SPECIAL FEATURE: STANDARD SETTING Antitrust , Vol. 23, No. 3, Summer 2009. © 2009 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. Deterring “Patent Ambush” in Standard Setting: Lessons from Rambus and Qualcomm BY M. SEAN ROYALL, AMANDA TESSAR, AND ADAM DI VINCENZO TANDARD-SETTING ORGANIZATIONS Broadcom’s allegations of patent ambush. Applying the doc - (SSOs) face inherent risks of “patent ambush” trine of implied waiver—a patent defense raised by Broad- conduct. The classic scenario occurs when an com—the Federal Circuit ruled Qualcomm’s patents unen - SSO participant, by failing to disclose relevant forceable not only against Broadcom, but against all products Sintellectual property rights, either causes or allows that comply with the relevant SSO standards. Thus, Broad- the SSO unwittingly to adopt an industry standard incorpo - com was able to use a common law defense in a two-party rating the participant’s patented technology. This can serve to patent dispute to secure broad and definitive relief to the ben - trap later adopters of the standards, who over time become efit of an entire industry. In short, it was able to achieve “locked in” to the manufacture or use of standards-compli - what the FTC sought but failed to achieve in Rambus . ant products, conferring considerable economic leverage What lessons can be learned from the divergent outcomes upon the patent holder and thus facilitating opportunistic in Rambus and Qualcom m? Does the Federal Circuit’s deci - hold ups. Many SSOs seek to prevent such conduct by gen - sion in Qualcomm signal a willingness on the part of courts erally disfavoring standards that embody patented technolo - in patent litigation to issue broad remedies addressing the gies and by requiring participants to license relevant patents industry-wide threats that patent ambush conduct can pose? on terms that are reasonable and non-discriminatory If so, would patent law defenses and counterclaims to patent (RAND). Where these efforts fail, an entire industry may face infringement be an effective deterrent to improper conduct exhorbitant royalty demands, which can result in litigation. by SSO participants? And would the potentially expanded This article addresses two notable cases dealing with alle - scope of relief available to patent litigants reduce the need for gations of patent ambush: FTC v. Rambus , a government government antitrust enforcement in this area? We explore antitrust action; and Qualcomm v. Broadcom , a private patent these and other questions below, after first describing the dispute. Both cases were recently concluded in the wake of two cases in more detail. federal appellate court rulings, by the D.C. Circuit in Rambus and the Federal Circuit in Qualcomm . The factual parallels in FTC v. Rambus these two cases are striking, but perhaps most interesting, if To appreciate the reasons that the FTC brought the Rambus not ironic, is the divergence in outcomes. case in 2002, it is necessary to understand the legal landscape The FTC has cultivated a role for antitrust enforcement in that existed at the time. Courts first confronted patent this area, motivated in part by concerns that private patent ambush conduct in patent infringement suits, ruling on tra - disputes are unlikely to remedy the broader market implica - ditional defenses and counterclaims such as laches, waiver, tions of an SSO-related patent ambush. In Rambus , howev - actual or implied license, equitable estoppel, and fraud. Each er, years of litigation in the Commission’s most significant of these doctrines has proof requirements that may limit enforcement action to date failed to produce any tangible their utility in the context of challenges to patent ambush. results. The Commission was unanimous in finding Rambus For example, parties asserting traditional patent defenses may liable for antitrust violations but struggled to agree on a suit - be required to prove direct privity or specific reliance, ele - able remedy. The D.C. Circuit then ruled in favor of Rambus ments that many victims of patent ambush may be unable to on appeal, the Supreme Court denied the FTC’s writ of cer - satisfy. A fraud counterclaim also may require proof of spe - tiorari, and after nearly seven years of litigation the Com- cific reliance, and such claims typically are subject to height - mission recently abandoned the case altogether. ened standards of pleading and proof. The available remedies Qualcomm’s private patent suit against Broadcom also for patent law defenses and fraud-based counterclaims to was recently resolved on appeal, with the outcome turning on patent infringement also may be narrowly tailored to address only the interests of the prevailing litigant. Thus, in the M. Sean Royall is a partner, and Amanda Tessar and Adam Di Vincenzo are patent ambush context, while the party successfully asserting associates, with Gibson, Dunn & Crutcher LL P. Mr. Royall served as Deputy such a claim or defense might obtain relief for itself, the Director of the Bureau of Competition of the Federal Trade Commission broader group of industry participants affected by the chal - from 2001 through 2003, and during that time was actively involved in the lenged conduct could remain vulnerable to infringement FTC’s litigation against Rambus. The authors wish to thank Leanne Maxwell for her valuable contributions to this article. claims and opportunistic royalty demands. This perception, at least, was common before the court rulings in Qualcomm . 