The one great principle of the English law is, to make business for itself. There is no other principle distinctly, certainly, and consistently maintained through all its narrow turnings. Charles Dickens, Bleak House
According to John the Apostle, the poor will be always with us. So too, it seems, will the never-ending skein of cases enmeshing Rambus, Inc., the brash memory design company that famously participated in a JEDEC standard setting process in the early 1990s, and later asserted various patent claims against implementers of the very standards created by the working group in which it participated. And while the lawyers may not be to blame in this case (or more properly, these many cases), the flood of litigation involving more than a half a dozen different vendors and government agencies certainly rivals the worst that Jarndyce ever threw against Jarndyce in Charles Dickens' epic tale of litigation gone wild.
On Wednesday, the Federal Trade Commission (FTC) announced the most important resolution of a standards-related enforcement action since Rambus, and possibly since its landmark settlement with Dell Computer in 1995. At issue was whether a licensing promise made by a patent-owning participant in a standards development process is binding upon someone that later owns the same patent. In a split 3 – 2 decision, the FTC has ruled that it does, when the later owner exploits the “lock in” of the marketplace by dramatically increasing the cost to license the patent in question.
The decision is significant for a number of reasons. First, the marketplace has long worried over whether such promises can be relied upon in the long term. Second, the sole business of the defendant in the action, Negotiated Data Solutions (N-Data), is licensing patents – in other words, a “troll,” in market parlance. Trolls are viewed by vendors and end users alike as a pernicious and increasing threat.
I posted the following piece at my other blog (at the Linux foundation site). If you haven't checked out the home page of the Foundation before, you should check it out, as it consolidates quite a bit of news of interest to the Community, including the blog entries of many of the staff.
One of the enduring soap operas this year has involved the ongoing patent infringement threats by Microsoft against “Linux, OpenOffice, email, and other open source software.” According to Microsoft, 235 of its (unnamed) patents are being infringed, and it should be entitled to be paid for this use of its intellectual property. Steve Ballmer believes that Microsoft owes it to its stockholders to file patents to protect its innovations, and then to assert these intellectual property rights in this way, and at this time.
Of course, Linux is based on Unix, which has been around for decades, as have many flavors of Unix created by IBM, HP, Sun and others. Curiously, Microsoft is not now, and never has, alleged that those systems infringe upon these same patents. Apparently, its stockholders do not expect it to assert patents against Unix vendors or users - just open source vendors.
While much of what I write appears here, I also contribute to other venues as well. The following op/ed piece first appeared in last week's print edition of MHT (formerly Mass High Tech), the New England regional technology paper to which I periodically contribute a piece. Starting next month, I'll be doing a regularly column for them, focusing on the New England technology scene.
How often have you heard it said that "patents foster innovation?" That phrase rings true in pharmaceuticals, where investment requirements are enormous and failure common. But does it also apply in areas such as software? Does it really take the promise of a legal monopoly to motivate a typical founder or CTO to innovate? And what about the advantages patents give big companies over emerging ones, simply because the former can credibly threaten expensive patent litigation while the latter cannot?
I'll talk about the negative impacts of software patents another time. But today I'd like to make the case that patents are irrelevant to software innovation, based on my 25 years of representing hundreds of startups, the largest number of which have been either pure software companies or other ventures whose value lay in the software at the heart of their businesses. That history tells me that if patents were to disappear tomorrow, the process of innovation wouldn't skip a beat.
In what the New York Times is calling a "stinging rebuke," the European Court of First Instance issued a much-awaited judgment at 9:30 AM today in Luxembourg affirming almost all of the March 23, 2004 holdings by the European Commission that Microsoft had abused its dominant position to further expand its market share. The Court also affirmed the remedies against Microsoft, including fines of approximately US $1 billion. Only those parts of the original decision that would appointed a trustee to monitor Microsoft's compliance with the EU's orders were rejected, as exceeding the powers of the Commission. But while the victory is a significant one for the European Commission, how great a defeat is this in fact for Microsoft? Perhaps less than first meets the eye, on which more below.
Today's decision is but the latest event in an almost 10 year history of investigations, trials, appeals, and new allegations that initially focused only on Microsoft's activities involving server software, but eventually grew to involve allegations of abuses in the office software marketplace as well. All of these accusations involved contentions that Microsoft was limiting the ability of its competitors to create products that would interoperate with its own, thus further entrenching itself. With time, open source advocates and trade associations filed lodged complaints as well, as Linux gained market share and greater vendor interest, and OpenDocument Format (ODF) compliant products, such as OpenOffice, gained greater credibility.
In the decision announced today, the Court found that Microsoft had abused its dominant market through two types of conduct, and ordered Microsoft to remedy the situation as follows:
While many of us have been preoccupied with the OOXML vote, the rest of the world has naturally been continuing to go about its business. One piece of business that took an interesting turn in the last few days is a ruling by a Federal Appellate Court in the United States that breaks new ground in protecting the integrity of the standard setting system. The ruling may also have relevance to the regrettable conduct witnessed in the recent OOXML vote.
What happened
The ruling was handed down by the U.S. Circuit Court of Appeals for the 3rd Circuit, in one of the multiple, ongoing suits between Qualcomm Incorporated and Broadcom Corporation, involving the vast and lucrative market for next generation wireless telephones and related services. The litigation history to date is complex, so for current purposes I'll focus only on the central contention and related holdings that are of interest to the standards process, rather than on how the ruling fits into the past and future fortunes of the parties to the litigation.
