STANDARD-SETTING ORGANIZATIONS: DETERMINING A DUTY TO DISCLOSE AMONG INDUSTRY COMPETITORS

[p207] Appellant, a designer of computer memory technologies, [1] filed a patent application for a new computer memory architecture known as Rambus DRAM (RDRAM). [2] Appellant then joined [3] the JEDEC Solid State Technology Association (JEDEC)[4] and participated in developing industry-wide standards for semiconductor technologies. [5] During Appellant’s membership, JEDEC adopted a standard for synchronous dynamic random access memory (SDRAM). [6] Following Appellant’s withdrawal from JEDEC, [7] JEDEC began to formulate, and eventually [p208] adopted, a standard for double data rate-SDRAM (DDR-SDRAM), the successor to SDRAM.[8]

Appellant alleged that both SDRAM and DDR-SDRAM standards incorporated aspects of patented RDRAM technology,[9] and brought suit in U.S. District Court for the Eastern District of Virginia alleging patent infringement against Appellee, a JEDEC member and manufacturer of semiconductor memory devices. [10] Appellee counterclaimed for fraud, alleging Appellant failed to disclose JEDEC required patents and patent applications informing JEDEC members that the adopted standards were patented technology. [11] The district court found that Appellant committed fraud during SDRAM standardization, but did not commit fraud during DDR-SDRAM standardization.[12] Upon appeal by both parties, the U.S. Court of Appeals for the Federal Circuit, by jurisdiction granted under federal statute,[13] reversed in part and HELD that Appellant did not breach a duty to disclose existing patents and pending patent applications to JEDEC members, and thus did not engage in fraudulent behavior concerning either memory standardization.[14]

[p209] Traditionally, the U.S. Court of Appeals for the Federal Circuit reviews issues not within its exclusive jurisdiction under the applicable state law.[15] Under Virginia law, a party must demonstrate the existence of fraud by clear and convincing evidence defined as: (1) a false representation, (2) of a material fact, (3) made intentionally and knowingly, (4) with the intent to mislead, (5) with reasonable reliance by the misled party, and (6) resulting in damages to the misled party.[16] Within the subject of fraud, Virginia has recognized a cause of action for constructive fraud resulting from another’s silence in the presence of a duty to disclose.[17]

Before finding an omission in the face of a duty to disclose, courts must first ascertain the existence and character of the duty. [18] Examining relevant tort law reveals the existence of a duty to disclose may well be a legal question with factual underpinnings. [19] According to the Restatement, “whether there is a duty to the other to disclose the fact in question is always a matter for the determination of the court.”[20] However, some states treat the existence of a disclosure duty as a question of law, and the breach of that duty as a factual determination.[21] Virginia has not expressed whether the existence of a duty to disclose is a question of law or fact, but two cases provide limited insight.[22]

In Hiett v. Barcroft Beach, Inc.,[23] the Circuit Court of Fairfax County, Virginia examined whether a duty to speak was an issue for the fact-finders or a court.[24] The plaintiff in Hiett, a triathlon competitor who broke his neck during the event, brought suit to allow submission of the issue of constructive fraud to the jury. [25] The plaintiff alleged that the competition form he signed under time constraints contained a waiver, which the [p210] sponsor knew existed and pressured the plaintiff into signing.[26] The defendant countered that the sponsor had no duty to verbally disclose the waiver.[27]

The Hiett court held that constructive fraud was an issue for the jury as a question of fact.[28] The Hiett court reasoned that the social setting of the signing, as opposed to a business setting that would have required a heightened scrutiny of the contract language, made the question of duty more suitable for a jury’s resolution.[29] The Hiett court further articulated that the plaintiff’s allegation that he was unaware he was signing a contract was also a key conflict that was more properly a question for the jury’s determination.[30]

