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.

[cross-posted at Mises blog]

Last September, David wrote about Rambus and its conviction by the FTC for illegal actions Link here . He went on to describe the behavior of the patent troll focused on computer ram chip makers. "In the ultimate submarine patent manuever, they not only patented an obvious idea and kept it secret, but then joined a standard making body, and without revealing they held a patent on the idea encouraged the body to agree on a standard that infringed their patent." Note that the FTC case first charged Rambus in June 2002.

Rambus has frequently been controversial. Here is a list of stories cited on TechDirt starting in 2001 Link here . Following the FTC determination, it can now look for further trouble, this time from the European authorities. The FTC finding provided the Europeans with the basis for a further complaint, based on the fact that the FTC determination would not cover ram that originated outside of the US and did not pass through the US. The Europeans have come up with a new descriptor for Rambus' illegal behavior as a "patent ambush", a new type of patent abuse Link here and Here .

The long history of this case suggests how difficult it is to get to closure. In Rambus' case, the threat of legal action has never been enough to deter. Even now, Rambus asserts that the FTC case is old news and they are appealing in the courts. Justice delayed.

This is an older news item - from August 2 - but hasn't been widely reported. The Federal Trade Commission has finally issued a ruling in the Rambus case. Rambus you may recall is a notorious patent troll - famous for never actually building a memory chip, but for collecting royalties. In the ultimate submarine patent manuever, they not only patented an obvious idea and kept it secret, but then joined a standard making body, and without revealing they held a patent on the idea encouraged the body to agree on a standard that infringed their patent. This was a little too much apparently

In June 2002, the FTC charged Rambus with violating federal antitrust laws by deliberately engaging in a pattern of anticompetitive acts to deceive an industry-wide standard-setting organization, which caused or threatened to cause substantial harm to competition and consumers. The Commission complaint alleged that Rambus participated in the Joint Electron Device Engineering Council (JEDEC), a standard-setting organization that "maintained a commitment to avoid, where possible, the incorporation of patented technologies into its published standards, or at a minimum to ensure that such technologies, if incorporated, will be available to be licensed on royalty-free or otherwise reasonable and non-discriminatory terms." According to the FTC complaint, Rambus nonetheless participated in JEDEC's DRAM standard-setting activities for more than four years without disclosing to JEDEC or its members that it was actively working to develop, and possessed, a patent and several pending patent applications that involved specific technologies ultimately adopted in the standards.

The FTC has now ruled unanimously on the matter

In an opinion by Commissioner Pamela Jones Harbour, the Commission found that, through a course of deceptive conduct, Rambus was able to distort a critical standard-setting process and engage in an anticompetitive "hold up" of the computer memory industry. The Commission held that Rambus's acts of deception constituted exclusionary conduct under Section 2 of the Sherman Act and contributed significantly to Rambus's acquisition of monopoly power in the four relevant markets. The Commission has ordered additional briefings to determine the appropriate remedy for "the substantial competitive harm that Rambus's course of deceptive conduct has inflicted."

Chalk one up for the good guys.

As Michele indicates in the previous post, we are looking for compelling examples (about three) that we can use in a book introduction to draw in the average reader - convince them that IP is a problem they should be concerned with. In the comments on Michele's post, Michael suggests that it would be helpful if we discuss some candidates. Here goes:

AIDS drugs in Africa

the invention of television (Sarnoff stole it from Farnsworth)

Diebold using the DMCA to cover up the fact their voting machines don't work

the Canadian (?) farmer sued because genetically modified crops got on his property

mp3.com put out of business by RIAA lawsuit

replay TV sued out of existence

destruction of the Italian pharmaceutical industry when patents are introduced

story of the movie Tarnation - cost 0 to make, $400K for music rights

near shutdown of Blackberry network

Quattro pro "look and feel" lawsuit - Lotus versus Borland

why DAT never caught on (due to legally mandated DRM)

why HD DVD probably will never catch on - delayed until obsolete by DRM disputes

the Sony Betamax case

RAMBUS's use of a submarine patent to blackmail the memory chip industry

theft of the telephone by Alexander Graham Bell

obstruction of the industrial revolution by James Watt

movement of the chemical industry from England/France/US to Germany/Switzerland due to strong UK type patent system - story of red dye, story of delivery of chemicals to US by U-boat during WWI