Perspective on FTC v. Rambus

According to FTC protocol, an independent, impartial administrative law judge (ALJ) is appointed to investigate antitrust complaints and render “initial decisions”. The ALJ’s initial decisions are then reviewed by the FTC’s five commissioners who form and ratify “opinions”. The commission’s opinions can then be appealed at the federal court level.

In Rambus’ case, ALJ Stephen J. McGuire conducted a two-year, exhaustive investigation and handed down one of the most comprehensive initial decisions in FTC history (330 pages) entirely in favor of Rambus. The decision also added to the powerful ruling favoring Rambus that the Court of Appeals for the Federal Circuit (CAFC) handed down in January 2003, a ruling that was later supported by the U.S. Supreme Court.

My understanding is that the FTC commissioners cannot disregard the ALJ’s findings of fact, rationale, and conclusions; nor can they ignore volumes of evidence; nor can they invalidate the favorable rulings of the CAFC and the U.S. Supreme Court. This is why I believe the FTC’s wayward opinion has merely delayed the inevitable.

Incredulous FTC Chicanery

In my opinion, the current FTC commissioners—--Deborah Platt Majoras, Chairman; Pamela Jones Harbour; Jon Leibowitz; William E. Kovacic; and J. Thomas Rosch—--performed astonishing mental gymnastics in their reasoning for vacating the ALJ’s decision. Admittedly, I’m not a lawyer, but their reasoning is so blatantly out-of-step with Randall R. Rader, Circuit Judge CAFC and Stephen J. McGuire, Chief Administrative Law Judge, one has to question their veracity.

In a recent report pertaining to Rambus, Rick Currin, of CurrinResearch, commented, “The thorough disregard for the ALJ decision creates a guaranteed problem for the [FTC] opinion if and when it is appealed to a federal court. The real problem with the opinion is that it reverses facts as well as credibility determinations made by the ALJ. While the Commission has demonstrated that it can basically do whatever it wants ignoring the findings and conclusions of the ALJ, the courts (including the Supreme Court) disagree.”

Mr. Currin also highlighted how the FTC was recently reversed and rebuffed by the CAFC with regard to the agency’s complaint against Schering Plough. Just as in its complaint against Rambus, the FTC also unlawfully vacated the ALJ’s initial decision. The CAFC was highly critical of the FTC for failing to apply ‘law or logic’:

Substantial evidence requires a review of the entire record at trial, and that most certainly includes the ALJ’s credibility determinations and the overwhelming evidence that contradicts the Commission’s conclusion.
----11th Circuit Reversing the FTC in the Schering Case

Mr. Currin went on to say that “The FTC is perhaps even more reckless in [Rambus’] case, abandoning overwhelming evidence that contradicts the Commission’s conclusion. The recent decision in the Schering case . . . strongly suggests that Rambus would prevail in an appeal of the matter.”

In like opinion, Skip Oliva, president of the Voluntary Trade Council, issued the following statement regarding the FTC’s opinion in the Rambus case:

"The FTC issued the original complaint four years ago, appointed the prosecutors, and spent millions in taxpayer dollars on the case. In recent years, the Commission has always upheld its own complaints even when, as here, an impartial administrative law judge found no evidence of an antitrust violation. When one agency is allowed to play prosecutor, judge, and jury, we are a nation of men and not laws. Rambus and its shareholders unfortunately learned that lesson.

After the remedy phase of the FTC proceedings is complete, I strongly urge Rambus management to appeal today’s decision to an appellate court of appropriate jurisdiction."

To me, it is rather apparent that the FTC is being used as an instrument to provide negotiating leverage to Micron Technology and Hynix Semiconductor. Below you will see just how far the tentacles of Micron and Hynix have reached into the upper echelon of the FTC. These erstwhile FTC officials are literally now employed by law firms representing the very manufacturers who are attempting to expropriate Rambus of its patented innovations. This is irrefutably an egregious example of conflict of interest.

· Robert Petofsky, FTC Chairman, is now employed by Arnold & Porter, a law firm representing Micron Technology.

· Timothy Muris, FTC Chairman, is now employed by O’Melveny & Myers, a law firm representing Hynix Semiconductor.

· William Baer, FTC Director for the Bureau of Competition, is now employed Arnold & Porter, a law firm representing Micron Technology.

