Amicus Curiae Brief — Infineon Technologies AG v. Rambus, Inc.

¢

INFINEON TECHNOLOGIES AG,

INFINEON TECHNOLOGIES NORTH AMERICA CORP.,

AND INFINEON TECHNOLOGIES HOLDING

NORTH AMERICA INC.,

Petitioners,

RAMBUS, INC.,

Respondent.

&

i

On Petition For Writ Of Certiorari To United States

Court Of Appeals For The Federal Circuit

&

—

BRIEF OF THE COMMONWEALTH OF VIRGINIA

THE STATES OF ALABAMA, CALIFORNIA,

CONNECTICUT, IDAHO, ILLINOIS, IOWA,

MARYLAND, MASSACHUSETTS, MISSOURI,

NEW HAMPSHIRE, OREGON, OKLAHOMA, UTAH,

WEST VIRGINIA AND THE COMMONWEALTH

OF PUERTO RICO AS AMICI CURIAE

IN SUPPORT OF PETITIONERS

¢

JERRY W. KILGORE

Attorney General of Virginia

WILLIAM H. HURD

State Solicitor

MAUREEN RILEY MATSEN

Counsel of Record

Deputy State Solicitor

WILLIAM E. THRO

Deputy State Solicitor

SARAH OXENHAM ALLEN

Assistant Attorney General

900 East Main Street

Richmond, Virginia 23219

(804) 786-2436 (voice)

(804) 371-0200 (facsimile)

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964 e”

OR CALL COLLECT (402) 342-2831 nl Pi?

WILLIAM H. PRYOR JR.,

Attorney General

of Alabama

11 South Union Street

Montgomery, Alabama

36130

Phone: (334) 242-7300

BILL LOCKYER

Attorney General

State of California

1301 I Street

Sacramento, California

94244

Phone: (916) 324-5433

RICHARD BLUMENTHAL

Attorney General

State of Connecticut

55 Elm Street

Hartford, Connecticut

06106

Phone: (860) 808-5040

LAWRENCE G. WASDEN

Idaho Attorney General

P. O. Box 83720

Boise, Idaho 83720

Phone: (208) 334-2400

LISA MADIGAN

Attorney General of Illinois

100 West Randolph Street

12th Floor

Chicago, Illinois 60601

Phone: (312) 814-3698

THOMAS J. MILLER

Attorney General of Iowa

Hoover State Office

Building

Des Moines, Iowa 50319

Phone: (515) 281-8373

J. JOSEPH CURRAN, JR.

Attorney General

of Maryland

200 St. Paul Place

Baltimore, Maryland 21202

Phone: (410) 576-6300

THOMAS F. REILLY

Attorney General

of Massachusetts

One Ashburton Place

Boston, Massachusetts

02108

Phone: (617) 727-2200

JEREMIAH W. (JAY) NIXON

Attorney General

of Missouri

Supreme Court Building

207 West High Street

Jefferson City, Missouri

65101

Phone: (573) 751-3321

PETER W. HEED

Attorney General

of New Hampshire

33 Capitol Street

Concord, New Hampshire

03301

Phone: (603) 271-3658

W. A. DREW EDMONDSON

Attorney General

of Oklahoma

2300 N. Lincoln Boulevard,

Suite 112

Oklahoma City, Oklahoma

73105

Phone: (405) 521-3921

HARDY MYERS

Attorney General

State of Oregon

1162 Court Street, N.E.

Salem, Oregon 97301

Phone: (503) 378-6002

ANABELLE RODRIGUEZ

Secretary of Justice

Commonwealth of

Puerto Rico

P. O. Box 9020192

San Juan, Puerto Rico

00902

Phone: (787) 723-2555

MARK L. SHURTLEFF

Utah Attorney General

236 State Capitol

Salt Lake City, Utah 84114

Phone: (801) 538-9600

DARRELL V. MCGRAW, JR.

Attorney General

of West Virginia

P. O. Box 1789

Charleston, West Virginia

25326

Phone: (304) 558-8986

as

QUESTION PRESENTED

Will this Court allow a decision of the Federal Circuit

— a federal appellate court of national jurisdiction — to

stand, where the court rejected a jury's factual determina-

tion in favor of its own view of the facts, on a question of

state law which is outside the scope of its specialized

jurisdiction, and where the decision is likely to cause

substantial harm to the operation of open markets and,

thus, to the public interest?

