Complaint Counsel's Pretrial Brief
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UNITED STATES OF AMERICA BEFORE FEDERAL TRADE COMMISSION PUBLIC In the Matter of RAMBUS INCORPORATED, Docket No. 9302 a corporation. COMPLAINT COUNSEL’S PRETRIAL BRIEF M. Sean Royall Geoffrey D. Oliver Patrick J. Roach BUREAU OF COMPETITION Of Counsel: FEDERAL TRADE COMMISSION Washington, D.C. 20580 Robert Davis (202) 326-3663 Theodore A. Gebhard (202) 326-3496 (facsimile) Andrew J. Heimert Patricia A. Hensley Ernest A. Nagata COUNSEL SUPPORTING THE COMPLAINT Lisa D. Rosenthal Sarah Schroeder Dated: April 22, 2003 corrected April 25, 2003 COMPLAINT COUNSEL’S PRETRIAL BRIEF TABLE OF CONTENTS I. Introduction ............................................................1 II. Overview of Key Facts. ...................................................2 A. Importance of DRAM Technology Standards. ...........................2 B. Rambus’s Evolving Strategy to Dominate DRAM Technology Standards. .....5 1. Rambus Was Founded with the Objective of Achieving Patents Rights Over Widely Adopted DRAM Standards. ........................7 2. JEDEC’s Work on SDRAM Standards Posed a Serious Threat to Rambus’s Goal of Having Its Proprietary RDRAM Technology Adopted as the Next DRAM Standard. .................................10 3. In Late 1991, Rambus Joined JEDEC and Discovered That JEDEC’s Emerging SDRAM Standards Were on a Collision Course for Rambus’s Patents. ...................................................13 4. Rambus Amends Its Strategy to Incorporate an Alternative Plan for Obtaining Patents Over Widely Adopted DRAM Standards. .........32 5. Throughout the Duration of Its Membership in JEDEC, Rambus Continued to Pursue a Patent Strategy “to Counter SDRAMs.” .......38 a. Rambus’s Senior Executives Were Well Informed About JEDEC’s Activities. ...........................................40 b. A Second Competitive Threat to RDRAM: Ramlink. ........41 c. PLLs on “Future SDRAMs.” ............................44 d. PLLs and Samsung’s “Other Use” Clause. .................49 e. A Third Competitive Threat to RDRAM: Mosys. ............52 f. Continued Focus on “IP Maximization.” ...................54 -ii- g. SyncLink. ...........................................56 h. Consideration of Giving “RAND” Assurance to JEDEC. ......65 i. Rambus Decides to Withdraw from JEDEC Amidst Heightened Concerns About Legal Risk .............................70 j. 200 Megahertz SDRAMs and Rambus’s “IP Crush Plan.” .....76 k. Asynchronous Competition and “SDRAM Lite.” ............79 l. SDRAM-II and Rambus’s “Patent Minefield.” ..............84 6. Rambus’s JEDEC Withdrawal Letter. ...........................89 7. Intel’s Endorsement Breaths New Life Into RDRAM. ..............93 8. Rambus Continues to Conceal Its JEDEC-Related Intellectual Property. 95 9. Rambus Hires Joel Karp to Prepare to Enforce the Strategic Patent Portfolio. ................................................105 10. The Rambus-Intel Relationship “Blows Up,” Causing Rambus to “Play” the JEDEC “IP Card.” ......................................109 11. Enforcement of Rambus’s SDRAM- and DDR SDRAM-Related Patents. ..................................................116 III. Elements and Burdens of Proof Applicable to the Claims Set Forth in the Complaint. 123 A. Essential Elements of Proof. .......................................123 1. Monopolization Claims. .....................................123 2. Unfair Competition Claim. ..................................124 B. General Burden of Proof. ..........................................125 C. The Effect of Rebuttable Adverse Presumptions on Complaint Counsel’s Burden of Proof. .......................................................133 1. Rambus Bears the Burden of Proof on Several Core Issues. .........136 -iii- 2. Judge Timony’s Spoliation Findings Ease Complaint Counsel’s Burden of Persuasion. ...............................................137 IV. Rambus Engaged in A Course of Conduct That Was Exclusionary and Anticompetitive. .......................................................138 A. Manipulation of a Standard-Setting Process in Order to Restrict Competition or Attain a Monopoly Violates the Antitrust Laws, and Leads to the Unenforceability of Patents. ........................................138 B. JEDEC Operates Under a Broad Collection of Policies, Rules, and Procedures Designed to Achieve the Fundamental Objective of Open Standards. .......147 1. JEDEC Is Committed to Developing “Open Standards” and Avoiding Patents Wherever Possible. ..................................147 2. JEDEC’s Patent Disclosure Policy Was Well Understood by JEDEC Members. ................................................149 a. JEDEC Undertook Extensive Efforts to Inform Its Members of the Applicable Disclosure Rules. ...........................149 b. JEDEC’s Members Understood the Rule to Require All Members to Disclose Patents and Patent Applications of Which They Were Aware That Were Relevant to Standards Under Consideration. 