34 · ANTITRUST Antitrust-based legal theories for challenging patent am- attending JEDEC meetings and discovered that, by amend - bush conduct arose in part to fill this perceived “gap” in the ing various pending patent applications, it could obtain law. The first antitrust enforcement action challenging such patents covering various technologies slated for inclusion in conduct culminated in an FTC consent order with Dell the new standards. Rambus allegedly pursued this scheme Computer Corporation (now Dell Inc.). 1 Although the mat - over the course of several years, fully intending to eventually ter was never litigated and the Commission’s actions were exert patent rights over JEDEC-compliant products, but all criticized in some quarters for lack of clarity, the Dell consent the while concealing its patent strategy from fellow JEDEC order was a notable attempt to bring antitrust principles to members, arguably in violation of JEDEC’s patent disclosure bear in addressing what by then had become a growing con - rules. In 1996, Rambus withdrew from JEDEC, and the orga - cern in many standards-reliant industries. 2 nization’s memory protocols subsequently became dominant In Rambus the FTC took a somewhat bolder step, approv - industry standards. Then in early 2000, after making sub - ing an administrative complaint that would result in nearly stantial progress in quietly building its patent portfolio, seven years of litigation. The litigation centered upon the Rambus began demanding royalties from firms whose prod - FTC’s allegation that Rambus deceived JEDEC, a well- ucts incorporated JEDEC-compliant memory designs. known electronics industry SSO, by concealing relevant According to the FTC, Rambus, through this pattern of patent information during JEDEC’s development of the conduct, engaged in unlawful monopolization. A complete SDRAM computer memory standards, and later asserting history of the FTC’s Rambus litigation is well beyond the patent claims against firms employing these near-universal scope of this article. What bears emphasis here is that the lit - industry standards. 3 igation has consumed a tremendous amount of Commission The FTC’s antitrust complaint against Rambus was by no resources; it has taken many years to resolve; and the Com- means a surprise. Before the complaint was filed, many with - mission ultimately failed to obtain any final remedy against in the antitrust, SSO, and high-tech communities were aware Rambus. This outcome stems to some extent from complex - of the FTC’s investigation, although there was not uniform ities associated with proving liability and establishing the agreement that an FTC suit was the best course to follow. scope of proper remedial action within the context of an Notably, by mid-2002 Rambus had already suffered a sig - antitrust-based challenge to conduct of this nature. nificant legal setback in a patent suit against German com - Perhaps the thorniest issue for the FTC in Rambus was cau - puter memory manufacturer Infineon. The federal trial court sation. In rendering its liability decision, the Commission upheld the jury’s liability verdict on Infineon’s fraud coun - held that Rambus’s manipulation of the JEDEC standard-set - terclaim, 4 which was predicated on the same basic facts that ting process allowed it to gain monopoly power. 6 In support the FTC was investigating, and the suit was then pending of this holding, the Commission evaluated a hypothetical on appeal before the Federal Circuit. Meanwhile, Rambus’s “but for world” in which Rambus made all required patent- patent suits against two other memory makers, Hynix and related disclosures to JEDEC, and concluded that the out - Micron, were proceeding, and both defendants asserted come in such a scenario “would have been more competi - defenses and counterclaims attacking Rambus for alleged tive. ”7 While this was sufficient, in the Commission’s view, to misconduct associated with the development of JEDEC’s establish the requisite causal link between Rambus’s chal - SDRAM standards. lenged conduct and its acquisition of monopoly power, the Despite the Federal Circuit’s ongoing review of the trial Commission’s subsequent remedy determination required a court’s decision in Infineon , the FTC made the controversial more detailed analysis. In the Commission’s view, had JEDEC decision to press forward with its antitrust enforcement been fully informed about Rambus’s patent positions, one of action against Rambus.