ii

TABLE OF CONTENTS

Page

SU EEG FOES EBRD «sss cevnevecercsosssesecenseosseseceoses i

I a Cre a viicdesinnensseritenceciosioasanresieses li

pv oR fe PF Ning. 6) i yy! - SR eeenrrererennnre iv

INTEREST OF THE AMICI STATES ..................0000 1

DFU TNG Es escsccishvcnsnsyececiinineninsanctctsennstlpaavioniotin 3

I. THE RESULT IN THIS CASE WILL FRUS-

TRATE THE GROWTH AND DEVELOPMENT

OF AN IMPORTANT AND EVOLVING MAR-

KET AND THUS RISKS SUBSTANTIAL HARM

TO CONSUMERS’ INTEREST IN THE READY

AVAILABILITY OF INNOVATIVE AND AF-

FORDABLE TECHNOLOGY. ...........ccccceceeeeeeees 3

A. Voluntary Industry Standard-Setting

Organizations Facilitate Industry

Growth and Support Competitive Mar-

kets, Especially in the Advanced Infor-

mation Technology Industry. .................+ 3

B. The Federal Circuit’s Decision Interferes

With the Work of Voluntary Industry

Standard-Setting Organizations by Fa-

cilitating the Capture of Industry Stan-

dards by Participants in the Standard-

I ID ccseccscenssiisnrnomincinincorenenins 6

C. The Federal Circuit’s Analysis Supports

Anticompetitive Conduct to the Detri-

ment of Consumers and the Industry. ..... 8

ili

TABLE OF CONTENTS -— Continued

Page

II. THE FEDERAL CIRCUITS INTERFERENCE

WITH A JURYS VERDICT ON A STATE

COMMON LAW CLAIM UNDERMINES THE

RATIONAL AND PREDICTABLE ADMINI-

STRATION OF THE LAW THAT IS NECES-

SARY TO SUPPORT THE REASONABLE

BUSINESS EXPECTATIONS OF THE STATES’

COINGLATIIIIN saveccescrcsossoverssssnnesescssenaasucsheabbenwebonesene 18

a

iv

TABLE OF AUTHORITIES

Page

CASES

Allied Tube & Conduit Corp. v. Indian Head, Inc.,

ABG U.S. 492 (1988)........cccsesseserreecessesssnereeeesennennanees 10, 11

American Soc. Of Mechanical Engs. ». Hydrolevel Corp.,

ABG U.S. 556 (1982)........sccssseeereceereesserseesesseeenenessensees 10

Atl. Richfield Co. v. Union Oil Co. of Cal.,

531 U.S. 1183 (2001) ........sccceessrrceesessrrresenenseeesenenees 11, 12

Boeing Co. v. Shipman,

411 F.2d 365 (Sth Cir. 1969).........cceeececeerreessreeeseereeseeees 15

Braun v. Abbott Laboratories,

124 F.3d 1419 (Fed. Cir. 1997)........sssscesrseesreeseresereeeeens 11

City Nat. Bank v. American C’wealth Financial Corp.,

801 F2d 714 (4th Cir. 1986), cert. denied, 479

U.S. 1091 (1987).......cesscccsssssssssseernseessesenerseeesessnnssseneesnss 14

In the Matter of Rambus, Inc.,

Federal Trade Commission Docket No. 9302

(June 18, 2002) (complaint) ...........essseseeeererrerrerrsererenes i

In re Dell Computer Corp.,

121 FTC. 616 (1996).......:.cccssscceeessreeseerreseessesestesssnenneeees 4

Lytle v. Household Mfg., Inc.,

ADA U.S. 545 (1990)......ccssssccccesreesseereeseeressersesnsrensnseees 14

Potter Instrument Co., Inc. v. Storage Technology Corp.,

207 U.S.P.Q. 763 (E.D. Va. 1980)......:-sssesserenreerereereesens 11

Rambus, Inc., v. Infineon Technologies AG, 318 F.3d

1081 (Fed. Cir. 2008)...........sscsscesseessssrsesrennesnenensnnsnnsseneees 1

Riles v. Shell Exploration & Production Co., -

295 F.3d 1302 (Fed. Cir. 2002)...........sseceseresreressererereees 15 |

Ultradent Products, Inc. v. Life-Like Cosmetics, Inc.,

127 F.3d 1065 (Fed. Cir. 1997).......:cssersseeereesseresseeneees 15

EE eee

v

TABLE OF AUTHORITIES - Continued

Page

In the Matter of Union Oil of Cal.,

Federal Trade Commission Docket No. 9305

(March 4, 2003) (complaint)..........s-ssssssereenereenersnerereees 11

Wratchford v. S.J. Groves & Sons Co., .

