SAN JOSE, Calif. - Computer chip designer Rambus Inc. could pocket up to $3 billion in royalties and raise prices for consumers of all manner of computing devices if an administrative law judge's ruling in its favor is allowed to stand, the Federal Trade Commission argued in an appeal.
In the filing, the FTC legal staff said Stephen J. McGuire's ruling was "fatally flawed" as well as based on factual and legal errors. In February, McGuire, who is the agency's chief administrative law judge, dismissed charges that Rambus had lulled chip makers into including its patented technology in their standards.
"This decision is wrong in its premises, wrong in its analysis, and wrong in its outcome," according to the appeal, which was made public last week.
The filing warns that any Rambus royalties collected by chip makers would ultimately be paid by consumers who buy personal computers, gadgets and a variety of other devices that rely on silicon-based memory.
The commission is expected to hear the FTC staff's appeal, though the timing has not been announced. Any decision could then be brought before a federal appellate court.
Rambus, incorporated in 1990, licenses technology that speeds up computer memory. In its June 2002 complaint, the FTC alleged Rambus failed to disclose a patent and applications that involved several technologies that were eventually adopted by a standards-setting group.
As a result, the Los Altos, Calif.-based company actively sought royalties and sued semiconductor makers who based their fast memory chips on the standard.
But in his 334-page decision, McGuire found the rules for the standards-setting group were vague. He also cited numerous cases in which chip makers appeared to be working together to stop Rambus' RDRAM memory from making inroads in the PC industry.
At the time, Rambus seemed to have considerable momentum. Its technology was backed by Intel Corp., the leading maker of microprocessors. In e-mails quoted by McGuire, memory chip makers complained they did not want to pay royalties to Rambus or have their business decisions dictated by Intel, which had stopped making memory in the 1980s.
Ultimately, Intel backed off its support of Rambus and supported alternative memory designs.
"We think the administrative law judge devoted an extraordinary amount of time analyzing a very complicated set of facts," said John Danforth, Rambus' general counsel. "(The decision) holds up on a number of independent grounds."
Danforth also took issue with the FTC staff's claims that Rambus stands to earn up to $3 billion in royalties from its alleged anticompetitive behavior.
"Those numbers have been inflated significantly," he said. "We don't give out information about royalties. Even the analysts who cover us don't have numbers like that."
Earlier this month, Rambus reported first-quarter income of $8.3 million on revenue of $32.5 million.
Shares of Rambus fell $2.93, or more than 12 percent, to close at $21.11 in Tuesday trading on the Nasdaq Stock Market. ___
Calls outnumber puts by about 4:1. The open interest is not that large, but it makes me wonder if they're going to make all of those call holders end up that smart.
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