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FTC Sets Maximum Royalties on Memory Chip Designer Rambus

The Federal Trade Commission finalized its ruling that Rambus Inc. violated antitrust laws, imposing limits on the royalties the memory chip designer can charge.

Wall Street was bracing for a potentially harsher order than the one that the FTC released Monday, and Rambus stock surged more than 24 percent.

The FTC's final opinion provides the sharpest criticism to date against Rambus.

The order said Rambus violated 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."

Legal experts said it would set an important precedent for the broader technology industry. But Tom Lavelle, senior vice president and general counsel for Rambus, said the company was "disappointed" with the opinion and would appeal the decision.

The case hinges on whether Rambus illegally obtained a monopoly in the 1990s when it secured patents for two popular types of memory used in personal computers. Rambus was accused of failing to disclose to an engineering council that its patents had been incorporated into an industry standard regarding memory technology.

An administrative law judge dismissed the complaint in 2004, but the FTC overturned that ruling in July 2006.

Rambus insisted for years that it disclosed the patents to memory makers Micron Technology Inc. and Hitachi Ltd. before the standards-setting discussions began. Rambus attorneys also argued that disclosure policies of the council, the Joint Electron Device Engineering Council Solid State Technology Association, failed to specify what Rambus should have revealed to the committee.

On Monday, the FTC required the company to hire an agency-approved compliance officer "to ensure that Rambus' patents and patent applications are disclosed to industry standard-setting bodies in which it participates."

The ruling requires Rambus to license two types of PC memory, SDRAM (synchronous dynamic random access memory) and DDR SDRAM (double-data-rate synchronous dynamic random access memory), setting maximum allowable royalty rates it can collect for the licensing.

It also bars Rambus from collecting or attempting to collect more than the FTC-mandated maximum allowable royalty rates from companies still using older DRAM (dynamic random access memory) technology licensed from Rambus.

Rambus attorneys have been analyzing the FTC's 12-page final opinion since receiving a copy Friday, but the process has been difficult due to the order's "ambiguous" language, Lavelle said.

"We believe the commission got it fundamentally wrong," Lavelle said in a conference call Monday.

The FTC "selected findings from the record that supported its theory and ignored those that did not," Lavelle said.

News of the ruling sent shares of Rambus surging $4.58, or 24.2 percent, to close at $23.50 on the Nasdaq Stock Market.

The nearly five-year-old case brought by the FTC, the agency that investigates allegations of unfair competition or business practices, has battered Rambus' shares for several years.

Daniel Prywes, an attorney at Bryan Cave LLP, said the ruling sets a precedent for the FTC's handling of cases involving standards-setting organizations -- and it helps Rambus and dozens of other companies understand the legal framework of such organizations.

The technology industry relies heavily on ostensibly neutral committees to create standards with which companies can create compatible products, but those organizations have traditionally operated in a legal gray zone.

"Now that the FTC has laid the legal groundwork," Prywes wrote in an e-mail, "Future cases attacking 'patent ambushes' at standards organizations should be able to move more quickly and obtain powerful remedies before the technologies at issue are superseded in the marketplace by next-generation devices."