Although business settings require a heightened awareness between parties, a Virginia case examined an arm’s length business transaction for a duty to disclose. [31] In Bank of Montreal v. Signet Bank, [32] the U.S. Court of Appeals for the Fourth Circuit recognized that the duty to disclose and the reasonableness of reliance in arm’s length transactions are questions to be decided by the jury in light of various factors. [33] The plaintiff in Bank of Montreal alleged that the defendant engaged in fraudulent behavior by encouraging the plaintiff to approve a loan to a fraudulent company, while the defendant rejected a loan authorization to the same company under the suspicion of a sham transaction. [34] The defendant claimed that it was both unaware that the loan recipient was a fraudulent company, and was under no duty to make any disclosures to the plaintiff.[35]

The Bank of Montreal Court found sufficient evidence that the defendant had a duty to disclose its loan rejection.[36] Although both parties were industry competitors and were under no contractual obligation to disclose, the Bank of Montreal Court reasoned that a jury could have found that the defendant had superior knowledge with respect to the loan rejection. [37] In addition, the Bank of Montreal Court further articulated that [p211] the jury could have found that the plaintiff relied to its detriment on the false assumption of the defendant’s lack of superior knowledge.[38]

Finding a disclosure duty among industry competitors usually requires a contractual arrangement or fiduciary duty.[39] However, the unrestricted disclosure of information between competitors in standard-setting organizations, even under contractual obligation, unearths serious antitrust concerns.[40] The planned meeting of established competitors to decide industry-wide practices can substantially raise barriers to entry and occasionally result in price fixing concerns. [41] Yet standard-setting organizations usually avoid the Federal Trade Commission’s (FTC’s) intrusion because the government recognizes that consensus standards are essential to the U.S. economy.[42]

This laissez-faire approach to standard-setting is at odds with the government’s stringent regulation of patent law, primarily because a patent can confer a legal monopoly over a technology.[43] Additionally, a new antitrust threat has arisen concerning standard-setting organizations; namely, the legal resolution for a falsely assumed, patent-free standard that when adopted may result in the conferring of an unregulated monopoly to the patent holder. [44] One aspect of this issue surrounds the relationship between each member of an open standards committee, considering their positions as industry competitors, and the determination of whether regulated colluders owe a duty of disclosure to each other.[45]

The instant court, considering that neither party contested the district court’s finding that the existence of a disclosure duty was a factual determination, analyzed the existence of a duty to disclose between JEDEC members as purely a question of fact. [46] In its analysis, the instant [p212] court was the first tribunal to verify the existence of a duty to disclose within a standard-setting organization as a pure matter of fact. [47] Yet the instant court expressed strong reservations about this determination,[48] and cited several examples of tort law jurisprudence where the existence of a disclosure duty may well be a mixed question of law and fact.[49]

Before it could determine whether the Appellant breached a duty to disclose, the instant court first ascertained what duty the Appellant owed JEDEC. [50] This analysis required an interpretation, similar to the jury’s responsibility at the district court trial, of the written EIA/JEDEC patent policy.[51] After reviewing the policy, the instant court concluded that JEDEC expressly discouraged the adoption of patented standards, unless the committee knew the patented technical information and the patentee agreed to a reasonable license fee.[52] But beyond this discouragement, the instant court found the written patent policy void of any direct disclosure duty on its members.[53]

Nevertheless, because JEDEC members treated the language of the written policy as imposing a duty to disclose certain patents, the instant court treated the policy language as imposing a form of a disclosure duty. [54] Additionally, although the JEDEC policy does not use the language “related to,” the parties agreed that the JEDEC policy language required disclosure of patents “related to” the standardization work of the committee. [55] However, both parties disagreed over the interpretation of the “related to” language.[56]

[p213] Appellant contended that the “related to” language refers only to patents that read on or cover the technology standard. [57] Appellee claimed that the policy language also covers the disclosure of patent applications “related to” the committee’s work. [58] The instant court held that a reasonable expectation is required on behalf of the patent holder that a license is needed to implement a standard,[59] because to hold otherwise would render the JEDEC disclosure duty unbounded to any patent or application having a vague relationship to the standard.[60] The instant court stressed that the disclosure duty cannot require JEDEC members to reveal intentions for future patent applications, because antitrust laws discourage direct competitors from discussing market-driving innovations.[61]