A Federal Court sitting in San Diego, California has upheld a jury's unanimous verdict that QUALCOMM Incorporated abused the standards process by failing to make timely patent disclosures during a standard setting process. The litigation arose when Qualcomm filed suit against Broadcom Corporation, an implementer of the standard. The decision follows on the heels of a unanimous verdict by the Federal Trade Commission against memory technology company Rambus, inc. under similar factual circumstances.
Cases involving standards abuse are infrequent, but Qualcomm and Broadcom are currently involved in as many separate pieces of standards-related litigation as the entire industry usually indulges in over a period of years. In one suit (in which I helped draft and file a friend of the court brief on behalf of several standards organizations), Broadcom alleges that Qualcomm refused to honor its pledge to license its "essential claims" under a standard on "reasonable and nondiscriminatory terms." Other suits are continuing in multiple courts in several countries, including an antitrust suit that Broadcom lost –but perhaps not permanently – before the FTC issued it's verdict in Rambus. Ironically, the flurry of legal action is helping develop judicial guidelines for standards development and licensing on a more rapid basis than usual.
The current case was brought by Qualcomm in October 2005, and involved two patents that it later alleged would be infringed by implementing H.264, a video compression standard developed by the Joint Video Team (JVT), an effort supported by two global standard setting bodies, ITU-T, acting through its Video Coding Experts Group (VCEG)and the ISO/IEC, acting through its Moving Picture Experts Group (MPEG). The jury concluded that implementing the H/264standard would not result in infringement, but also indicated that it believed that Qualcomm had acted improperly before the United States Patent Office in obtaining the patents in question.
Memory technology developer Rambus, Inc. secured an important, but not unexpected tactical victory on Friday, when the Federal Trade Commission released an order partially staying the sanctions that it imposed on February 2, 2007. In the earlier order, the FTC prohibited Rambus from charging royalties to implement two standards in excess of those the Commissioners determined Rambus could have charged, absent its abuse of the standards process that created those standards. Under the new order, Rambus will be permitted to continue to charge the rates it demanded prior to the FTC's intervention – but only if it places the excess amounts in a court-approved escrow. The order is conditional, and will not become effective, unless Rambus files its anticipated appeal of the original decision in a Court of Appeals prior to April 12, the effective date of the February 2 decision.
The Commissioners' latest Order will be welcomed by Rambus' stockholders, because Rambus would otherwise have required to either drop its rates on April 12, or seek to renegotiate all of its licenses in such a way as to require make-up payments from its licensees, should it ultimately succeed on appeal.
But the new Order will not be good news for Rambus licensees, which will be deprived of the near-term use of funds that the FTC had already held to be excessive, and illegally obtained. Those funds would be returned to them – with interest, but minus the fees of the escrow agent – if Rambus loses its appeal at some yet to be determined point in the future.
Monday morning's voicemail included a courtesy call from FTC Complaint Counsel Geoffrey Oliver, letting me know that the Federal Trade Commission had just issued its ruling in the penalty phase of its prosecution of memory technology company Rambus, Inc. (the reason for the call is that I had previously filed pro bono amicus curiae – or "friend of the court" – briefs with the Commission during both the trial and the penalty phases). The full Board of Commissioners had earlier found, on appeal from a holding in favor of Rambus by an FTC Administrative Law Judge in 2004, that Rambus had illegally created a monopoly in certain technology by abusing the JEDEC standard setting process in the early 1990s.
That opinion was handed down last summer, together with the announcement by the Commissioners that they would hold further hearings with FTC Complaint Counsel and Rambus, and would welcome industry input, before determining what penalties would be appropriate to levy against Rambus on account of its conduct. Several industry groups filed amicus briefs as well, urging the Commissioners to impose stiff penalties. My own brief urged the FTC to include a punitive element, in order to emphasize that abuse of the standard setting process would result in dire results. Most obviously, such an element would be to bar Rambus from charging any royalties at all from those that wished to implement the standard at issue.
For Rambus, the stakes were high, and would go beyond the direct economic impact of whatever the FTC would impose, due to the multiple private cases that are ongoing between Rambus and various semiconductor companies that have refused to pay royalties to Rambus. These royalties relate to patents that the FTC has held were illegally hidden by Rambus from its fellow working group members in JEDEC who created the SDRAM standard at issue. At least one judge has delayed further action in one of these cases, in order to learn what penalty the FTC would conclude would be appropriate under the circumstances.
Updated 12:45 PM EDT: The original version of this blog entry was based on an article in the New York Times, and then updated when the related IBM press release became generally available. For the Back Story on that rewrite, see this entry
The New York Times reported this morning that IBM would announce a new patent policy later today, and described in general what the terms of that policy might be. IBM clearly hopes that this move will increase pressure on other companies to accelerate efforts to improve the quality of software patents, which is an issue of interest and concern to a broad audience, and particularly those that participate in the development of, or that use, open source software.
The press release that issued later in the day states that the new policy applies to IBM's operations worldwide, and is based on four "tenets:"
- Patent applicants are responsible for the quality and clarity of their patent applications.
- Patent applications should be available for public examination.
- Patent ownership should be transparent and easily discernable.
- Pure business methods without technical merit should not be
patentable.
The Times article states that IBM is seeking to lead the market towards patent reform, despite the lagging efforts of Congress to improve the quality of software patents, which are widely regarded as being too easy to get, and too expensive and difficult to challenge.