A405 F.2d 1061 (4th Cir. 1969).........ccecserreessreeeerenees sone 17

Weisgram v. Marley Co.,

528 U.S. 440 (2000)...........ssccssescessresseeesenseeessneasennsnsseees 15

STATUTES

Fred. R. Civ. P. 50 ........csccsssssssccsseeesresnssesecnssscnssensessnensrsonsenss 14

Sup. Ct. R. 10(a)......secssssseseseressssenenenensenensnsnnssnensncanensnsenens 16

OTHER

13 Philliy; Areeda & Herbert Hovenkamp, Antitrust

Law, ‘| 2202b (1999).........cerserreeresreeersersnreenesrennenne -ceeeees 13

James B. Gambrell, The Evolving Interplay of

Patent Rights and Antitrust Restraints in the

Federal Circuit, 9 Tex. Intell. Prop. LJ. 137

(2001).....cecsccerceceesersssccscssserersnssccecssensncnsessassessnnerenenssnenees 12

Thomas M. Jorde and David J. Teece, The Bounda-

ries of Horizontal Restraints: Communication

and Cooperation Among Competitors, 61 Anti-

trust Ld. 579 (1993).......sccsssccesreesserseenseersestessnnesserenensens 4

Mark A. Lemley, Antitrust and the Internet Stan-

dardization Problem, 28 Conn. L. Rev. 1041

(1996)..........cce-eccsssscsssssscssccerssssssesscererensessnsssnsnsnensnssnseeer® 5

Janice M. Mueller, Patent Misuse Through the

Capture of Industry Standards, 17 Berkeley Tech.

Lid. 623 (2OO2)........ccercccsssssssreceerscencrssnrssseecsnessnereenes 5,13

vi

TABLE OF AUTHORITIES -— Continued

National Institute of Standards and Technology

Special Pub. 806, Standards Activities of Organi-

zations in the United States, 2 (Sept. 1996)..............

Robert Pitofsky, Antitrust and Intellectual Property:

Unresolved Issues at the Heart of the New Econ-

omy, 16 Berkeley Tech. L.J. 535 (2001)........-.+-s+0+++

Carl Shapiro, Navigating the Patent Thicket: Cross

Licenses, Patent Pools, and Standard-Setting,

http://faculty.haas. berkeley.edw/shapiro/thicket. pdf

(March 2001)...........cccsssccsssssscssscsssssnscenssensonssscssensensnes

C. Wright and A. Miller, Federal Practice and

Procedure § 2521 (2d Ed. 1995) .........sscesesssesereeeesees

1

INTEREST OF THE AMICI STATES

The Commonwealth of Virginia and the States of

Alabama, California, Connecticut, Idaho, Illinois, Iowa,

Maryland, Massachusetts, Missouri, New Hampshire,

Oregon, Oklahoma, Utah and West Virginia (collectively

“the States”) have an important stake in preserving open

and competitive markets and the orderly and proper

administration of justice. The States’ Attorneys General

serve as representatives of the public interest, defending

the interests of consumers in a variety of contexts, and are

responsible to the public for the enforcement of antitrust

law. Their position of public trust imposes upon them a

unique duty to represent the public interest in cases where

the resolution of a legal dispute between private parties

will substantially affect the marketplace and threaten

serious harm to open competition and the benefits it

provides to consumers. Thus, the States have a vital role

in protecting the integrity of an efficient and competitive

marketplace for consumer goods and services.

This case arises out of the standard-setting work

of the Joint Electron Devices Engineering Council

(“JEDEC”), a voluntary association of companies that sets

technical standards for electronic products. The parties, a

technology development and licensing company (Rambus)

and a manufacturer of computer memory devices (In-

fineon), both participated - as members — in JEDEC’s

development and adoption of standards for certain com-

puter memory products. Members of JEDEC were ex-

pected to disclose to the group patents and patent

applications “related to” the standardization work of its

committees. Rambus, Inc., v. Infineon Technologies AG,

318 F.3d 1081, 1085 (Fed. Cir. 2003).

—_—_—s+

Approximately a year after JEDEC adopted a stan-

dard for certain computer chips, and Infineon had begun

2

manufacturing to that standard, Rambus accused Infineon

(and other similarly situated manufacturers) of patent

infringement and sought licensing fees. Infineon refused,

Rambus sued, and Infineon counterclaimed for, inter alia,

common law fraud, based on Rambus’ alleged failure to

disclose certain pending patent applications during the

JEDEC standard-setting process. In the District Court,

the jury found Rambus liable on two counts of fraud. Upon

Rambus’ motion ‘or judgment as a matter of law, the trial

court reversed the jury’s finding on one count of fraud and

allowed the jury verdict to stand as to the other. On

appeal, the Federal Circuit reviewed the record for facts

that would support a narrower duty than the duty relied

upon by the jury, and rever-2d the remaining fraud verdict

when it was able to isolate such facts from the record. It

then went on to enter judgment for Rambus, rather than

returning the case to the trial court for reconsideration in

light of the new duty articulated on appeal. The broad

consequences — for consumers, for business, and for the

law — likely to flow from the Federal Circuit’s clear error,

argue strenuously for review and reversal by this Court.

The work of voluntary industry standard-setting

organizations enhances the operation of the marketplace.

The decision of the Federal Circuit, however, delivers a

near fatal blow to that work by permitting industry

participants to enforce patents on the technology adopted

as the industry standard, in a manner contrary to the

express mutual goals of the organization and its members.

