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The Limited Legal Impact of the D.C. Circuit?s Rambus Decision

By Hanno Kaiser

Deception in the standard setting process is anticompetitive if the deception leads to increased market power. In other words, the conceptual sequence of events is as follows:

1. Deception:
2. Reliance by the SSO on the deception in the standards-adoption decision
3. Market power gain through inclusion in the standard.

Critically, the post-adoption market power is greater than the pre-adoption market power. The D.C. Circuit, relying on NYNEX v. Discon, invokes a different narrative. Namely:

1. Market power
2. Deception
3. Higher prices as a result of the deception

Here, post-deception market power is no greater than pre-deception market power. As a result, the deception may be actionable as a tort, breach of contract, etc., but it lacks the distinctive feature of exclusionary conduct under the antitrust laws, namely increased market power.

The question is whether the Rambus facts better fit the FTC’s “first deception, then market power” or the D.C. Circuit’s “first market power, then deception” narrative. Strictly speaking, the D.C. Circuit’s opinion requires that the deception netted Rambus no additional market power from deceiving the SSO at all. All of the market power that could be gained came from the patent grant itself. The FTC’s position is softer in comparison. It does not require that the patent grand conferred no market power onto Rambus. All it requires is that some incremental market power was gained from the adoption of the standard.

It will be interesting to see how the FTC responds to this challenge, in particular because the D.C. Circuit did not only rely on the somewhat technical point in NYNEX, but also questioned the FTC’s findings of fact. One statement in dicta seems particularly apropos: “[T]he more vague and muddled a particular expectation of disclosure, the more difficult it should be for the Commission to ascribe competitive harm to its breach.”

Full post as published by Antitrust Review on April 25, 2008 (boomark / email).