UNITED STATES OF AMERICA BEFORE FEDERAL TRADE COMMISSION PUBLIC In the Matter of RAMBUS INCORPORATED, a corporation. Docket No. 9302 COMPLAINT COUNSEL'S PRETRIAL BRIEF M. Sean Royall Geoffrey D. Oliver Patrick J. Roach BUREAU OF COMPETITION FEDERAL TRADE COMMISSION Washington, D.C. 20580 (202) 326-3663 (202) 326-3496 (facsimile) Of Counsel: Robert Davis Theodore A. Gebhard Andrew J. Heimert Patricia A. Hensley Ernest A. Nagata Lisa D. Rosenthal Sarah Schroeder COUNSEL SUPPORTING THE COMPLAINT Dated: April 22, 2003 corrected April 25, 2003 COMPLAINT COUNSEL'S PRETRIAL BRIEF TABLE OF CONTENTS I. II. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Overview of Key Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 A. B. Importance of DRAM Technology Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Rambus's Evolving Strategy to Dominate DRAM Technology Standards. . . . . . 5 1. Rambus Was Founded with the Objective of Achieving Patents Rights Over Widely Adopted DRAM Standards. . . . . . . . . . . . . . . . . . . . . . . . . 7 JEDEC's Work on SDRAM Standards Posed a Serious Threat to Rambus's Goal of Having Its Proprietary RDRAM Technology Adopted as the Next DRAM Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 In Late 1991, Rambus Joined JEDEC and Discovered That JEDEC's Emerging SDRAM Standards Were on a Collision Course for Rambus's Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Rambus Amends Its Strategy to Incorporate an Alternative Plan for Obtaining Patents Over Widely Adopted DRAM Standards. . . . . . . . . . 32 Throughout the Duration of Its Membership in JEDEC, Rambus Continued to Pursue a Patent Strategy "to Counter SDRAMs." . . . . . . . 38 a. Rambus's Senior Executives Were Well Informed About JEDEC's Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 A Second Competitive Threat to RDRAM: Ramlink. . . . . . . . . 41 PLLs on "Future SDRAMs." . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 PLLs and Samsung's "Other Use" Clause. . . . . . . . . . . . . . . . . . 49 A Third Competitive Threat to RDRAM: Mosys. . . . . . . . . . . . . 52 Continued Focus on "IP Maximization." . . . . . . . . . . . . . . . . . . . 54 2. 3. 4. 5. b. c. d. e. f. -ii- g. h. i. SyncLink. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Consideration of Giving "RAND" Assurance to JEDEC. . . . . . . 65 Rambus Decides to Withdraw from JEDEC Amidst Heightened Concerns About Legal Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 200 Megahertz SDRAMs and Rambus's "IP Crush Plan." . . . . . 76 Asynchronous Competition and "SDRAM Lite." . . . . . . . . . . . . 79 SDRAM-II and Rambus's "Patent Minefield." . . . . . . . . . . . . . . 84 j. k. l. 6. 7. 8. 9. Rambus's JEDEC Withdrawal Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Intel's Endorsement Breaths New Life Into RDRAM. . . . . . . . . . . . . . . 93 Rambus Continues to Conceal Its JEDEC-Related Intellectual Property. 95 Rambus Hires Joel Karp to Prepare to Enforce the Strategic Patent Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 The Rambus-Intel Relationship "Blows Up," Causing Rambus to "Play" the JEDEC "IP Card." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Enforcement of Rambus's SDRAM- and DDR SDRAM-Related Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 10. 11. III. Elements and Burdens of Proof Applicable to the Claims Set Forth in the Complaint. 123 A. Essential Elements of Proof. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 1. 2. B. C. Monopolization Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Unfair Competition Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 General Burden of Proof. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 The Effect of Rebuttable Adverse Presumptions on Complaint Counsel's Burden of Proof. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 1. Rambus Bears the Burden of Proof on Several Core Issues. . . . . . . . . . 136 -iii- 2. Judge Timony's Spoliation Findings Ease Complaint Counsel's Burden of Persuasion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 IV. Rambus Engaged in A Course of Conduct That Was Exclusionary and Anticompetitive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 A. Manipulation of a Standard-Setting Process in Order to Restrict Competition or Attain a Monopoly Violates the Antitrust Laws, and Leads to the Unenforceability of Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 JEDEC Operates Under a Broad Collection of Policies, Rules, and Procedures Designed to Achieve the Fundamental Objective of Open Standards. . . . . . . . 147 1. JEDEC Is Committed to Developing "Open Standards" and Avoiding Patents Wherever Possible. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 JEDEC's Patent Disclosure Policy Was Well Understood by JEDEC Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 a. JEDEC Undertook Extensive Efforts to Inform Its Members of the Applicable Disclosure Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 JEDEC's Members Understood the Rule to Require All Members to Disclose Patents and Patent Applications of Which They Were Aware That Were Relevant to Standards Under Consideration. 159 B. 2. b. 3. C. JEDEC's Rules Require Members to Act in Good Faith. . . . . . . . . . . . 