was resolved by consent order.

IP Disclosure Policies Remain Critical

Patent holders should carefully evaluate an SSO's intellectual property disclosure policy before participating in a standard setting proceeding. The Rambus decision, which suggests that ambiguities will be construed against the SSO rather than the participating IP holders, provides some reassurance, but falls far short of eliminating the business and legal risk associated with knowing non-disclosures.

SSOs Are the First Line of Defense

Of all the parties involved in standard setting, SSOs are perhaps the best positioned to avoid burdensome and distracting legal complications, by drafting clear IP disclosure rules upfront. These rules should address, among other things, the precise type of IP that must be disclosed (e.g., issued patents only or “patent interests”?) and exactly when it must be disclosed (e.g., finite disclosure period or continuing obligation?).

Judicial Skepticism Is Growing

Although the D.C. Circuit honored the “substantial evidence” standard of review, and scrupulously deferred to the FTC's findings of fact, it seemed to do so through gritted teeth (noting, for example, that the Commission not only disregarded the ALJ's findings of fact, but actually re-opened the record to take additional evidence). This constitutes at least a second black eye for the FTC's administrative litigation process, following the Eleventh Circuit's opinion in Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005). Courts appear to be increasingly sympathetic to defendants' due process concerns with this mechanism, pursuant to which the same five FTC Commissioners who must initially approve the filing of a complaint later sit as a reviewing body to determine whether the FTC litigation staff has proven its case.

John T. Delacourt and Christopher M. Loeffler are attorneys in the Washington, DC office of Kelley Drye & Warren LLP. Delacourt previously served as Chief Antitrust Counsel in the Federal Trade Commission's Office of Policy Planning.

Impact of the Decision

While the Rambus decision provides some momentary comfort for patent holders involved in standard setting, substantial uncertainty regarding the applicable legal rules remains. Parties engaged in standard setting efforts on a going forward basis should therefore consider the following:

The Rambus Clarification May Be Short-Lived

The D.C. Circuit's opinion is unlikely to be the final word, even in this case. The potential next steps, in order of likelihood, include:

Rehearing By the Full D.C. Circuit. The current panel's decision is based on an extremely thin reed. The FTC will likely ask the full court to consider its argument that the distinction between an SSO's evaluation of competing technologies and related royalty negotiations is logically unsound, as the royalty to be charged is often a key factor in deciding which technology will ultimately be incorporated into a standard.

Appeal to the Supreme Court. The current panel's decision, which holds that there is no competitive problem with delaying royalty negotiations until after lock-in through adoption of a standard, appears to be in conflict with the Third Circuit's decision in Broadcom. The Supreme Court may be called upon to resolve the discrepancy.

Remand to the FTC. Even if the D.C. Circuit's opinion marks the end of the road for the FTC's Sherman Act claims against Rambus, the Commission may argue that the same conduct constitutes a stand-alone violation of Section 5 of the FTC Act. Although the FTC has historically hesitated to argue that its antitrust authority under Section 5 extends beyond the Sherman Act, it recently did so in Negotiated Data Solutions, LLC, File No. 051-094 (Jan. 23, 2008) ' another case involving deceit that allegedly affected patent royalty negotiations, which was resolved by consent order.

IP Disclosure Policies Remain Critical

Patent holders should carefully evaluate an SSO's intellectual property disclosure policy before participating in a standard setting proceeding. The Rambus decision, which suggests that ambiguities will be construed against the SSO rather than the participating IP holders, provides some reassurance, but falls far short of eliminating the business and legal risk associated with knowing non-disclosures.

SSOs Are the First Line of Defense

Of all the parties involved in standard setting, SSOs are perhaps the best positioned to avoid burdensome and distracting legal complications, by drafting clear IP disclosure rules upfront. These rules should address, among other things, the precise type of IP that must be disclosed (e.g., issued patents only or “patent interests”?) and exactly when it must be disclosed (e.g., finite disclosure period or continuing obligation?).

Judicial Skepticism Is Growing

Although the D.C. Circuit honored the “substantial evidence” standard of review, and scrupulously deferred to the FTC's findings of fact, it seemed to do so through gritted teeth (noting, for example, that the Commission not only disregarded the ALJ's findings of fact, but actually re-opened the record to take additional evidence). This constitutes at least a second black eye for the FTC's administrative litigation process, following the Eleventh Circuit's opinion in Schering-Plough Corp. v. FTC , 402 F.3d 1056 (11th Cir. 2005). Courts appear to be increasingly sympathetic to defendants' due process concerns with this mechanism, pursuant to which the same five FTC Commissioners who must initially approve the filing of a complaint later sit as a reviewing body to determine whether the FTC litigation staff has proven its case.

John T. Delacourt and Christopher M. Loeffler are attorneys in the Washington, DC office of Kelley Drye & Warren LLP. Delacourt previously served as Chief Antitrust Counsel in the Federal Trade Commission's Office of Policy Planning.