After limiting JEDEC’s disclosure rule to the clear, written policy, the instant court then examined the claims that Appellant breached a duty to disclose patents that “related to” both the SDRAM and DDR-SDRAM standards. [62] Concerning SDRAM, the instant court, reasoning that a license for Appellant’s claimed technology was not required to practice the adopted SDRAM standard, found that Appellant’s claimed technology did not fall within the JEDEC disclosure duty.[63] Concerning DDR-SDRAM, the instant court articulated in a more concise ruling that the Appellant did not breach a duty to disclose “related to” patents, primarily because the DDR-SDRAM standard was adopted after the Appellant withdrew from JEDEC.[64]

The instant court’s finding that Appellant’s duty was limited by the EIA/JEDEC written policy confirms that antitrust concerns were paramount in determining a disclosure duty. [65] By scrutinizing the JEDEC policy as a matter of fact, the instant court had a responsibility to review [p214] all circumstantial evidence, rather than only the written policy. [66] However, an all-encompassing review may have revealed a broader disclosure duty, and yielded a judgment altering breach of that duty. [67] In light of antitrust concerns surrounding a broad disclosure duty among industry competitors, the instant court analyzed only the defined, written patent policy.[68]

It is unclear why, given the instant court’s apprehension over construing the disclosure duty as merely a factual question,[69] JEDEC’s duty to disclose policy was not analyzed as at least a partial question of law. The instant court even questioned the district court’s use of only Hiett and Bank of Montreal in their determination. [70] In particular, the instant court opined that the Bank of Montreal Court did not cite a single case that expressly stated that the existence of a duty to disclose was a factual determination.[71]

Although a judgment finding a narrow disclosure duty could have been rendered as a matter of law, the instant court was arguably attempting to isolate the instant case from impacting future precedent.[72] By rendering a narrow disclosure duty, the instant court could have given a definitive roadmap to confront fraudulent behavior in standard-setting organizations. In separating the Appellant through circumstantial evidence,[73] the instant court delayed making a clear rule balancing unwritten duties between competitors and their resulting impact on price fixing and barriers to entry.[74]

[p215] Nevertheless, Appellant’s business model is considerably unique,[75] and its influential position within the memory industry renders the instant court reasonable in fashioning an exclusive ruling.[76] On its face, Appellant’s business model as strictly a technology licenser is distinct to JEDEC, where members are typically also device manufacturers.[77] By distinguishing Appellant’s unique circumstances, the instant court’s ruling may offer an opportunity to continue the governments’ hands-off approach to standard-setting organizations,[78] while affording Appellant a sufficient remedy.

Beyond the inability to define a legal roadmap, the instant court is equally unhelpful in defining suitable disclosure policies. Declaring a written policy requiring the disclosure of potential patent applications in conflict with antitrust law, the instant court forced organizations like JEDEC to examine their disclosure policies and more clearly define each member’s duty to another.[79] In addition, a policy requiring the disclosure of patent applications is equally too vague a proposition, and the instant court clearly articulated their dislike for this unbounded policy.[80] The proper boundaries of an enforceable disclosure policy seem ambiguous, but the instant court’s ruling suggests that future conflicts should be handled within the standards committee.[81]

[p216] The instant court’s ruling seems to fashion a just ruling from misguided principles, with the sole purpose of maintaining the status quo. [82] However, a recent FTC complaint against Appellant for allegedly monopolizing the memory market will allow this opinion to receive scrutiny sooner rather than later.[83] Considering the instant court’s findings,[84] it seems likely that Appellant will find an equally favorable ruling. Otherwise, the FTC would find the Appellant securing an illegal monopoly through nonfraudulent means, a decidedly novel idea.[85]

The evolving landscape of technology and patent law within standard-setting organizations demands a definitive rule concerning patent disclosure duties. As standard-setting organizations begin to reexamine their disclosure policies, new technology designers will most likely emerge utilizing Appellant’s successful business model.[86] To escape governmental intrusion, standard-setting organizations will need to create fair, well-defined policies that include these new entities during standardization.[87]

[*] J.D. expected 2005, University of Florida, Levin College of Law. Winner of the Journal of Technology Law & Policy Summer 2003 Open Writing Competition. The author wishes to thank his family and friends for all of their continuing support and encouragement.