163 Rambus Undertook to Subvert the Policies and Rules of the JEDEC Standards Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 1. The Development of Rambus's Scheme to Subvert the JEDEC StandardSetting Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Rambus Engaged in Deceptive and Misleading Conduct, Both During and After Its Membership in JEDEC. . . . . . . . . . . . . . . . . . . . . . . . . . . 168 a. Rambus Intentionally Made Material Misrepresentations Through Silence and Partial, Misleading Disclosures. . . . . . . . 170 Rambus Knew It Had Patents and Patent Applications Relevant to the Standards Under Consideration at JEDEC, But Rather Than Disclosing, Worked to Perfect Its Claims Over the Standards. . 170 (1) SDRAM Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . 171 2. b. -iv- (2) d. e. DDR Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 Rambus's Misrepresentations Were Intentional. . . . . . . . . . . . . 184 JEDEC and Its Members Relied upon Rambus's Silence and Incomplete Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 3. Rambus's Deceptive Conduct Has Not Been Excused by the Federal Circuit's Infineon Ruling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 Rambus's Deceptive Conduct Was in Bad Faith. . . . . . . . . . . . . . . . . . 192 4. D. V. The Antitrust Rule Applicable to This Case is Amply Clear. . . . . . . . . . . . . . . 194 Rambus Acted with Specific Intent to Monopolize. . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 A. B. Intent as an Element of the Alleged Violations. . . . . . . . . . . . . . . . . . . . . . . . . 195 Rambus Was Well Aware of the JEDEC Policy Against Standards Based on Patented Technology and the JEDEC Disclosure Policy. . . . . . . . . . . . . . . . . . 197 Rambus Specifically Intended To Subvert JEDEC Policy, Ensure that the JEDEC Standards Embody Its Patented Technology, and Pursue Claims of Infringement Against Firms that Followed the Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 C. VI. Rambus's Anticompetitive Conduct Caused the Competitive Harm Alleged in the Complaint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 A. Rambus Violated the Law if Its Conduct Was A Material Cause of The Competitive Harm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 Rambus's Behavior Caused the Anticompetitive Harm that Is the Subject of the Complaint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 1. Rambus Knew That If It Disclosed Its Claimed Intellectual Property Rights, JEDEC Members Would Pursue Other Alternative Technologies or Accept Rambus Technologies Only at Much Lower Royalty Rates. . 220 Rambus's Deceptive Behavior Subverted Both the JEDEC SDRAM and DDR Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 B. 2. VII. Through Its Challenged Conduct, Rambus Has Succeeded in Monopolizing Several WellDefined DRAM Technology Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 -v- A. The Relevant Antitrust Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 1. 2. Relevant Product Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 Relevant Geographic Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 B. Fundamental Characteristics of the Relevant Markets Concentrate the Economic Power of Rambus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 Rambus Possesses Monopoly Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 1. 2. Indirect Proof of Monopoly Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 Direct Proof of Monopoly Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 C. VIII. The Relief Set Forth in the Notice of Contemplated Relief Is Necessary and Appropriate to Remedy the Harm Caused by the Anticompetitive Conduct of Rambus. . . . . . . . . . 257 A. The Commission Has Broad Discretion to Craft a Remedy Designed to End Rambus's Unlawful Practices and Restore Competition to the Market. . . . . . . 258 Barring Rambus from Enforcing Certain Patents Is Reasonably Related to its Unlawful Conduct and Is an Appropriate Exercise of the Commission's Wide Latitude to Implement Remedies to Restore Competition. . . . . . . . . . . . . . . . . 261 Less Restrictive Remedies Are Not Sufficient to Cure the Effects of Rambus's Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 B. C. IX. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 -vi- TABLE OF AUTHORITIES CASES A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020 (Fed. Cir. 1992) . . . . . . . . . . 266 Advanced Hydraulics, Inc. v. Otis Elevator Co., 525 F.2d 477 (7th Cir. 1975) . . . . . . . . . . . . . 266 Allen Realty Corp. v. Holbert, 318 S.E.2d 592 (Va. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 American Council of Certified Podiatric Physicians and Surgeons v. American Board of Podiatric Surgery, 185 F.3d 606 (6th Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 American Soc'y of Mech. Eng'rs, Inc. v. Hydrolevel Corp., 456 U.S. 556 (1982). . . . . . . 140, 194 American Tobacco Co. v. United States, 328 U.S. 781 (1946) . . . . . . . . . . . . . . . . . . . . . . . . . 249 Anderson v. Cryovac, Inc., 862 F.2d 910 (1st Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Andrx Pharmaceuticals, Inc. v. Biovail Corp., 256 F.3d 799 (D.C. Cir. 2001) . . . . . . . . . . . . . 217 Argus Chemical Corp. v. Fibre Glass-Evercoat Co., 645 F. Supp. 15 (C.D. Cal. 1986) . . . . . 131 Armory v. Delamirie, 1 Strange 505, 93 Eng. Rep. 644 (1722) . . . . . . . . . . . . . . . . . . . . . . . . . 137 Arthur Murray Studio of Washington, Inc. v. FTC, 458 F.2d 622 (5th Cir. 1972) . . . . . . . . . 259 Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) . . . . . . . . 