FTC Orders Rambus to License Chips in Price-Fixing Probe

The Federal Trade Commission (FTC) on Monday ordered DRAM chipmaker Rambus to license its technology to third parties and capped the amount the company can charge others for using the technology — penalties stemming from a long-running antitrust probe.

The FTC’s remedy is designed to correct “effects of the unlawful monopoly Rambus established in the markets for four computer memory technologies that have been incorporated into industry standards.”

Rambus said it would likely appeal the FTC’s ruling, saying the below-market royalty payments and forced licensing of its intellectual property are an unfair burden on the company. Rambus faced the prospect of having all royalties eliminated entirely, making the decision a mixed bag.

Shares of Rambus spiked as much as 24 percent immediately after the ruling was made public late Monday. By Tuesday, the shares were giving up ground again, down nearly 5 percent to US$22.34.

Under the FTC order, Rambus’ royalty rates are capped at 0.25 percent to 0.5 percent of the total price for four of its older memory chip products for the next three years, after which those product lines can be sold royalty-free. According to the FTC, Rambus had been charging between 1 percent and 2 percent royalties on those chip lines.

The chip components in question are covered by the standards of the Joint Electron Device Engineering Council (JEDEC) and include SDRAM (synchronous DRAM) double data rate, or DDR chips and memory controllers.

During the time that Rambus was a member of JEDEC, the standards body made Rambus’ technology an industry standard around the time the firm sought patents for it.

Rambus has been operating under the cloud of the FTC inquiry since 2002. The FTC’s ruling could be a benefit to the company — it can now move on and develop new generations of chips that are not affected by the licensing fee limits.

Appeal Coming?

Regarding an appeal to the ruling, Rambus stated that it believes there’s a strong foundation, noting that in 2004 Judge Stephen J. McGuire, the FTC’s chief administrative law judge presiding over the case, dismissed the case in its entirety.

“We believe that a fair review of the underlying facts will restore the perspective of the Chief Judge who exonerated Rambus by dismissing the complaint,” said general counsel Tom LaVelle.

“We believe the commission got it fundamentally wrong,” Lavelle said in a Webcast news conference on the ruling. “They overlooked or misunderstood certain parts of the record.”

The FTC has argued that Rambus moved to patent two types of memory used in personal computers without informing the JEDEC, causing the proprietary technology to become a PC-industry standard and forcing PC makers to buy the patented technology. These actions essentially assured that Rambus would benefit from those standards.

After the case was originally dismissed in 2004, The FTC renewed charges against Rambus last year.

For Rambus, the stakes go beyond any lost royalty payments and could strike at the heart of its significant intellectual property portfolio. Rambus has sued several other chipmakers, including Korea-based Hynix Semiconductor, seeking licensing payments for the same technology covered in the FTC ruling.

The FTC ruling could affect those private suits because it amounts to a tacit agreement that Rambus rightfully and legally owns the intellectual property in question.

Good News

A report from American Technology Research noted that key next-generation Rambus technology, chips known as DDR2 and DDR3, were not covered by the FTC ruling, which will likely contain the financial implications of the decision.

The FTC decision was not unanimous, with some commissioners arguing that technology should be made available without any royalty payments.

Rambus dodged a bullet in the ruling, BWS Financial analyst Hamed Khorsand told the E-Commerce Times.

“The remedy could have been much worse and investors were expecting the decision to be harsher than it was,” he said, adding that the company’s older products are in the process of being phased out and are overshadowed by faster chips.

“In three years, we would not expect Rambus to be making much, if anything, from the products the FTC is capping,” he said.