159 3. JEDEC’s Rules Require Members to Act in Good Faith. ...........163 C. Rambus Undertook to Subvert the Policies and Rules of the JEDEC Standards Process. .......................................................165 1. The Development of Rambus’s Scheme to Subvert the JEDEC Standard- Setting Process. ...........................................165 2. Rambus Engaged in Deceptive and Misleading Conduct, Both During and After Its Membership in JEDEC. ..........................168 a. Rambus Intentionally Made Material Misrepresentations Through Silence and Partial, Misleading Disclosures. .......170 b. Rambus Knew It Had Patents and Patent Applications Relevant to the Standards Under Consideration at JEDEC, But Rather Than Disclosing, Worked to Perfect Its Claims Over the Standards. 170 (1) SDRAM Technology. ..........................171 -iv- (2) DDR Technology. .............................177 d. Rambus’s Misrepresentations Were Intentional. ............184 e. JEDEC and Its Members Relied upon Rambus’s Silence and Incomplete Disclosures. ...............................186 3. Rambus’s Deceptive Conduct Has Not Been Excused by the Federal Circuit’s Infineon Ruling. ...................................190 4. Rambus’s Deceptive Conduct Was in Bad Faith. .................192 D. The Antitrust Rule Applicable to This Case is Amply Clear. ..............194 V. Rambus Acted with Specific Intent to Monopolize. ...........................195 A. Intent as an Element of the Alleged Violations. ........................195 B. Rambus Was Well Aware of the JEDEC Policy Against Standards Based on Patented Technology and the JEDEC Disclosure Policy. .................197 C. Rambus Specifically Intended To Subvert JEDEC Policy, Ensure that the JEDEC Standards Embody Its Patented Technology, and Pursue Claims of Infringement Against Firms that Followed the Standards. ...........................205 VI. Rambus’s Anticompetitive Conduct Caused the Competitive Harm Alleged in the Complaint. ...........................................................215 A. Rambus Violated the Law if Its Conduct Was A Material Cause of The Competitive Harm. ...............................................215 B. Rambus’s Behavior Caused the Anticompetitive Harm that Is the Subject of the Complaint. .....................................................220 1. Rambus Knew That If It Disclosed Its Claimed Intellectual Property Rights, JEDEC Members Would Pursue Other Alternative Technologies or Accept Rambus Technologies Only at Much Lower Royalty Rates. 220 2. Rambus’s Deceptive Behavior Subverted Both the JEDEC SDRAM and DDR Standards. ...........................................228 VII. Through Its Challenged Conduct, Rambus Has Succeeded in Monopolizing Several Well- Defined DRAM Technology Markets. ......................................235 -v- A. The Relevant Antitrust Markets. ....................................235 1. Relevant Product Markets. ..................................236 2. Relevant Geographic Market. ................................242 B. Fundamental Characteristics of the Relevant Markets Concentrate the Economic Power of Rambus. ...............................................243 C. Rambus Possesses Monopoly Power. ................................248 1. Indirect Proof of Monopoly Power ............................250 2. Direct Proof of Monopoly Power. .............................254 VIII. The Relief Set Forth in the Notice of Contemplated Relief Is Necessary and Appropriate to Remedy the Harm Caused by the Anticompetitive Conduct of Rambus. .........257 A. The Commission Has Broad Discretion to Craft a Remedy Designed to End Rambus’s Unlawful Practices and Restore Competition to the Market. ......258 B. Barring Rambus from Enforcing Certain Patents Is Reasonably Related to its Unlawful Conduct and Is an Appropriate Exercise of the Commission’s Wide Latitude to Implement Remedies to Restore Competition. ................261 C. Less Restrictive Remedies Are Not Sufficient to Cure the Effects of Rambus’s Violations. .....................................................267 IX. Conclusion. ..........................................................271 -vi- TABLE OF AUTHORITIES CASES A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Cir. 1992) ..........266 Advanced Hydraulics, Inc. v. Otis Elevator Co., 525 F.2d 477 (7th Cir. 1975) .............266 Allen Realty Corp. v. Holbert, 318 S.E.2d 592 (Va. 1984) ............................186 American Council of Certified Podiatric Physicians and Surgeons v. American Board of Podiatric Surgery, 185 F.3d 606 (6th Cir. 1999) ....................................254