123, 195, 196 Atlantic Refining Co. v. FTC, 381 U.S. 357 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Battocchi v. Washington Hospital Center, 581 A.2d 759 (Ct. App. D.C. 1990) . . . . . . . . . . . 136 Beneficial Corp. v. FTC, 542 F.2d 611 (3d Cir. 1976), cert. denied, 430 U.S. 983 (1977) . . . 131 Berkey Photo v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979), cert. denied, 444 U.S. 1093, 100 S .Ct. 1061 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 Besser Mfg. Co. v. United States, 343 U.S. 444 (1952) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251 (1946) . . . . . . . . . . . . . . . . . . . . . . . 218, 219 Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 -vii- Boise Cascade Corp. v. FTC, 637 F.2d 573 (9th Cir. 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Borden, Inc. v. FTC, 674 F.2d 498 (6th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259 C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340 (Fed. Cir. 1998). . . . . . . . . . . . . . . . . . . . . . . . 267 Caribbean Broadcasting System, Ltd. v. Cable & Wireless PLC, 148 F.3d 1080 (D.C. Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 Carma Developers (California), Inc. v. Marathon Development California, Inc., 2 Cal. 4th 342 (1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 City of Chanute, Kansas, et al. v. Williams Natural Gas Co., 955 F.2d 641 (10th Cir. 1992) . . 254 Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 79 F.3d 182 (1st Cir. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 Comunale v. Traders & General Ins. Co., 50 Cal. 2d 654 (1958) . . . . . . . . . . . . . . . . . . . . . . . 192 Conoco Inc. v. Inman Oil Co., 774 F.2d 895 (8th Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . 196 Conwood Co. v. United States Tobacco Co., 290 F.3d 768 (6th Cir. 2002) . . . . . . . . . . . . . . . 141 CVD, Inc. v. Raytheon Co., 769 F.2d 842 (1st Cir. 1985), cert. denied, 475 U.S. 1016 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Donovan v. Aeolian Co., 200 N.E. 815 (N.Y. 1936) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 E.I. Du Pont de Nemours & Co. v. FTC, 729 F.2d 128 (2d Cir. 1984) . . . . . . . . . . . . . . . 124, 125 Fineman v. Armstrong World Industries, Inc., 980 F.2d 171 (3d Cir. 1992) . . . . . . . . . . . . . . 250 Fogel v. Chestnutt, 533 F.2d 731 (2d Cir. 1975), cert. denied, 429 U.S. 824 (1976) . . . . . . . . 218 Ford Motor Co. v. United States, 405 U.S. 562 (1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . 259, 269 FTC v. Cement Institute, 333 U.S. 683 (1948) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 FTC v. Mandel Bros., Inc., 359 U.S. 385 (1959) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 FTC v. National Lead Co., 352 U.S. 419 (1957) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259 FTC v. Ruberoid Co., 343 U.S. 470 (1952) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 FTC v. Abbott Laboratories, 853 F. Supp. 526 (D.D.C. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . 126 -viii- FTC v. Brown Shoe Co., 384 U.S. 316 (1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 FTC v. Colgate-Palmolive Co., 380 U.S. 374 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 FTC v. Indiana Federation of Dentists, 476 U.S. 447 (1986) . . . . . . . . . . . . . . . . . . . . . . 123, 254 FTC v. Renaissance Fine Arts, Ltd., 1994 WL 543048 (N.D. Ohio 1994) . . . . . . . . . . . . . . . . 131 FTC v. Royal Milling Co., 288 U.S. 212 (1933) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268 FTC v. Sperry & Hutchinson Co., 405 U.S. 233 (1972) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 FTC v. World Travel Vacation Brokers, Inc. 861 F.2d 1020 (7th Cir. 1988) . . . . . . . . . . . . . . 131 Garrett v. Perry, 346 P.2d 758 (Cal. 1959) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Grand Union Co. v. FTC, 300 F.2d 92 (2d Cir. 1962) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Gregory v. Novak, 855 P.2d 1142 (Or. Ct. App. 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 H.J., Inc. v. Intern. Telephone & Telegraph Corp., 867 F.2d 1531 (8th Cir. 1989) . . . . . . . . . 196 Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986 (9th Cir. 1979) (en banc), cert. denied, 444 U.S. 1025 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127-131 Hasbrouck v. Texaco, Inc., 842 F.2d 1034 (9th Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 Herman & MacLean v. Huddleston, 459 U.S. 375 (1983) . . . . . . . . . . . . . . . . . . . . . . . . 126, 127 Home Placement Service, Inc. v. Providence Journal Co., 682 F.2d 274 (1st Cir. 1982). . . . . 236 Horner v. Ahern, 153 S.E.2d 216 (Va. 1967) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Image Technical Services, Inc. v. Eastman Kodak Co., 504 U.S. 451 (1992) . . . . . . . . . . 236, 249 In the Matter of Amrep Corp., 102 F.T.C 1362 (1983) . . . . . . . . . . . . . . . . . . . . . . 131, 260, 261 In the Matter of Borden, Inc., 92 F.T.C. 669 (1978), aff'd, 674 F.2d 498 (6th Cir. 1982), vacated and remanded for entry of consent judgment, 461 U.S. 940 (1983) . . . . . . . . . . . . . . . . . 260, 269 In the Matter of Bristol-Myers Co., 1983 FTC LEXIS 63 (1983) . . . . . . . . . . . . . . . . . . . . . . . 