Voluntary industry efforts to adopt standards free of

patent monopoly encourage competition and are, therefore,

good for consumers, reducing the price and encouraging

the broad manufacture of products, increasing the supply

of products, and supporting additional investment in

ee

3

innovation. The Federal Circuit’s decision will discourage

industry participation in standard-setting organizations,

thereby harming consumers as well as the many small

companies able to participate in the market only when

costs remain low.

The Amici States also protest the Federal Circuit’s

substitution of its own view of the facts for that of a jury,

thereby reversing the jury’ determination of a state

common law fraud claim. The Federal Circuit’s interfer-

ence with the province of the jury on a pendant state law

claim undermines the rational and predictable admini-

stration of the law voutinely relied upon by the individual

and corporate citizens of the Amici States.

,%

v

ARGUMENT

I. THE RESULT IN THIS CASE WILL FRUS-

TRATE THE GROWTH AND DEVELOPMENT

OF AN IMPORTANT AND EVOLVING MAR-

KET AND THUS RISKS SUBSTANTIAL HARM

TO CONSUMERS’ INTEREST IN THE READY

AVAILABILITY OF INNOVATIVE AND AF-

FORDABLE TECHNOLOGY.

A. Voluntary Industry Standard-Setting Or-

ganizations Facilitate Industry Growth

and Support Competitive Markets, Espe-

cially in the Advanced Information Tech-

nology Industry.

Countless products used by consumers today are

touched by standards that govern some aspect of their

construction or use. A common example is the ordinary

light bulb. Whether a consumer buys a light bulb from GE,

4

Sylvania, Westinghouse or another manufacturer, he can

take for granted that the bulb will fit into the light socket

in his ceiling. He does not have to worry about whether

the sizes will be slightly different or whether the screw

threads will match up. Some bulbs may burn brighter.

Some may burn longer. Some may be cheaper. But they all

will fit. As a result, the consumer has choices about which

bulb to buy. He is not the captive of whichever company’s

light socket is installed in his home. This sort of uniformity

— and the resulting benefits to consumers — are not acciden- ,

tal. They are the result of an industry standard, voluntarily

adopted through a standard-setting organization. |

Today, telecommunications infrastructures crucial to

our day to day lives — including those that support the

internet — literally could not exist without agreed-upon

industry standards. Hundreds of private voluntary indus-

try associations function as standard-setting organizations

and are responsible for almost 50,000 different sets of

standards. National Institute of Standards and Technology

Special Pub. 806, Standards Activities of Organizations in

the United States, 2, 4 (Sept. 1996).

In high technology markets, entry into and competi-

tive participation in the marketplace is increasingly

dependent on the discovery, development, improvement,

and adoption of new processes, new products, and new

organizational structures and procedures. Thomas M.

Jorde and David J. Teece, The Boundaries of Horizontal

Restraints: Communication and Cooperation Among |

Competitors, 61 Antitrust L.J. 579, 581 (1993). The pace of

the innovation that drives technology markets depends, in

turn, on adoption of industry standards. In re Dell Com-

puter Corp., 121 E.T.C. 616 (1996). See also Carl Shapiro,

Navigating the Patent Thicket: Cross Licenses, Patent

oS

5

Pools, and Standard-Setting, at 19, http://faculty.

haas.berkeley.edu/shapiro/thicket.pdf (March 2001). Only

where there are agreed-upon industry standards for new

technologies, not subject to the prohibitive costs of exorbi-

tant licensing fees, will those new technologies enter the

marketplace at competitive prices from numerous manu-

facturers in ways that maximize their availability to

consumers regardless of prior purchases. Compatibiuty —

or “interoperability” — is key.

As other industries before it, high technology markets

strive to adopt voluntary, industry-wide standards because

without product interoperability, markets for new technol-

ogy will contract and support fewer companies. Mark A.

Lemley, Antitrust and the Internet Standardization Prob-

lem, 28 Conn. L. Rev. 1041, 1047 (1996). Just as there is a

need for a standard light socket, so that light bulbs from

various manufacturers all fit, so too must there be some

standardization in the realm of high technology. Commu-

nication tools such as notebook computers, personal digital

assistants, cellular telephones, and pagers must be able to

communicate with each other, even across manufacturers,

in order to be useful. Likewise, consumers demand new

software programs that will operate on all of these devices,

no matter who makes them. Janice M. Mueller, Patent

Misuse Through the Capture of Industry Standards, 17

Berkeley Tech. L.J. 623, 633 (2002). Interoperability

standards, therefore, are critical to meeting consumer

demand in these markets, and meeting consumer demand

is what enables the industry to continue investing in the

development of new innovation. Thus, the efficient growth

6

of the high technology industry depends in a significant

way on the effectiveness of voluntary industry standard-

setting organizations.’ The ability of standard-setting

bodies to develop effective industry standards is placed at

substantial risk by the Federal Circuit’s complete failure

to conduct its review in context and by its insistence on

reexamining and redetermining the facts of this case.