· Richard Parker, FTC Director of the Bureau of Competition, is now employed by O’Melveny & Myers, a law firm representing Hynix Semiconductor.

· Sean Royall, FTC Deputy Director for the Bureau of Competition, is now employed by Gibson Dunn & Crutcher, a law firm representing Micron Technology.

How did these individuals get appointed to the FTC? Who originally initiated the FTC's fallacious antitrust compliant against Rambus?

I would offer this: Clement “Butch” Otter, the Governor-elect of Idaho, serves on the subcommittee that has oversight of the FTC. Otter also just happens to be the former son-in-law to J.R. Simplot, one of the initial investors in Micron Technology (20 percent controlling interest). Otter worked 30 years for Simplot International, a potato, livestock and feeding company. He eventually became the company’s president. Various members of the Simplot family paid Otter $237,371 in 2002, approximately twice his Congressional salary.

Rambus’ Trump Card

I suspect that the momentum has shifted in Rambus’ favor because, in my opinion, time is now ironically working against Micron, Hynix, and Samsung. Proceedings will soon begin in Rambus’ civil antitrust case against these manufacturers; and now, more than ever, this antitrust case remains a powerful incentive for these manufacturers to yield to an industry-wide settlement that would compensate Rambus for its innovations.

Rambus alleges that Micron, Hynix, and Samsung colluded to fix prices on computer memory chips from 1999 to 2002 in such a way as to drive certain Rambus technology (RDRAM) out of the market. Micron, Samsung, and Hynix have already admitted to conspiracy to fix prices on computer memory chips during that time period. The admission followed a a four-year investigation by the U.S. Department of Justice (DOJ) that resulted in more than $700 million in fines, and jail terms for several executives of these manufacturers.

Furthermore, last June, Rambus’ allegations were fortified when the company convinced Judge Richard A. Kramer to lift a protective order and unseal documents about the manufacturers criminal activities and intentions. These incriminating documents, which were uncovered during the DOJ’s investigation, include a cache of damaging e-mail messages. The e-mails showed unequivocally that Micron, Hynix, and Samsung shared information on pricing and that their actions were motivated by a desire to force Rambus-backed technology out of the market.

For example, on June 5, 2001, Micron Vice-President Linda Turner wrote to other Micron employees:

"No problem! We want DDR to explode in the marketplace so have actually been requesting Infineon, Samsung, and Hynix to lower their DDR pricing to help it become a standard (and drive Rambus away completely)."

A few weeks ago, Harold Huges, CEO of Rambus, commented:

“We will have an anti-trust case against the major manufacturers. We are privy to a large number of documents that we got as part of the Department of Justice's (DOJ) successful prosecution and there are e-mails that are quite blatant about what they were trying to do and what they did amongst themselves.”

“There's a reason they have people in prison. They will somehow say that there is a disconnect between their actions on RDRAM and what they did on price setting on SDRAM DDR, and I think a great deal of the evidence will show that they are inextricably linked. For them to raise prices as they did, they first had to knock RDRAM out as a competing part.”


Summary

Rambus is a profitable, up-and-coming company, which is now managed by experienced, former Intel veterans: Harold Hughes, CEO; Satish Rishi, CFO; and Thomas R. Lavelle, General Council. Not only is Rambus registered at the U.S. Patent Office as the owner of past (SDRAM) and present (DDR2) computer memroy technologies, the company is also ostensibly well ahead of the curve in having patented the memory technologies of the future (XDR).

In my opinion, the ploy of Micron, Hynix, and Samsung to delay the inevitable through the manipulation of the FTC appears to have run its course. I think the clock is now ticking against them. Evidently, these manufacturers will soon be faced with an antitrust suit that carries a liability in the billions of dollars. In addition, if Rambus is put into a position where it must appeal the FTC opinion, Micron, Hynix and Samsung will be confronted with a likely reversal by the CAFC.

Regarding what is forthcoming, a reasonable person would expect that the commissioners will leave Rambus’ DDR2 technology out of their remedy opinion because (1) DDR2 is an entirely different innovation that cannot be reverse-engineered, and (2) it was adopted by the industry at a time not relevent to the FTC’s complaint. However, from experience, we cannot count on what is reasonable or lawful. During the past four years, the FTC‘s actions have been unreasonable and unlawful—indeed disgraceful—vis-à-vis our federal court system. It wouldn’t be the first time the FTC fails to apply “law or logic”.