125 In the Matter of Dell Computer Corp., 121 F.T.C. 616, 1996 FTC LEXIS 291 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74, 75, 141, 144, 267 -ix- In the Matter of Ekco Prods. Co., 65 F.T.C. 1163 (1964), aff'd, 347 F.2d 745 (7th Cir. 1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260, 269 In the Matter of Ethyl Corp., 101 F.T.C. 425 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124, 125 In the Matter of Firestone Tire & Rubber Co., 81 F.T.C. 398 (1972), aff'd, 481 F.2d 246 (6th Cir.), cert. denied, 414 U.S. 1112 (1973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258, 259, 269 In the Matter of General Motors Corp., 103 F.T.C. 641 (1984) . . . . . . . . . . . . . . . . . . . . . . . . 124 In the Matter of VISX, Inc., 1999 WL 33577396 (F.T.C.). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 In the Matter of Washington Crab Assn., 1964 FTC LEXIS 86 (1960) . . . . . . . . . . . . . . 126, 130 Indian Head, Inc. v. Allied Tube & Conduit Corp., 817 F.2d 938 (2d Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129, 142-144,186 Indian Head, Inc. v. Allied Tube & Conduit Corp, 486 U.S. 492 (1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129, 140, 142, 144-146, 191, 194 International Salt Co. v. United States, 332 U.S. 392 (1947) . . . . . . . . . . . . . . . . . . . . . . 259, 260 Jacob Siegel Co. v. FTC, 327 U.S. 608 (1946) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258, 267 Jamesbury Corp. v. Litton Indus. Prods., Inc., 839 F.2d 1544 (Fed. Cir. 1988) . . . . . . . . . . . . 266 Jensen v. Western Irrigation & Mfg., Inc., 650 F.2d 165 (9th Cir. 1980) . . . . . . . . . . . . . . . . . . 266 Koch v. Williams, 193 Cal. App. 2d 537 (Cal. App. 4 Dist. 1961) . . . . . . . . . . . . . . . . . . . . . . 185 Kransco v. American Empire Surplus Lines Insurance Co., 23 Cal. 4th 390 (2000) . . . . . . . . 192 Law v. National Collegiate Athletic Ass'n, 5 F. Supp. 2d 921 (D. Kan. 1998) . . . . . . . . . . . . . 216 Lazar v. Hertz Corp., 143 Cal. App. 3d 128 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Loctite Corp. v. Ultraseal Ltd., 781 F.2d 861 (Fed. Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . 131 M&M Medical Supplies & Service, Inc. v. Pleasant Valley Hosp., 981 F.2d 160 (4th Cir. 1993), cert. denied, 508 U.S. 972 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 MacIsaac v. Pozzo, 26 Cal. 2d 809 (1945) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Market St. Assoc. Ltd. Partnership v. Frey, 941 F.2d 588 (7th Cir. 1991) . . . . . . . . . . . . . . . . 193 -x- McMullen v. Entre Computer Centers, Inc., 819 F.2d 1279 (4th Cir. 1987), overruled on other grounds, Busby v. Crown Supply, Inc., 896 F.2d 833 (4th Cir. 1990). . . . . . . . . . . . . . . . . . . . 192 Meade v. Cedarapids, Inc., 164 F.3d 1218 (9th Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 Miller v. Ferguson, 57 S.E. 649 (Va. 1907) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942) . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 National Ass'n of Pharmaceutical Manufacturers, Inc. v. Ayerst Labs., 850 F.2d 904 (2d Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 National Dairy Prods. Corp. v. FTC, 395 F.2d 517 (7th Cir.), cert. denied, 393 U.S. 977 (1968) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 Nation-Wide Check Corp. v. Forest Hills Distributors, Inc., 692 F.2d 214 (1st Cir. 1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,137 Neumann v. Reinforced Earth Co., 786 F.2d 424 (D.C. Cir. 1986) . . . . . . . . . . . . . . . . . . . . . . 131 Niresk Indus., Inc. v. FTC, 278 F.2d 337 (7th Cir.), cert. denied, 364 U.S. 883 (1960) . . . . . . . 261 NLRB v. Staten Island Hotel Ltd. Partnership, 101 F.3d 858 (2d Cir. 1996) . . . . . . . . . . . . . . 219 Orion Electric Co. v. Funai Electric Co., No. 01-CV-3501, 2002 WL 377541 (S.D.N.Y., Mar. 11, 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322 (1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 Pennsylvania Life Ins. Co. v. Bumbrey, 665 F. Supp. 1190 (E.D. Va. 1987) . . . . . . . . . . . . . . 192 Phillip Morris, Inc. v Brown & Williamson Tobacco Corp., 641 F. Supp. 1438 (M.D. Ga. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Pomeroy v. Benton, 77 Mo. 64 (1882) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Radiant Burners, Inc. v. Peoples Gas, Light and Coke Co., 364 U.S. 656 (1961) . . . . . . . . . . 140 Rambus Inc. v. Infineon Technologies AG, 318 F.3d 1081 (Fed. Cir. 2003), affirming-in-part, reversing-in-part, vacating-in-part, and remanding Rambus Inc. v. Infineon Technologies AG, 164 F.Supp.2d 743 (E.D.Va. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190-192 Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421 (9th Cir.), cert. denied, 516 U.S. 987 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237, 242, 251, 254 -xi- Remington Rand Corp. v. Amsterdam-Rotterdam Bank, N.V., 68 F.3d 1478 (2d Cir. 1995) . . 190 Rios v. Enterprise Assn. Steamfitters Local 638 of U.A., 501 F.2d 622 (2d Cir. 1974) . . . . . . . 219 Rothery Storage & Van Co. v. Atlas Van Lines Inc., 792 F.2d 210 (D.C. Cir. 1986), cert. denied, 479 U.S. 1033 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236, 242 Rural Telephone Service Company v, Feist Publications, 957 F.2d 765 (10th Cir. 1992) . . . . . 254 SBC Communications, Inc. v. FCC, 56 F.3d 1484 (D.C. Cir. 1995) . . . . . . . . . . . . . . . . . . . . . 242 Southern Pacific Communications v. American Telephone and Telegraph Co., 740 F.2d 980 (D.C. Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993) . . . . . . . . . . . . . . . . 