[1] Rambus, Inc. v. Infineon Techs. AG, 318 F.3d 1081, 1084 (Fed. Cir. 2003). Appellant is in the business of designing, developing, licensing, and marketing high-speed computer chip connection technology. Id. Appellant does not produce or manufacture these technologies, and instead relies on the licensing of these patents for revenue. Id.

[2] Id. at 1086. In 1991, Appellant filed U.S. Patent Application Serial No. 07/510,898 (‘898 application) with claims directed to a memory technology known as dynamic random access memory (DRAM). Id. at 1084. Appellant’s ‘898 application has spawned several applications utilizing the basic DRAM technology, of which at least thirty-one applications have been issued by the U.S. Patent and Trademark Office (PTO) and many of these patents claim various aspects of a memory technology known as Rambus DRAM (RDRAM). Id.

[3] Id. at 1085. Appellant first attended JEDEC Solid State Technology Association (JEDEC) meetings as a guest in December 1991, but shortly thereafter officially joined JEDEC in February 1992. Id. Guests, as nonmembers, must receive an invitation to attend JEDEC meetings. Id.

[4] Id. JEDEC, formerly the Joint Electron Devices Engineering Council, is now known as the JEDEC Solid State Technology Association. Id. at 1085 n.1. JEDEC is a standard-setting body affiliated with the Electronic Industries Alliance (EIA), which was formerly known as the Electronic Industries Association during Appellant’s association with JEDEC. Id. at 1085.

[5] Id. JEDEC encourages the adoption of patent free technology standards for use by fellow JEDEC members, and thus both JEDEC and EIA have written policies expressing these views. Id.

[6] Rambus, Inc., 318 F.3d at 1085. Appellant was a member of JEDEC Committee 42.3 (JC-42.3), which was responsible for drafting standards for random access memory (RAM), a common computer component. Id. During Appellant’s membership, JC-42.3 adopted a standard for synchronous dynamic random access memory (SDRAM), which synchronizes itself with the central processing unit’s (CPU’s) clock speed and thereby increases the speed at which a CPU can read or write memory. Id.

[7] Id. Appellant officially withdrew from JEDEC in June 1996. Id.

[8] Id. JEDEC began work on a double data rate-SDRAM (DDR-SDRAM) standard in December 1996, and finally adopted and published a DDR-SDRAM standard in 2000. Id. DDR-SDRAM, as compared to SDRAM, doubles the transfer rate between the CPU and memory device. Id.

[9] Id. at 1085-86. In September 1993, Appellant disclosed its first issued RDRAM patent, which spawned four patent applications concerning improvements to RDRAM technology, the first of which was issued in 1999. Id. Appellant alleged that the patent amendments issued during this time improved on the original RDRAM technology, and it is these improvements that have technology claims against the SDRAM and DDR-SDRAM standards. See id.

[10] Id. at 1086. Appellant alleged fifty-seven infringement claims stemming from the four disputed patents: U.S. Patent Nos. 5,954,804 (‘804 patent), 5,953,263 (‘263 patent), 6,034,918 (‘918 patent), and 6,032,214 (‘214 patent). Id. at 1085-86. Appellee is a manufacturer of semiconductor memory devices that utilize both SDRAM and DDR-SDRAM technology. Id. at 1086.

[11] Rambus, Inc., 318 F.3d at 1086.

[12] Id. Both allegations of fraud during standardization were sent to a jury, upon which the jury found that Appellant committed fraud during both SDRAM and DDR-SDRAM standardization. Id. However, Appellant moved for a directed verdict on DDR-SDRAM, which the district court granted. Id.

[13] The federal statute reads in pertinent part:

[The U.S. Court of Appeals for the Federal Circuit shall have exclusive jurisdiction] . . . of an appeal from a final decision of a district court of the United States . . . if the jurisdiction of that court was based, in whole or in part, . . . [on patents, plant variety protection, copyrights, mask works, designs, trademarks, and unfair competition].