B. The Federal Circuit’s Decision Interferes

With the Work of Voluntary Industry

Standard-Setting Organizations by Facili-

tating the Capture of Industry Standards

by Participants in the Standard-Setting

Process.

In order to function as intended to expand markets

and competition, and to lower costs — all of which inure to

the benefit of consumers — it is important that either:

' For instance, interoperability is vital for the silicon chips that

comprise the components of a computer. They must be able to commu-

nicate with each other in order to make the computer run. Where the

performance of one type of chip is significantly enhanced by innovation,

other chips that interact with the improved chip must keep pace in

order to realize the full potential of the improved chip. If this does not

happen, the benefit of that innovation will not be realized. Such an

impediment — a “memory bottleneck” — existed as the result of computer

memory chips that operated at a relatively slow speed when communi-

cating with a relatively faster central processing unit. The slow speed

chips hindered technological progress in the computer industry. In the

Matter of Rambus, Inc., Federal Trade Commission Docket No. 9302

q 11 (June 18, 2002) (complaint). A faster method of communication was

developed between these two types of chips, but the success of the

innovation depended on the development and adoption of industry

standards for the design and implementation of the innovation. Id. at

7 12, 13.

7

(i) adopted standards not be subject to patents; or (ii) if

they are the subject of a participant’s patent, the stan-

dard-setting body’s participants know about it, before the

standard is adopted, so that alternatives can be considered

and informed choices made. A standard-setting organiza-

tion can only avoid standardizing patented technology if

industry participants disclose relevant and necessary

information concerning their patent portfolios as the

standard is developed. The duty of participants to the

organization — and reliable enforcement of that duty — are

at the crux of effective standard-setting efforts.

In order to achieve the goal of adopting open stan-

dards that members of the industry can use or apply

without the costs associated with technology licensing, and

to manage the concomitant risk that an industry partici-

pant will pursue adoption of a standard on which it holds

the patent, the standard-setting body must be able to

require disclosure of information even among horizontal

competitors or, in the alternative, impose licensing terms

on participants’ patents not disclosed. Competitors will not

be willing to participate, or to share information as neces-

sary to avoid adopting a standard that utilizes patented

technology, unless they have a reasonable expectation that -

the law will protect them from a participant who would

take advantage of the process to “capture” the standard —

that is, to have the body unknowingly adopt a standard

that includes patented technology owned by the partici-

pant. Lemley, 28 Conn. L. Rev. at 1086. Therefore, stan-

dard-setting organizations and their individual partici-

pants must be able to rely on the law to enforce the duty of

each participant to share openly relevant information

8

concerning its development of the technology at issue.

Such disclosure is inherent in the standard-setting effort.

The Federal Circuit’s analysis of the JEDEC members’

duty to disclose relevant patent information ignores all of

this. Instead, the Court below engaged in a strained

parsing of the language of two documents to conclude that

the disclosure duty imposed on participants in JEDEC’s

standard-setting efforts was a very narrow one. The court

reached this conclusion in spite of substantial evidence to

the contrary and even though the duty it articulated is

hostile and counterproductive to the goal of adopting open

standards.

The clear message in the Federal Circuit’s decision is

that the interests of potential patent holders are superior

to the public interest in open standards and to the reason-

able expectations of participants in standard-setting

efforts. That message is profoundly anticompetitive and

adverse to the public interest. Nothing in the law requires

such a result. To leave the court’s ruling undisturbed

would be to undermine and inhibit the valuable and

necessary work of voluntary standard-setting organiza-

tions.

C. The Federal Circuit’s Analysis Supports

Anticompetitive Conduct to the Detri-

ment of Consumers and the Industry.

The minimal duty described by the Federal Circuit

would allow industry participants in standard-setting

organizations to circumvent entirely the procompetitive

goals of the organization. It would permit participants to

withhold information about pending patent applications

that might then be inadvertently incorporated into the

standard. Such conduct, permitted unchecked by the

9

courts, would transform standard-setting organizations

and trade associations into safe havens for members

seeking to monopolize the industry by anticompetitive

conduct. Absent an effective duty of disclosure in the

standard-setting context, the shield that protects intellec-

tual property rights — and thus provides an incentive for

investment in the development of new technology — be-

comes a sword with which to exclude the competition.

Participants in standard-setting organizations ought not

be permitted to wield that sword to subvert the innova-

tion-enhancing and market-support purposes of the

organization.”

Just as a system of law that under-protects intellec-

tual property rights can harm an industry's incentives to

innovate, a system of law that over-protects those same

rights harms consumers. Over-protecting intellectual

property rights reduces competition, which eventually also

reduces incentives to innovate, Pitofsky, 16 Berkeley Tech.