123, 195, 235, 248 Stambler v. Diebold, Inc., 11 U.S.P.Q.2d 1709, 1988 WL 95479 (E.D.N.Y., Sept. 2, 1988), aff'd mem., 878 F.2d 1445 (Fed. Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139, 266 State of North Carolina v. Chas. Pfizer & Co., 384 F. Supp. 265 (E.D.N.C. 1974) . . . . . . . . . 131 Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518 (5th Cir. 1999) . . . . . . . . . . . . . . . . 144 Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555 (1931) . . . . . . . . . . . . 218 Stryker Corp. v. Zimmer, Inc., 741 F. Supp. 509 (D. N.J. 1990) . . . . . . . . . . . . . . . . . . . . . . . 266 Studiengesellschaft Kohle v. Eastman Kodak Co., 616 F.2d 1315 (5th Cir. 1980) . . . . . . . . . . 266 Sullivan v. National Football League, 34 F.3d 1091 (1st Cir. 1994) . . . . . . . . . . . . . . . . . . . . 216 Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (1961) . . . . . . . . . . . . . . . . . . . . . . . . . . 242 Tarabishi v. McAlester Regional Hosp., 951 F.2d 1558 (10th Cir. 1991). . . . . . . . . . . . . . . . . . 254 Taylor Publishing Co. v. Jostens, Inc., 216 F.3d 465 (5th Cir. 2000) . . . . . . . . . . . . . . . . . . . 142 Telex v. IBM, 510 F.2d 894 (10th Cir. 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 The Bohack Corp. v. Iowa Beef Processors, Inc., 715 F.2d 703 (2d Cir. 1983) . . . . . . . . . . . . 216 Times-Picayune Publ'g Co. v. United States, 345 U.S. 594 (1953) . . . . . . . . . . . . . . . . . . . . . 195 TNT USA Inc. v. NLRB, 208 F.3d 362 (2d Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 -xii- Town of Concord v. Boston Edison Co., 915 F.2d 17 (1st Cir. 1990) . . . . . . . . . . . . . . . . . . . . 250 Toys `R' Us, Inc. v. FTC, 221 F.3d 928 (7th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . 254, 259 U.S. Aluminum Corp./Texas v. Alumax, Inc., 831 F.2d 878 (9th Cir. 1987) . . . . . . . . . . . . . . . 130 U.S. Anchor Mfg., Inc. v. Rule Industries, Inc., 7 F.3d 986 (11th Cir. 1993) . . . . . . . . . . . . . . 236 U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589 (1st Cir. 1993) . . . . . . . . . . . . . . . . 236 United Dairy Farmers Cooperative Assn. v. NLRB, 633 F.2d 1054 (3d Cir. 1980) . . . . . . . . . 219 United States v. Crescent Amusement Co., 323 U.S. 173 (1944) . . . . . . . . . . . . . . . . . . . . . . . 259 United States v. Aluminum Co. of America, 148 F.2d 416 (2nd Cir. 1945) . . . . . . . . . . . . . . . 195 United States v. AT&T, 524 F. Supp 1336 (D.D.C. 1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 United States v. AT&T, 524 F. Supp. 1336 (D.D.C. 1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 United States v. Autuori, 212 F.3d 105 (2d Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (1956) . . . . . . 236, 248, 259, 269 United States v. Glaxo Group, Ltd., 410 U.S. 52 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 United States v. Grinnell Corp., 384 U.S. 563 (1966) . . . . . . . . . . . . 123, 195, 235, 248, 250, 251 United States v. Keplinger, 776 F.2d 678 (7th Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 United States v. Mendoza, 464 U.S. 154 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) . . . . 141, 216, 219, 241, 251, 255 United States v. Paramount Pictures, Inc. 334 U.S. 131 (1948) . . . . . . . . . . . . . . . . . . . . . . . . 250 United States v. United States Gypsum Co., 340 U.S. 76 (1950) . . . . . . . . . . . . . . . 259, 268, 270 Universal Sales Corp. v. California Press Mfg. Co., 20 Cal. 2d 751 (1942) . . . . . . . . . . . . . . 193 USM Corp. v. SPS Technologies, Inc., 694 F.2d 505 (7th Cir. 1982) . . . . . . . . . . . . . . . . . . . . . 267 Volvo N. Am. v. Men's Intern. Pro. Tennis Coun., 857 F.2d 55 (2d Cir. 1988) . . . . . . . . . . . . 196 Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., -xiii- 382 U.S. 172 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127-129, 131, 251 Wang Laboratories, Inc. v. Mitsubishi Electronics America, Inc., 103 F.3d 1571 (Fed. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139, 266 Ware v. Scott, 257 S.E.2d 855 (Va. 1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 Wells v. Wells, 401 S.E.2d 891 (Va. App. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Welsh v. United States, 844 F.2d 1239 (6th Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . 136, 137 West v. Goodyear Tire & Rubber Co., 167 F.3d 776 (2d Cir. 1999). . . . . . . . . . . . . . . . . . . . 135 Wilkins v. National Broadcasting Corp., 71 Cal. App. 4th 1066 (1999) . . . . . . . . . . . . . . . . . . 187 William Inglis & Sons Baking Co. v. Continental Baking Co., 942 F.2d 1332 (9th Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 Windsurfing Int'l, Inc. v. AMF, Inc., 782 F.2d 995 (Fed. Cir.), cert. denied, 477 U.S. 905 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100 (1969) . . . . . . . . . . . . . . . . . . . 215 STATUTES AND REGULATIONS Section 2 of the Sherman Act, 15 U.S.C. § 2 . . . . . . . . . . . . . . . . . . . . . . . 123-125, 130, 141, 241 Section 5 of the FTC Act, 15 U.S.C. § 45(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . 123-125, 130, 131 35 U.S.C. § 282 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 16 C.F.R. § 3.43(a) (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 OTHER AUTHORITIES 9 J. Wigmore, Wigmore on Evidence § 2498 (Chadbourn ed. 1981) . . . . . . . . . . . . . . . . . . . . 