The recent European Commission decision on Rambus’ alleged antitrust behavior provides interesting insights in what royalty rates offered by Rambus can be regarded as “fair”, “reasonable” and “non-discriminatory”. The antitrust proceedings dealt with the licensing behavior of Rambus Inc. after the adoption of the DDR RAM industry standard by JEDEC. To implement the instructions of the DDR RAM standard, Rambus’ technologies – which are included in this standard – are essential. Therefore, Rambus’ related patents are “essential” patents.
In 2007 the EU Commission filed a Statement of Objections (SO) against Rambus, who was alleged of infringing EU antitrust law by demanding excessive royalty rates in the context of the JEDEC DDR standard. The Commission initially expressed concerns that Rambus may have infringed EU antitrust rules on the abuse of a dominant market position (Article 102 of the Treaty on the Functioning of the European Union – “TFEU” ) by claiming abusive royalties for the use of its essential patents, as Rambus demanded royalty rates of about 3.5 % for implementing essential DDR Technology covered by its patents (while regularly demanding a 0.75 % rate for not-standard related technologies). The EU Commission recent decision puts a cap on Rambus’ royalty rates for certain patents for DDR RAM technology in order to settle the dispute.
Ultimately, Rambus Inc. agreed to charge zero royalties for those JEDEC standards that were adopted when Rambus was a JEDEC member, and a max. 1.5 % royalty term for later generations of the DRAM-Standards due to the results of a meanwhile executed industry consultation. The Commission’s decision confirms that it now considers the commitments as adequate to address these competition concerns.
Interestingly, in the former US antitrust proceedings Rambus Inc.’s royalty rates have been shortened to 0.75 % by an FTC order. But we remember that the FTC failed to evidence its allegations of a violation of the US antitrust laws (i.e. Sect. 2/5 Sherman Act) at the court of last appeal. Also the Supreme Court declined to take the case. Maybe the FTC has been going too far by shortening the royalty rate below one fourth of the basic level (3.5 %). We have to keep in mind that the alleged EU and US antitrust violations are not comparable. Sect. 2 Sherman Act prohibits an act of monopolization and thus the FTC alleged Rambus Inc. deliberately not to disclose its patent positions in the JEDEC DDR RAM standardization process in order to monopolize the DDR Technology market. By comparison with this the European Article 102 TFEU prohibits the abuse of any given dominant market position (not the monopolization itself): the Commission’s criterion for that is an abusive pricing.
The inclusion of patented technology in an industry standard could confer substantially increased market power to its owner. He may be tempted to abuse this market power by refusing to license or charging excessive high royalty rates. To avoid this ex-post opportunism of a single company, a so-called “hold up”, most Standard Setting Organizations (SSO) demand a FRAND commitment from their participants. By this commitment the participant is obliged to license its intellectual property that is essentially needed to implement the instructions of the standard on fair, reasonable and non-discriminatory (FRAND) terms. But the precise meaning of “FRAND” is one of the biggest issues in standard related industries. Naturally, the precise meaning of a FRAND royalty depends on the stakes of the participants. The licensor may be offended by a too low offer while the licensee is likely to allege that the licensor demands excessive or abusive royalties. Regularly, both the licensee and licensor are of the opinion that their own offer would fit the FRAND rule.
What makes the recent settlement so interesting to the standards economy is that, for the first time, we have a concrete digit that is accepted from a big industry player as well as an antitrust authority – though the settlement does not call it FRAND. But anyway, the case is strongly connected with the licensing behavior in the standards economy. Also, the JEDEC IPR Policy requested all JEDEC members to commit to its FRAND licensing regime. And because FRAND is a really common licensing regime within in the standards economy, the impact of this decision will probably surpass the particular Rambus case. That does not mean that a 1.5 % royalty rate always will fit the needs of the industry in the standards economy, but at least we got a first clue.