Patent Ambush may be anti-competitive

Standard Setting in High-Tech Industry

Standard setting organisations congregate a number of companies and individuals with the aim of agreeing on a device or product standard. The creation of such an industry standard obviously ensures the compatibility and interoperability of products between multiple vendors. To achieve this aim, such organisations may adopt a variety of structures and decision-making processes, some of which will be formal whilst others will rely on an informal method of cooperation.

A ‘patent ambush’ occurs when, during a standard-setting process, an intellectual property owner fails to disclose its ownership of intellectual property which then subsequently forms part of the new agreed standard. It may be wilful deception aimed at securing inclusion of patents in an adopted standard.

Statement of Objections

A statement of objections is a formal step available to the European Commission in its competition investigations. The relevant party is informed in writing of the objections raised against it. The party can then reply in writing, setting out all information known to it which is relevant to its defence against the Commission’s objections. The party can also request an oral hearing to present its comments if it wishes. It should be noted that the initial sending of the Statement of Objections does not prejudge the outcome of the procedure. The Commission considers the response it has received, and may take a decision on whether or not the conduct outlined in the Statement of Objections is compatible with the EC Treaty’s competition rules.

Click here to see the Commission’s press release.

Rambus Ambush

Rambus designs, develops and licenses high bandwidth chip connection technologies for computers, consumer electronic and communication products (including systems memory, PC graphics, multimedia, workstations, video game consoles and network switches). For more than four years Rambus participated in the Joint Electron Device Engineering Council’s (JDEC) standard-setting process for DRAM, a type of electronic memory. Rambus did not disclose the existence of patents or patents-pending relating to the technologies ultimately adopted as part of the JDEC’s standard. Therefore, any manufacturer wishing to produce a DRAM chip has to either acquire a licence from Rambus or litigate Rambus’ asserted patents – commonly known as a patent ambush.

The Commission

On 23 August 2007 the European Commission sent Rambus a Statement of Objections alleging an infringement of Article 82 of the EC Treaty (abuse of a dominant position). This alleged breach stems from the unreasonably high royalties, enabled by the patent ambush, charged by Rambus for use of the relevant patents. The Statement of Objections preliminarily concludes that an appropriate remedy for this kind of breach would be that Rambus charge a reasonable and non-discriminatory royalty rate. Standard setting organisations would typically recommend cross licensing should be on a F.R.A.N.D. basis (Fair, Reasonable and Non Discriminatory). There have already been parallel proceedings against Rambus in the US. In August 2006 and February 2007 the Federal Trade Commission (FTC) issued orders whereby it found that Rambus had engaged in illegal monopolisation. The FTC imposed a remedy (in the form of a remedial order) applicable to US patents and foreign patents to the extent that they relate to import or export of relevant products into or from the US.

Comment

As the Commission has acknowledged, this is the first time it has characterised a patent ambush as an abuse of dominance. However, the Commission notes that its approach “reflects well-established general case law under Article 82”. It will be interesting to see what decision the Commission reaches not only in light of any written reply from Rambus, but also the United States’ FTC’s remedial order, made as a result of parallel proceedings against Rambus in the US.

To read more about Article 82 see our Competition Survival Pack by clicking here.