After telling US to mind its own business, Kroes slaps caps on Rambus royalties

The European Commission has agreed to a proposal by US-based memory parts designer Rambus, to limit its royalties that memory makers worldwide will pay for double data rate (DDR)-based memory units to 1.5% per unit, and DDR memory controllers to 2.65% per unit. This in order to put to rest an ongoing EC investigation into Rambus royalties practices -- one which continued long after the US Supreme Court upheld an April 2008 Appeals Court ruling that stated the entire global memory standards system had lost its credibility.

During a morning press conference in Brussels Wednesday, EC Commissioner for Competition Neelie Kroes told reporters Rambus made this offer in order to redress prior conduct: specifically, manipulating the memory standards process in order to claim exclusive rights to high royalties.

"A US standard-setting organization called JEDEC developed an industry-wide standard for DRAM chips. The standard was very successful. JEDEC-compliant DRAM chips represent around 95% of the worldwide market and are used in virtually all PCs. In 2008, worldwide DRAM sales exceeded 23 billion euros," Comm. Kroes stated. "Rambus is claiming royalty payments on all these products, which represents a very substantial cost to industry. The Commission was concerned that Rambus may have only been able to charge these royalties because of a so-called patent ambush, in breach of EU antitrust rules' ban on abuse of a dominant market position. A 'patent ambush' means that during the standard-setting process a company intentionally conceals that it holds essential intellectual property rights relevant to technology used in the standard being developed. It only starts asserting its intellectual property rights, and claiming royalties on them, after the standard has been agreed, once other companies are locked in to using it."

Those are the same concerns raised by the US Federal Trade Commission, which ruled in August 2006 that Rambus had abused its position by manipulating the JEDEC standards organization in order to steer memory manufacturers towards using its intellectual property. Rambus' defense had been that if it had disclosed to JEDEC the nature of its proprietary standards prior to their having been submitted for discussion, they would no longer have been entitled to patents, having just told the world what it was up to.

The FTC didn't buy that argument, stating in its ruling three years ago (PDF available here), "If a competitor merely read or heard Rambus's disclosure, copied its application, and filed first in a foreign jurisdiction, the competitor would not have invented the technology and would not be entitled to a patent. Rambus failed to identify any foreign jurisdiction in which its ability to obtain patent protection would have been threatened by disclosures within JEDEC. Under these circumstances, and on this record, the only effect of Rambus's behavior was to prevent JEDEC participants -- who expected Rambus to conduct itself cooperatively and without deception -- from making their standard-setting decisions with knowledge of the consequences. That is not pro-competitive."

But the US District Court of Appeals for DC struck down that FTC ruling, and revealed in so doing that it had investigated the nature of business at JEDEC, coming to the conclusion that it really wasn't doing business as a formal organization anyway. Not following the rules of an organization that didn't abide by its own rules, or even really have any rules, couldn't be ruled illegal.

Sure, JEDEC had a "manual," but it didn't amount to very much, said the Appeals Court: "As the Federal Circuit has said, JEDEC's patent disclosure policies suffered from 'a staggering lack of defining details,'" wrote Senior Judge Stephen Williams last October. "Even assuming that any evidence of unwritten disclosure expectations would survive a possible narrowing effect based upon the written directive of Manual 21-I, the vagueness of any such expectations would nonetheless remain an obstacle. One would expect that disclosure expectations ostensibly requiring competitors to share information that they would otherwise vigorously protect as trade secrets would provide 'clear guidance' and 'define clearly what, when, how, and to whom the members must disclose.' This need for clarity seems especially acute where disclosure of those trade secrets itself implicates antitrust concerns; JEDEC involved, after all, collaboration by competitors...In any event, the more vague and muddled a particular expectation of disclosure, the more difficult it should be for the Commission to ascribe competitive harm to its breach."

Of course, the EC is not bound to adhering to findings of US law, or that of any other country. But Europe's independence from the US with regard to matters that take place on the same planet as Europe, was made crystal clear yesterday when Comm. Kroes spoke publicly on another matter: the proposed takeover of Sun Microsystems by Oracle. There, she told fellow lawmakers that US Senators pressing her to complete her investigation of Oracle should mind their own business -- specifically, to go argue about health care reform and leave her to mind the business of fair competition.

Kroes' remarks were quoted by the Associated Press, but have not yet been released in official EC reports on the speech. Nonetheless, EC spokesperson Jonathan Todd told Betanews this morning that the AP's citation of her comments was accurate, though he declined to elaborate further.

Rambus' behavior had been the subject of private IP-related lawsuits against it, including from Hynix Semiconductor. Since 2000, Hynix had been working to invalidate the very patents that Rambus is now charging royalties for. Rambus' defense at the time appeared to say the entire memory industry was conspiring against it -- a defense which, for most, seemed implausible.

But then in 2006, Hynix plead guilty in US District Court of conspiring along with memory giant Samsung, Infineon, Micron Technologies, and other companies to fix the prices of DRAM sold in the world market, in an effort that might have continued to shortchange Rambus were it allowed to continue.