126 A. Douglas Melamed, Network Industries and Antitrust, Address Before The Federalist Society, 1999 WL 1257308 (Apr. 10, 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 C. McCormick, McCormick on Evidence § 339 (2d ed. 1972) . . . . . . . . . . . . . . . . . . . . . . . . . 126 Dahdouh, "The Shape of Things To Come: Innovation Market Analysis in Merger Cases," 64 -xiv- Antitrust L.J. 405 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 David J. Teece & Edward Sherry, Standards Setting and Antitrust (Business and Public Policy Working Paper) (Aug. 28, 2002) [CX1902] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145, 146 Gilbert and Sunshine, "Incorporating Dynamic Efficiency Concerns in the Merger Analysis: The Use of Innovation Markets," 63 Antitrust L.J. 569 (1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 Herbert Hovenkamp, FEDERAL ANTITRUST POLICY: THE LAW OF COMPETITION AND ITS PRACTICE (2d ed. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144, 242 Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90 Cal. L. Rev. 1889 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Mark R. Patterson, Antitrust Liability for Collective Speech: Medical Society Practice Standards, 27 IND. L. REV. 51, 84 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Muris, Anticompetitive Effects in Monopolization Cases: Reply, 68 Antitrust L.J. 325 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 Rapp, "The Misapplication of the Innovation Market to Merger Analysis," 64 Antitrust L.J. 19 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 Restatement of Contracts (2d) § 205 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 S. Rep. No. 592, 63d Cong., 2d Sess., 13 (1914) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 U.S. Department of Justice and Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property ("IP Guidelines") (April 6, 1995) . . . . . . . . . . . . . . . . 237, 251 U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines (revised April 8, 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237, 238 -xv- UNITED STATES OF AMERICA BEFORE FEDERAL TRADE COMMISSION In the Matter of RAMBUS INCORPORATED, a corporation. Docket No. 9302 COMPLAINT COUNSEL'S PRETRIAL BRIEF I. Introduction This case presents three fundamental questions for decision: "[1] Whether Respondent engaged in a pattern of deceptive, exclusionary conduct by subverting an open standards process; [2] whether Respondent utilized such conduct to capture a monopoly in technology-related markets; and [3] whether the challenged conduct violates well-established principles of antitrust law." Order Denying Respondent's Motion for Summary Decision at 12 (Apr. 14, 2003). Complaint Counsel will prove at trial that each of these central questions should be answered affirmatively, and that the Respondent, Rambus Inc. ("Rambus"), should therefore be held liable on all three counts stated in the Federal Trade Commission's June 2002 Complaint. In addition, we will demonstrate that the form of remedy outlined by the Notice of Contemplated Relief accompanying the Commission's Complaint is necessary and fully appropriate under the circumstances, and that comparable relief should therefore be entered in this case. Although the central questions presented here are straightforward, Complaint Counsel will present a great deal of evidence that addresses these questions. Furthermore, considering the -1- nature of Complaint Counsel's allegations in this case ­ which relate to a pattern of anticompetitive acts and practices undertaken over the course of roughly a decade ­ the evidence will necessarily cover a broad time period. As an aid to placing relevant facts in context during a somewhat extended time frame, Complaint Counsel has endeavored to provide in this pretrial brief a reasonably comprehensive, and largely chronological, overview of key facts (Section II, infra, beginning at p. 2). Upon conclusion of this factual discussion, the brief will then address the various legal questions raised by this case, with the discussion being organized as follows: Section III, beginning at p.123, discusses the elements of the antitrust violations alleged, and the burden of proof applicable to Your Honor's assessment of the evidence. Section IV, beginning at p. 138, discusses the conduct of Rambus within the context of established antitrust principles pertaining to a subversion of the standards process as exclusionary and anticompetitive behavior. Section V, beginning at p. ?, discusses the role of Rambus's anticompetitive intent in the antitrust analysis. Section VI, beginning at p. 215, discusses the rule of antitrust causation, and examines the Rambus conduct in light of this rule. Section VII, beginning at p. 235, discusses the relevant antitrust markets impacted by the Rambus conduct and demonstrates that Rambus has achieved monopoly power in the relevant markets. Section VIII, beginning at p. 257, discusses the proposed relief to remedy the anticompetitive effects of Rambus's challenged conduct. II. Overview of Key Facts. A. Importance of DRAM Technology Standards. Competition in the semiconductor industry in general, and the memory industry in particular, has for many years revolved around industry standards. In earlier years, standards in the memory industry ­ certainly the DRAM industry ­ were focused more on external design -2- issues, such as the number and placement of pins and the