FTC: Rambus Misled Panel on Standards
Rambus Inc., which designs and licenses memory chip technology, may have its ability to collect royalties limited by a federal ruling Wednesday that concluded it deceptively and illegally monopolized the market.
The Federal Trade Commission said that Rambus deceived a standards-setting committee by not disclosing patents and patent applications and that it “unlawfully monopolized the markets for four computer memory technologies that have been incorporated into industry standards.”
Los Altos, Calif.-based Rambus gets most of its revenue from royalties, which came to $41.7 million, or 88% of total revenue, in the first quarter, the latest period for which such figures are available. A stock options probe has delayed the company’s filing of its full second-quarter results.
Rambus allegedly concealed its patents regarding four types of technologies for computer memory known as DRAM, or dynamic random access memory, which is commonly used in personal computers and in memory cards for digital cameras and cellphones. Rambus’ patents governed the ways devices communicate with DRAM memory.
The FTC found that “through a course of deceptive conduct, Rambus was able to distort a critical standard-setting process and engage in an anti-competitive ‘hold up’ of the computer memory industry.”
Rambus shares plunged $4.33, or 25.5%, to $12.65. The stock fell an additional 9 cents after the market closed.
Rambus is disappointed with the ruling and plans to appeal, Rambus senior legal advisor John Danforth said.
“We’re really going to be focusing our attention on what the appropriate remedy should be, and I think we can establish that our rates are reasonable,” Danforth said in a conference call.
Rambus has antitrust litigation pending with other chip manufacturers. The FTC ruling will not affect those lawsuits, Danforth said.
“The full effect of today’s decision will not be known to Rambus investors until the remedy phase, which is likely to begin briefings in September,” said Michael Cohen, research director at Pacific American Securities. “Who knows when we’re going to get the final ruling? It took us four years to get here.”
Rambus took part in meetings of the JEDEC, formerly known as the Joint Electron Device Engineering Council, a standards-setting body, and sought to have its patents, or pending ones, accepted as industry standards, said lawyer Dan Prywes, who represents the council.
“When technology is adopted, because it’s a standard, the market grows to billions of dollars. Then Rambus says, ‘Here’s my patent; you owe me a lot of money,’ ” Prywes said.
The FTC now will come up with a remedy.
“If they do not take down the royalty rate, it’s not going to have much effect,” said Cohen, who owns Rambus shares. “If they prevent Rambus from collecting on its intellectual property at all, it’s extremely harmful.”
“I think there will be a cap on the royalty Rambus can charge, between 1% and 2%, compared with the 3.5% they have been using,” he said.
Memory chip maker Micron Technology Inc. is one chip maker suing Rambus for alleged misrepresentation to the JEDEC. Rambus has countersued, accusing Micron of patent infringement.
Micron on Wednesday applauded the FTC decision.
“Micron believes that Rambus has engaged in a pattern of deception, destruction of evidence, false testimony and other improper activities designed to mislead courts and Micron to extract unjust patent licensing fees or damages,” Rod Lewis, vice president of legal affairs, said in a statement. “We will continue to vigorously advance those arguments.”
Wednesday’s ruling overturns an FTC decision in 2004 that said Rambus was not liable. That case was originally thrown out by FTC Chief Administrative Law Judge Stephen J. McGuire, who cited insufficient evidence.
Bloomberg News was used in compiling this report.