28 U.S.C. § 1295(a)(1) (2000).

[14] Rambus, Inc., 318 F.3d at 1105.

[15] Id. at 1087.

[16] Id. at 1096.

[17] Bank of Montreal v. Signet Bank, 193 F.3d 818, 826 (4th Cir. 1999).

[18] Rambus, Inc., 318 F.3d at 1096.

[19] Id. at 1087 n.3.

[20] Id.; see also Restatement (Second) of Torts § 551 cmt. m (Main Vol., 1976).

[21] Rambus, Inc., 318 F.3d at 1087 n.3.

[22] Id. at 1087.

[23] Hiett v. Barcroft Beach, Inc., 22 Va. Cir. 240, 242 (Va. Cir. 1990).

[24] Id. at 242.

[25] Hiett v. Barcroft Beach, Inc., 18 Va. Cir. 315, 316 (Va. Cir. 1989).

[26] Hiett, 22 Va. Cir. at 241.

[27] Id. at 242.

[28] Id.

[29] Id.

[30] Id.

[31] Bank of Montreal v. Signet Bank, 193 F.3d 818, 829 (4th Cir. 1999).

[32] Id.

[33] Id. at 834.

[34] Id. at 825-26.

[35] Id. at 828.

[36] Bank of Montreal, 193 F.3d at 829.

[37] Id.

[38] Id.

[39] Cohen v. Mastie, 31 Va. Cir. 96, 99 (Va. Cir. 1993); see also Devansky v. Dryvit Sys., Inc., 52 Va. Cir. 359, 361 (Va. Cir. 2000).

[40] Rambus, Inc. v. Infineon Techs., 318 F.3d 1081, 1096 n.7 (Fed. Cir. 2003). The instant court recognized that, even under contractual obligations, competitors have a duty to the marketplace not to collude with fellow industry competitors. See id. Therefore, even if Appellant was under a contractual obligation to disclose the company’s future intentions regarding the issuance of patent applications, antitrust law would regard this required disclosure as discouraged collusion. See id. at 1102.

[41] See generally Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90 Cal. L. Rev. 1889 (2002).

[42] See id. at 1896-98.

[43] See Daniel J. Gifford, Antitrust’s Troubled Relations with Intellectual Property, 87 Minn. L. Rev. 1695, 1705-08 (2003).

[44] Lemley, supra note 41, at 1929.

[45] See Rambus, Inc., 318 F.3d at 1096-1103.

[46] Id. at 1087 n.3.

[47] See id.

[48] Id. at 1087 nn.2-3. The instant court’s reference to “limited insight,” as well as stating several sources of tort law that may contradict the district court’s determination, suggest that the instant court has reservations concerning the application of a purely factual determination of an existence of a disclosure duty. Id.

[49] Id.

[50] Rambus, Inc., 318 F.3d at 1096.

[51] Id. at 1087. Three manuals, EP-3-F, EP-7-A, and JEP 21-1, contain JEDEC’s patent disclosure policy. Id. at 1096. However, only Appendix E (Legal Guidelines Summary) was ever presented to committee members at JEDEC meetings. Id. at 1096-98. Appendix E read, in relevant part, as follows: “Standards that call for the use of a patented item or process may not be considered by a JEDEC committee unless all of the relevant technical information covered by the patent or pending patent is known to the committee, subcommittee, or working group.” Id. at 1097.

[52] Id. at 1101-02.

[53] Id. at 1098.

[54] Id. at 1098-99.

[55] Rambus, Inc., 318 F.3d at 1098-99.

[56] Id.

[57] Id. at 1099. In September 1993, Appellant disclosed the ‘703 patent to JEDEC. Id. Appellee contended that the ‘703 patent did not “relate to” the SDRAM standard, but several other of Appellant’s undisclosed patents did “relate to” the SDRAM standard. Id. However, the instant court found the descriptions within the ‘703 disclosed patent identical to the descriptions within Appellant’s undisclosed patents and applications. Id. This distinction rendered the key factor in determining whether a patent is “related to” a standard patent’s specific claims. Rambus, Inc., 318 F.3d at 1099.