configuration of modules. But starting in the late 1980s and early 1990s, this changed. It was in this time period that the memory industry began concentrating its efforts on "solving the memory bottleneck" ­ that is, designing more efficient, high-speed memory devices that could operate at speeds commensurate with those being achieved by increasingly high-performance microprocessor chips. Hence, in this time period DRAM standardization efforts began to focus increasingly on internal DRAM design issues, and on technologies designed to improve DRAM speed and performance. Rambus was founded in this same general time period (i.e., 1990) with the express goal of "solving the memory bottleneck," through a "revolutionary" new DRAM design. See, e.g., Rambus Inc. Business Plan, 1992-1997 (9/28/92) R169923 at 927; id. at R169929 [CX0545] ("The Rambus System solves the memory bottleneck."). To say that technology standards are important in the DRAM industry would be an understatement. Although some non-standardized DRAMs do exist, by and large virtually all DRAMs produced and sold today comply with industry standards, and this has been true for many years.1 Moreover, at any given time in (at least) the past decade or more, a single DRAM technology standard has been dominant. Theoretically, industry standards could develop in this industry outside of the context of industry standard-setting groups. In reality, however, the technology standards that have achieved dominant acceptance in the DRAM industry have been Aside from specialized DRAMs sold for limited use applications, there really is very little architectural differentiation from one DRAM vendor's product to another ­ all manufacturers produce in compliance with widely adopted industry standards. This is why DRAMs are often referred to as "commodity" products. See S. Przybylski, Intel's RDRAM Strategy a Sure Winner, MICROPROCESSOR REPORT (April 21, 1997) (MR0057650 at 652) [CX2634] (article by former Rambus expert states: "Deviation from the herd is not tolerated by the marketplace. Not since the 1970s have individual DRAM vendors had the power to innovate architecturally."). -3- 1 set through industry standard-setting collaborations. As Rambus's co-founder Mike Farmwald once stated, "There is real value in having a world DRAM standard." M. Farmwald, "RamBus Technology Overview" (11/2/89) R115512 at 539 [CX1284]. It would appear that most others involved in this industry would agree. Indeed, substantial evidence shows that DRAM vendors and users alike prefer that there be only a single industry standard at one time ­ or at a minimum, a single dominant standard, with specialized alternative designs playing a much smaller role in the marketplace. See, e.g., Tate E-Mail (11/3/96) R234880 at 881 [CX0912] (noting, with respect to Samsung, "they want a single high volume standard"). And the reasons for this boil down to simple economics. From the vendor's standpoint, a single standard facilitates large-volume production, which leads to lower costs, and at least the potential for higher profit margins. From the DRAM user's standpoint, a single, dominant industry standard facilitates the additional benefits of interoperability, multiple sourcing, and intense price competition. See, e.g., RAMBUS Inc. 1992-1997 Business Plan (6/18/92) R46394 at 412 [CX0543A] (referring to "Servers and High End Workstations": "In the end, this market will use whatever is in high volume production for desktop computers because it will be cheapest."); Crisp E-Mail (4/9/92) R45724 at 724 [CX1708] ("IBM also really stressed the need for the parts to be pervasively used from laptop to mainframe. If the part wasn't pervasively used, then the price wouldn't ever get right."); Minutes of JC-42.3 Meeting, Attachment P (5/7/92) R65286 at 361 [CX0034A] ("IBM Position Statement on Synchronous DRAM," noting benefits of "Single Industry Standard," including "Maximizes Volume, Plug Compatibility Between Manufacturers, Consistent Spec Terms"). The fact that there tends to be one dominant standard at any given time does not necessarily mean that DRAM manufacturers will only pursue development of a single DRAM -4- design at one time. On the contrary, particularly in times of transition between one generation of standards to another, DRAM makers sometimes pursue simultaneous development of a variety of different standards. Yet they do so not because they expect many different standards to simultaneously coexist. Rather, they want to make sure that whatever design becomes "THE" standard is one that they are in a position to produce, and at a cost that will make them competitive with other vendors. As Rambus's Richard Crisp wrote in August 1996: [W]ith anything that even remotely looks like it can become an important market standard potentially being developed, no one can afford to be left out when fabs cost more than $1B each to build and everyone has one or more new ones either on-line now or planned to be on-line in the near future. It is plain and simple: it is cheap insurance. Crisp E-Mail (8/26/96) R208394 at 394 [CX0903] (emphasis added). In fact, Rambus used this very sort of reasoning to persuade companies that they should take licenses covering its proprietary RDRAM design. See Mooring E-Mail (6/30/92) R233952 at 952 [CX1228] (suggesting that IBM could "justify the investment in Rambus" in part because of "[t]he cost of NOT being