L.J. at 542-43, and it disadvantages consumers by leaving

them with fewer choices at higher prices. The Federal

Circuit’s decision tips the balance so far in favor of intel-

lectual property rights that it invites anticompetitive

overreaching by patent holders to flourish unimpeded by

2 As the former Chairman of the Federal Trade Commission has

explained:

Intellectual property rights subsidize investments in inno-

vation by granting substantial, but time-limited, market

power. Antitrust ensures that firms compete, and by com-

peting, seek new roads to innovation. It also prevents domi-

nant firms from harming and retarding innovation.

Robert Pitofsky, Antitrust and Intellectual Property: Unresolved Issues

at the Heart of the New Economy, 16 Berkeley Tech. L.J. 535, 542

(2001).

Ce

10

the countervailing legal protections offered by state

statutory and common law and relied upon by the other -

participants in standard-setting organizations.

The magnitude of this problem has become increas-

ingly clear since this Court decided American Soc. Of

Mechanical Engs. v. Hydrolevel Corp., 456 U.S. 556 (1982).

In that case, the Court held that an industry association

violated antitrust law by allowing a participant to unduly

influence the association’s officers to issue an informal

statement about a competitor’s non-compliance with its

standards. The result reflects the understanding that the

association’s standards could “affect the destinies of

businesses and thus [gave] them the power to frustrate

competition in the marketplace.” Id. at 570-71.

This Court next considered the potential for subver-

sion of a trade association’s standards for an anticompeti-

tive purpose in Allied Tube & Conduit Corp. v. Indian

Head, Inc., 486 U.S. 492 (1988). There, this Court upheld a

jury verdict against an industry participant, finding that

the organization’s consensual standard-making process

was corrupted by a member who had an economic interest

in stifling competition for its product. Id. at 497-98, 499,

511. This Court agreed with the Second Circuit that hi-

jacking the purposes of the standard-setting organization

created an unreasonable restraint of trade by preventing

competition by all manufacturers of products that did not

meet the restrictive code passed. Id. at 498, 499."

* This Court originally granted cert. on the issue of whether the

subversion of the standard-setting process also violated the Sherman

Act, but vacated that grant as “improvident.” Allied Tube, 486 U.S. at

(Continued on following page)

11

Lower courts also have held that patents obtained

through manipulation of the disclosure rules of standard-

setting bodies are unenforceable because of the anticom-

petitive effect that such an unwarranted extension of a

member’s patent rights would have on the relevant mar- -

ket. In Potter Instrument Co., Inc. v. Storage Technology

Corp., the patent holder was estopped from asserting its

patent rights because it intentionally concealed its intel-

lectual property rights despite the standard committee’s

policy to the contrary, thus allowing the patent holder to

gain “a monopoly on the ... industry standard without

any obligation to make its use available on reasonable

terms to competitors in the industry.” 207 U.S.P.Q. 763,

769 (E.D. Va. 1980). In Braun v. Abbott Laboratories, the

Federal Circuit itself noted that the patent misuse doc-

trine limits abuse of patent rights separately from the

anti?:ust laws by estopping the assertion of patent rights

where the patentee has achieved an anticompetitive effect

by improperly broadening the scope of the patent grant.

124 F.3d 1419, 1426 (Fed. Cir. 1997)." .

499 n.3. The Court later noted, however, that the purpose behind the

manipulation of the standard-setting body was anticompetitive. Id. at

511.

‘In Atl. Richfield Co. v. Union Oil Co. of Cal., 581 U.S. 1183

(2001), several major oil refiners failed to obtain declaratory judgment

to invalidate the patents Unocal claimed were infringed by the new

clean-burning regulations issued by the California Air Resources Board

(“CARB”). Expressing great deference to the jury, the Federal Circuit

refused to overturn the verdict in that case and this Court denied cert.

The Federal Trade Commission, however, has since issued an antitrust

complaint against Unocal for illegally monopolizing the market for

clean-burning gasoline under the CARB standards because of its

manipulation of the CARB standard-setting process. See In the Matter

(Continued on following page)

12

Unfortunately, the Federal Circuit in this case ignored

the principles that underlie this line of cases and instead

overturned a jury’s factual findings in order to protect the

interests of the patent holder in a manner altogether

inconsistent with the purposes of all standard-setting

organizations. The Federal Circuit, by analyzing these

non-patent issues with a patent enforcement approach,

undermines the principles of equity embodied in state

fraud and antitrust law. See James B. Gambrell, The

Evolving Interplay of Patent Rights and Antitrust Re-

straints in the Federal Circuit, 9 Tex. Intell. Prop. L.J. 137,

138 (2001). Instead of permitting patent rights to be

circumscribed by basic fraud and antitrust principles, the

Federal Circuit has weakened the influence of these two

areas of law in the patent context. Id., at 139.

