Chipmakers Face Government Scrutiny

The Federal Trade Commission (FTC) has filed antitrust charges against Los
Angeles-based memory chipmaker Rambus Inc. , alleging the
firm deceptively pushed for adoption of its technology while it was quietly
filing for patent approvals.

The FTC case against Rambus, which follows a Justice Department probe into
allegations of anti-competitive practices in the DRAM chipmaking sector,
puts some of the biggest names in the semiconductor sector — Micron
Technology and Samsung Electronics — under heavy scrutiny.

According to the FTC charge, Rambus deliberately engaged in a “pattern of
anticompetitive acts and practices” that deceived a standard-setting
organization — the Joint Electron Device Engineering Council (JEDEC) —
resulting in adverse effects on competition and consumers.

The FTC, which voted 5-0 to file the charges, said the technology was worth
more than $1 billion to Rambus over its lifetime.

“By issuing this complaint, the Commission is sending a signal not only to
Rambus but also to other companies. The message is this: If you are going to
take part in a standards process, be mindful to abide by the ground rules
and to participate in good faith,” said Joseph Simons, director of the
Commission’s bureau of competition.

Immediately after the FTC charge was announced, Rambus dismissed the claims,
arguing it fully complied with the JEDEC’s disclosure policy and it had no
undisclosed patents, or even applications, during the relevant time period
that read on any proposed JEDEC standard.

“At the end of the day, we believe that the FTC process, either at the
administrative level or on appeal, will conclude that our actions were
entirely appropriate and lawful,” Rambus general counsel John Danforth said.

“We are somewhat surprised to see this complaint by the FTC,” Danforth said,
noting that the Commission’s complaint repeats the same allegations being
litigated in private lawsuits from competing memory chip makers.

“These cases all derive from the same facts. They all involve the same core
issue of whether Rambus complied with JEDEC rules, which may or may not have
shifted over time, and appropriately disclosed its patent interests in the
1992-1995 time frame,” Danforth added.

The FTC alleged that Rambus participated in JEDEC’s SDRAM-related work for
more than four years without ever making it known to JEDEC or its members
that it was working on and possessed a patent and several pending patent
applications that

“By allegedly concealing this information, in violation of JEDEC’s operating
rules and procedures, and through other alleged bad-faith, deceptive
conduct, the complaint charges that Rambus purposefully sought to, and did,
convey to JEDEC the materially false and misleading impression that it had
no relevant intellectual property rights,” the FTC said.

The FTC said memory manufacturers like Samsung, Hitachi, NEC and Toshiba
have all been forced to acquiesce to Rambus’s royalty demands.

Meanwhile, Rambus competitors Micron and Samsung have both been slapped with
grand jury subpoenas demanding information relevant to the investigation.

Details of the DoJ investigation remain scarce but the wording of a Micron
statement hinted the antitrust division of the DoJ is looking over
allegations of underpricing and dumping that surfaced in recent years.

“The DRAM business is highly competitive and subject to extreme volatility.
Competitive forces in today’s market have led to DRAM prices reaching
unprecedented lows,” Micron vice president Kipp Bedard volunteered in a
brief statement.

He said the Micron, the largest chipmaker in the U.S., would cooperate fully
with the probe, adding the company “”does not believe it has violated US
antitrust laws.”

South Korea-based Samsung, which makes DRAM, SRAM and flash memory chips,
also confirmed receipt of the subpoena, but insisted the probe would not
have a serious impact on its operations.

While no one is commenting on speculation the DoJ investigations are
centered around an industry price collusion, there is word Korea’s Hynix
Semiconductor and Germany’s Infineon Technologies have already been
contacted for information. At press time, Hynix and Infineon had not
received grand jury subpoenas.

A slump in demand for the standard 128-megabit DRAM chips sent prices
plummeting and affected all the major players.

For Micron, the probe could not have come at a worst time. The company was
on the verge of shelling out approximately $3.4 billion to acquire Hynix,
only to scrap the
deal
after its offer was spurned by Hynix’s board of directors.

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