an early adopter if Rambus does become the standard ­ intellectual property in the use of Rambus not developed; economies of scale delayed; less favorable terms; empty fabs etc."); Mooring E-Mail (7/25/93) R233985 at 985 [CX1239] (stating, with respect to Samsung, "they feel they have to sign with us" and "don't feel good about it"; "[i]t will come down to" whether "Dr. Chin emotionally choose[s] he has to take Rambus insurance") (emphasis added); see also id. ("There is so much money at stake in the DRAM business that RDRAM licensees from now on will be doing it for defensive reasons.") (emphasis added). B. Rambus's Evolving Strategy to Dominate DRAM Technology Standards. As we discuss below, Rambus today holds a monopoly over several key technology -5- markets relating to the design and architecture of DRAM memory chips. Through its monopoly in these technology markets, Rambus has already collected millions of dollars in license fees and royalties, and it stands to collect a far greater sum in royalties if it is allowed to continue enforcing its patents.2 What makes Rambus's patents so valuable, however, is not the inherent quality of its technology. Rather, it is the fact that Rambus's patents cover (or so Rambus claims) technology features incorporated into widely adopted industry standards ­ that is, JEDEC's SDRAM and DDR SDRAM standards, which together account for somewhere on the order of 95% of all commercial DRAM products sold worldwide. While perhaps not true universally, in this industry it is certainly the case ­ as Rambus's internal business documents acknowledge ­ that "[t]he most valuable patents are ones that must be used in order to be in compliance with a standard." Crisp E-Mail (8/26/96) R208394 at 395 [CX0903] (emphasis added). As Your Honor is aware, the Commission alleged in its complaint, and Complaint Counsel reiterated during the August 2 Scheduling Hearing, that "Rambus's SDRAM-related patent rights could allow Rambus to extract royalty payments well in excess of a billion dollars from the DRAM industry over the life of the patents." Complaint, ¶ 96 (emphasis in original). See also Scheduling Hearing Tr. (8/2/02) at 51:12-18. Judging from what others have said in industry trade press and elsewhere, this billion-dollar estimate of the potential value of Rambus's JEDEC-related patents may be quite conservative. See S. Fyffe, "Industry to Attack Rambus Patents," ELECTRONIC NEWS, July 17, 2000, WL9580638 ("The royalties could add up to $600 million to $800 million a year if all the companies were found to be violating Rambus' patents") (emphasis added); K. Rajgopal, "Rambus Grabs Golden DRAM," BUSINESS LINE, Oct. 18, 2000, WL27315509 ("The math is simple. . . . Estimates [of total SDRAM market size] range from a bottom of $70 billion to a high of $120 billion. Assuming an average 2 per cent royalty rate, that gives Rambus royalty revenue of $1.4 to $2.4 billion" per year) (emphasis added). See also J. Robertson, "DRAM Makers Rally to Thwart IP Threats," ELECTRONIC BUYERS NEWS, Jan. 31, 2000, WL2159264 ("if Rambus' patent claims hold up, . . . `it could be devastating for the industry'"); W. Wade, "Rambus Wins Royalty Round with Pair of Accords," ELECTRONIC ENGINEERING TIMES, June 26, 2000, WL22239113 ("SDRAM is one of the cornerstones of the high-tech industry. With billions of chips shipping every year, even a tiny percentage royalty fee could generate huge sums of revenue for Rambus'"). -6- 2 From its very inception, Rambus desired to hold patents over pervasive DRAM industry standards. As explained below, however, its strategy for achieving this objective dramatically changed in the early 1990s, after it discovered that JEDEC's work on SDRAM standards was proceeding down a path that Rambus believed was destined to collide with Rambus's intellectual property. From that point forward ­ indeed, through the present time ­ Rambus has pursued two parallel strategies for dominating DRAM technology markets. Outwardly, publicly, and very aggressively, Rambus has sought to promote its proprietary RDRAM technology as a standard for DRAM design. Meanwhile, quietly, privately, and (until fairly recently) secretively, Rambus has sought to secure increasingly broad patent rights covering JEDEC-compliant SDRAMs (as well as other competing DRAM architectures). It was not until the late 1990s, when it appeared that Rambus's RDRAM technology was failing in the marketplace, that Rambus decided to go public with its JEDEC-related patents, and began demanding license fees and royalties from makers of SDRAM and DDR SDRAM. In order to understand Rambus's conduct, and to fully appreciate the anticompetitive nature and effects of such conduct, one must first gain an understanding of how Rambus's business strategy evolved throughout the relevant period. In the discussion that follows, we will trace the development of Rambus's strategy, and its strategic conduct, throughout the 1990s. (1) Rambus Was Founded with the Objective of Achieving Patents Rights Over Widely Adopted DRAM Standards. Even before Rambus officially came into existence as a corporation, the company's founders knew that establishing their proprietary DRAM technology as a "standard" was the "key to success." Farmwald Notes (9/19/89) R114330 at 330 [CX1750] (emphasis added). Of course, Rambus's founders also understood that it was critical that they obtain patents covering such