The Federal Circuit’s narrow and grudging reading of

the disclosure duty created by JEDEC’s written rules gives

inordinate weight to patent protection in the balancing

process between the intellectual property rights of the

respondent and the antitrust principles that govern the

memory chip industry. In addition, the Federal Circuit’s

endorsement of Rambus’ acquisition of market power over

the industry standard and subsequent effort to establish

its own ex post royalty rate invites a host of anticompeti-

tive outcomes: monopolization of the market by the patent

holder; discriminatory licensing among competitors;

conditioning of a license on extortionate terms, such as

cross-licensing or exorbitant royalty rates; and generally

of Union Oil Co. of Cal., Federal Trade Commission Docket No. 9305

(March 4, 2003) (complaint).

13

allowing the patent holder to extend its market power

beyond the scope of the patent grant itself, adding to it the

leverage of the adopted standard. See generally, Pitofsky,

16 Berkeley Tech. L.J. at 546; Mueller, 17 Berkeley Tech.

L.J. at 669. All these effects sacrifice and subvert competi-

tion, and thus reduce industry output and raise prices to

consumers, to a degree far in excess of what is necessary

to generate incentives to innovate.

Allowing a single participant in a standard-setting

organization to capture an industry standard not only

causes anticompetitive disruptions in the marketplace, but

also discourages industry members from voluntary par-

ticipation in such organizations. This is so whether the

industry standard is captured by fraudulent means or by a

Federal Circuit decision construing the disclosure duty so

narrowly as to be meaningless. In turn, this inhibits the

vital work of standard-setting bodies and, thus, inhibits

innovation, all of which is often more valuable to consum-

ers than competitive pricing among products. See 13

Phillip Areeda & Herbert Hovenkamp, Antitrust Law,

q 2202b, at 218 (1999).

Il. THE FEDERAL CIRCUITS INTERFERENCE

WITH A JURY’S VERDICT ON A STATE COM-

MON LAW CLAIM UNDERMINES THE RaA-

TIONAL AND PREDICTABLE ADMINISTRATION

OF THE LAW THAT IS! NECESSARY TO SUPPORT

THE REASONABLE BUSINESS EXPECTATIONS

OF THE STATES’ CITIZENS.

The Federal Circuit’s decision turns upside down the

rules governing appellate review of jury verdicts. Instead

of focusing on whether there was substantial evidence to

support the jury’s verdict in favor of Infineon, the Court of

OO

14

Appeals substituted its own view of the facts for that of

the jury. Such a marked departure from the rules merits

certiorari for several reasons, especially in this case. First,

the ill-conceived precedent thus created, by a court of

nationwide jurisdiction, tends to undermine fidelity to the

pertinent rules throughout the federal court system.

Second, by disdaining the jury’s role in a claim involving

business expectations, the decision tends to undermine the

confidence on which business depends, a result all the

more disturbing because standard-setting activity cannot

succeed absent confidence in the process. Third, by dis-

daining the jury’s role in a claim arising under state law,

the decision tends to undermine principles of federalism.

The decision of the Federal Circuit in this case

breaches the most fundamental principles of appellate

review. Where a jury verdict survives a motion for judg-

ment as a matter of law, the trial court’s decision on

appeal is subject to the same Rule 50 standard that

applied to the motion itself. See e.g., City Nat. Bank v.

Amerivan C’wealth Financial Corp., 801 F.2d 714, 718 (4th

Cir. 1986), cert. denied, 479 U.S. 1091 (1987). Thus, a

jury’ verdict should be overturned only if “there is no

legally sufficient evidentiary basis for a reasonable jury to

find” as it did. Fed. R. Civ. P. 50. The appellate court is not

free to reweigh the evidence, but must view the evidence

in a light most favorable to the party that won the jury

verdict. Lytle v. Household Mfg., Inc., 494 U.S. 545, 554-55

(1990). An appellate court must resist the temptation to

substitute its own view of the facts for that of the jury,

15

except where the law demands it.* Weisgram v. Marley Co.,

528 U.S. 440, 447-48 (2000); C. Wright and A. Miller,

Federal Practice and Procedure § 2521 (2d Ed. 1995). But

the Federal Circuit in this case could not resist: substitut-

ing its own view of the facts for that of the jury is precisely

what it did.