[58] Id.

[59] Id. at 1101. The instant court found this subjective component irreconcilable with its mandated clear, written patent policy. See id.

[60] Rambus, Inc., 318 F.3d at 1101.

[61] Id. at 1102.

[62] Id. at 1102-03.

[63] Id. at 1105.

[64] Id.

[65] See Rambus, Inc., 318 F.3d at 1096 n.7.

[66] See id. at 1107 (Prost, J, dissenting).

[67] See id. (Prost, J., dissenting). Judge Prost’s dissent suggests that if all circumstantial evidence were taken into account, Appellant’s duty to disclose to JEDEC would have been broader and included pending patent applications. See id. (Prost, J., dissenting). This analysis logically would result in finding Appellant’s behavior fraudulent. See id. (Prost, J., dissenting).

[68] See id. at 1101-02.

[69] See id. at 1087 nn.2-3.

[70] Rambus, Inc., 318 F.3d at 1087 n.2.

[71] Id.

[72] See id. at 1098-1102. In analyzing the duty to disclose as a pure matter of fact, whereby relevant facts can be considered to tailor the opinion, and possibly distinguish Appellant’s case from future concerns, the instant court abandoned setting a clear, definitive rule for determining a duty to disclose. See id.

[73] Id. at 1087. In construing the written EIA/JEDEC policy, the instant court’s duty determination will only impact JEDEC members during Appellant’s membership period. Id.

[74] Id. at 1096 n.7. The instant court only alludes to the potential antitrust concerns, and does not offer guidance to standard-setting bodies to conform to antitrust pitfalls. Id.

[75] See Rambus, Inc., 318 F.3d at 1084. Appellant does not manufacture devices like other JEDEC members, and instead relies solely on the licensing of patented technology. Id. However, most technology standard-setting bodies utilize a cross-licensing policy whereby each member “cherry picks” off another member’s technology for a reasonable fee and allows the technology’s use in the member’s devices. See Lemley, supra note 41, at 1929. Appellant’s business model cannot partake in this quid pro quo agreement, and thus seeks to charge a license fee that may well be higher than “reasonable.” See generally id.

[76] See Heidi Monson, Millenium Memory — Rambus or DDR SDRAM (1999), available at http://www.sysopt.com/articles/memory/ (last visited Nov. 9, 2003). SDRAM has become the most widely adopted memory standard for personal computers, and Appellant claims aspects of both SDRAM and DDR-SDRAM, the successor to SDRAM, in its RDRAM patented technology. Consequently, Appellant is extremely influential in the computer memory industry.

[77] See Rambus, Inc., 318 F.3d at 1084-85.

[78] Compare Lemley, supra note 41, at 1896-98, with Gifford, supra note 43, at 1705-08.

[79] Rambus, Inc., 318 F.3d at 1101-02.

[80] Id. at 1101.

[81] See id. at 1102. The instant court stressed that JEDEC had several options in originally drafting patent policies, but construing the policies in their current, written form forced the instant court’s ruling. See id. The citing of alternative measures serves to give JEDEC a quasi-roadmap to alter their policies for the future. See id. However, other comments appearing throughout the instant court’s opinion serve to dramatically limit JEDEC’s policy drafting options. See id. Nevertheless, this particular comment seems to personally direct the power to change policy with the JEDEC policy drafters. See Rambus, Inc., 318 F.3d at 1102.

[82] See id. at 1106-07.

[83] Lemley, supra note 41, at 1929.

[84] Rambus, Inc., 318 F.3d at 1084.

[85] Compare id. at 1084-85, with In re Rambus, Inc., No. 9302 (F.T.C. June 19, 2002) (finding Appellant’s nondisclosure of patents not fraudulent in Rambus, Inc., and potentially finding Appellant guilty of violating the Sherman Act through the same nondisclosure).

[86] See Rambus, Inc., 318 F.3d at 1085.

[87] See id. at 1101.


Vol 8 December 2003 Issue 2
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