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When Antitrust and Patents Collide (Rambus v. FTC)

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As I noted in The Schizo Feds: Patent Monopolies and the FTC, the state grants patent monopolies and then uses antitrust law to attack the beneficiaries of those monopolies. As one commentator noted in a related thread, "It is amusing, watching one agency of government applying a system whose entire purpose is the creation of monopolies, and then another agency tasked with preventing monopolies turning up and trying to do something about it." A case in point is the flack about the Cipro drug where the state whines about the prices charged for Cipro during the anthrax scare a few years back and threatened to choke back on the patent monopoly it had granted for it. The state is schizo in many other ways too, of course--it foisted MTBE (a gasoline additive) on the country and then, years later, after fears of groundwater contamination, mandated that MTBE be phased out (I'm sure that the lobbying of ADM for ethanol to be used instead had nothing to do with that).

I previously noted the Rambus v. FTC case. Rambus was part of a standards-setting organization "working on standardization of DRAM chips." As a court later summarized this,

After lengthy proceedings, the Federal Trade Commission determined that Rambus, while participating in the standard-setting process, deceptively failed to disclose to the [standards-setting organization] SSO the patent interests it held in four technologies that were standardized. Those interests ranged from issued patents, to pending patent applications, to plans to amend those patent applications to add new claims.... Finding this conduct monopolistic and in violation of § 2 of the Sherman Act, ... the Commission went on to hold that Rambus had engaged in an unfair method of competition and unfair or deceptive acts or practices prohibited by § 5(a) of the Federal Trade Commission Act.

The FTC then sought to compel Rambus to license its patents at "reasonable royalty rates." Rambus appealed to the U.S. Court of Appeals for the DC Circuit and, in April, won its appeal, clearing the way for Rambus to try to extract maximum royalties from its former partners.

The FTC has filed a petition for rehearing. Skip Oliva has filed an amicus brief opposing the FTC's petition. Now I agree with Oliva that it's troubling when the state formulates new theories of antitrust liability. But from the libertarian view, the patent system and the FTC are all just internal parts of the state. So under the result favored by the FTC, what we really have is the state granting a slightly more limited patent monopoly to Rambus (that is, a patent for which only state-approved "reasonable royalty" rates may be charged) than is normally granted. I don't see what all the hubbub is about. What the state giveth, the state taketh away.

My view is that anything that chokes back the state-granted patent monopoly is, ceteris paribus, to be favored. And I agree with the general idea that it is detestable for a company to secretly seek patents on the technology of the SSO the company is part of, and that these patents should not be enforceable. The default contractual rule should be that if you work with others to adopt a technological standard, you implicitly agree not to use state-granted patent monopolies on that technology to block or extract royalties from use of that standard. I would say that derogation from this default rule should be explicitly spelled out. Imagine what response you would get from other SSO members if you try to add a clause saying that you may secretly apply for patents and enforce them against other members or companies using the standard.

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