Reading the panel opinion together with the dissent

establishes that this case epitomizes a situation in which

the jury’s conclusions of fact are entitled to traditional

appellate deference. The dissent discusses the facts sup-

porting the jury verdict and explains why they are legally

sufficient. The majority, on the other hand, does not

attempt to discuss those facts, or to negate their legal

sufficiency, so much as it discusses other facts that would

have entitled the jury to decide the other way. In other

words, each opinion recites evidence legally sufficient to

support different conclusions of fact. It is in precisely this

posture that proper application of the rules of appellate

review demands that the jury’s verdict be sustained on

appeal. Where reasonable minds can reach different

conclusions based on the evidence, the verdict of the jury

ought not be disturbed. See, e.g., Boeing Co. v. Shipman,

411 F.2d 365, 374-75 (5th Cir. 1969).

* The Federal Circuit itself has acknowledged this rule in other

cases. See, e.g., Riles v. Shell Exploration & Production Co., 295 F.3d

1302, 1308 (Fed. Cir. 2002) (affirming JMOL by trial court on one claim

and jury’s verdict on another); Ultradent Products, Inc. v. Life-Like

Cosmetics, Inc., 127 F.3d 1065, 1070 (Fed. Cir. 1997) (examining the

evidence that supported the jury’s verdict and affirming the district

court’s denial of JMOL). However, in this case, it ignored the rule

altogether.

16

Nonetheless, the panel majority granted no deference

at all to the facts implicitly relied upon by the jury, or to

the determination of the trial judge, though both enjoyed

the benefit of the entire trial, hearing first hand and in

person the testimony of the witnesses. Instead, even after

acknowledging that both the existence and scope of a duty

to disclose were questions of fact, the Federal Circuit

reevaluated the record on its own. In so doing, the court

answered the wrong question. Instead of reviewing the

record to confirm that it contained sufficient facts to

support the jury’s verdict, it looked for, and found, evi-

dence that could have supported a contrary conclusion.

Although it recited the words, the Federal Circuit did not

explain why there was no legally sufficient evidence to

support the jury’s verdict. Nor did it explain why the law

required a result contrary to that reached by a jury. The

review was improper and wholly inadequate to support the

reversal of a jury verdict on appeal.

Under the rules of this Court, certiorari is appropriate

where “a United States court of appeals ... has so far

departed from the accepted and usual course of judicial

proceedings ... as to call for an exercise of this Court's

supervisory power.” Sup. Ct. R. 10(a). The exercise of the

Court’s supervisory authority is especially important here

because of the particular nature of this case. The decision

at issue was not rendered by a regional court of appeals,

but by a court having nationwide, albeit specialized,

jurisdiction. Thus, the need for supervision is more urgent,

both to ensure adherence to the rules by that tribunal and

to avoid the nationwide precedent that an uncorrected

departure would establish.

Moreover, the decision of the Federal Circuit has the

effect of disrupting the settled expectations of citizens,

17

both corporate and individual, who rely upon an orderly

system of laws in their daily commerce. The Court’s

decision interferes with recourse to, and discourages

reliance on, state common law principles to protect busi-

ness interests and expectations in the face of the substan-

tial market power bestowed on the developers of

intellectual property by federal patent law. In effect, the

decision below stands for the proposition that a business

may — in the name of intellectual property rights — engage

in conduct that a jury has branded as fraud, and that it

may do so even in the standard-setting arena, where

honest disclosure and cooperation are essential to competi-

tion, progress and the public good.

Finally, concerns for the Federal Circuit’s misguided

decision are exacerbated by the fact that the claim at issue

is a state law claim, heard by the federal district court in

the exercise of its pendent jurisdiction. As a matter of

comity between sovereigns, federal appellate courts,

particularly the Federal Circuit, should be especially

scrupulous not to thwart the application of state law by

disrupting jury verdicts on such claims.

The States depend on their citizens’ respect for and

trust in the fair and reasonable application of the States’

laws. That trust depends, in turn, on a system of justice

that is credible and reasonably predictable. “Faith in the

ability of a jury, selected from a cross-section of the com-

munity, to choose wisely among competing rational infer-

ences in the resolution of factual questions lies at the

heart of the federal judicial system.” Wratchford v. S.J.

Groves & Sons Co., 405 F.2d 1061, 1065-66 (4th Cir. 1969).

When a court acts outside the rules that ordinarily govern

the system, that trust and respect are at risk. Moreover,

by its decision in this case, the Federal Circuit has so

18

elevated the rights of patent holders that they eclipse the

duty to comply with generally applicable state law of fraud

— the law that serves to vindicate the reasonable reliance

and expectations of businesses and individuals on a

common standard of forthrightness. This court must not

countenance such a result.

e

_

CONCLUSION

The petition for writ of certiorari should be granted.

Respectfully submitted,

JERRY W. KILGORE

Attorney General of Virginia

WILLIAM H. HuRD

State Solicitor

MAUREEN RILEY MATSEN

Counsel of Record

Deputy State Solicitor

WILLIAM E. THRO

Deputy State Solicitor

SARAH OXENHAM ALLEN

Assistant Attorney General

900 East Main Street

Richmond, Virginia 23219

(804) 786-2436 (voice)

(804) 371-0200 (facsimile)