On June 22, 2004, President Bush signed into law H.R. 1086, which includes the Standards Development Organization Advancement Act of 2004 ("the Act"). The Act amends the existing National Cooperative Research and Production Act of 1993 ("the NCRPA") to extend the NCRPA protections to standards development organizations ("SDOs"). The Act applies only to SDOs – it expressly does not limit or otherwise affect the potential antitrust liability of the parties participating in a standard-setting organization.

In particular, the Act provides that:

  • The antitrust rule of reason applies to SDOs while they are engaged in standards development activities.
  • SDOs may limit their potential antitrust liability for standards development activities to actual, as opposed to treble, damages by filing with the Department of Justice and Federal Trade Commission a proper notification of the organization’s standard-setting activities.
  • SDOs that are sued for violations of the U.S. antitrust laws and prevail in defending against those claims are entitled to receive reasonable attorneys’ fee, if the action was "frivolous, unreasonable, without foundation, or in bad faith."

The Act makes an important contribution to antitrust law by clarifying the application of the ambiguous NCRPA to SDOs and standard-setting activities. Nonetheless, the Act is not expected to have a significant impact on most standard-setting efforts, given its limited scope and the absence of any limitation on the potential antitrust liability of individual parties participating in standard-setting activities.

The Intersection of Patents, Antitrust & Standard-setting Remains Difficult and Potentially Risky.

Current enforcement actions at the Federal Trade Commission underscore both the antitrust enforcement agency’s interest in standard-setting activities and the uncertain state of antitrust law as applied to the conduct of participants in standard-setting organizations.

In the Matter of Rambus, Inc.

In June 2002 the FTC Bureau of Competition brought an action against Rambus, Inc., alleging that Rambus had violated Section 5 of the Federal Trade Commission Act (which prohibits unfair trade practices) by intentionally failing to disclose to the Joint Electronic Device Engineering Council ("JEDEC") various Rambus patents and patent applications that were the subject of JEDEC’s ongoing standard-setting work at the time. The FTC complaint, brought before an administrative law judge of the Federal Trade Commission, further alleged that Rambus’s conduct violated JEDEC’s patent policy and that Rambus had unlawfully acquired monopoly power by virtue of its alleged misconduct. The FTC complaint sought injunctive relief to preclude Rambus from enforcing its patents against users who comply with the affected JEDEC standards.

After a 54 day administrative trial, ALJ Stephen J. McGuire held that: (i) JEDEC’s rules did not impose a clear duty on Rambus to disclose its patents and patent applications; (ii) Section 5 of the FTC Act did not impose a duty on Rambus to disclose its relevant patents to JEDEC or act in good faith towards other members; and (iii) Rambus’ failure to disclose its patents and patent applications could not constitute "exclusionary conduct" sufficient to support a claim for monopolization pursuant to Section 2 of the Sherman Act. In April 2004, the FTC Bureau of Competition appealed the ALJ’s decision to the full Federal Trade Commission, arguing that the ALJ erred on virtually every legal conclusion and reiterating its position that Rambus "violated JEDEC’s specific rules of disclosure and general rules of conduct, and fundamentally subverted JEDEC’s pro-competitive purpose of adopting open standards based on full information." The appeal is currently pending – the FTC’s decision is not expected anytime soon.

On the other hand, Rambus recently filed its own antitrust complaint (based on the Cartwright Act, California’s state antitrust law) against Hynix Semiconductor, Infineon Technologies, Micron Technology and Siemens AG, alleging that the four manufacturers of computer memory chips illegally conspired to boycott memory designs that incorporate Rambus intellectual property, and that the manufacturers engaged in an unlawful conspiracy to design around the Rambus patents. In effect, Rambus alleges that the memory manufacturers violated California antitrust law by engaging in a horizontal conspiracy to prevent Rambus-designed memory chips from becoming the de facto industry standard.

In the Matter of Union Oil Company of California

A similar FTC enforcement action against Union Oil Company of California ("Unocal") further reflects the uncertainty of antitrust application in this area and the agency’s heightened interest in standard-setting activities. In March 2003, the FTC Bureau of Competition filed a complaint before an FTC administrative law judge. In its complaint, the FTC staff alleged that Unocal violated Section 2 of the Sherman Act and Section 5 of the FTC Act by making false and misleading representations to industry groups and the California Air Resources Board ("CARB") in connection with California’s adoption of a new standard for clean-burning gasoline. In particular, the FTC staff alleged that Unocal: (i) falsely represented that information it provided to CARB was "nonproprietary" and "in the public domain"; and (ii) intentionally failed to disclose that it had pending patent claims on these research results, and that it intended to assert its proprietary interests in the future. The FTC complaint sought injunctive relief to preclude Unocal from enforcing its patents against companies producing gasoline in compliance with the affected CARB standards.

On November 23, 2003, Administrative Law Judge D. Michael Chappell dismissed all charges against Unocal after finding that the firm’s alleged manipulation of the CARB standard-setting process is fully protected from antitrust prosecution by the Noerr-Pennington doctrine, which provides antitrust immunity to bona fide efforts to petition for government action. On January 14, 2004, the FTC Bureau of Competition appealed the ALJ’s decision to the full Federal Trade Commission, arguing that the Noerr-Pennington doctrine does not protect Unocal because CARB was acting in a "quasi-judicial" capacity during the rulemaking, and Unocal’s alleged misrepresentations would not be entitled to immunity under those circumstances. The appeal has been fully briefed and is under consideration at the FTC.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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