There is no practical alternative to the Ethernet standard, which enables machines to communicate
in local area networks. Used in nearly every computer in the country, both computer makers and users are locked into the standard. It goes without saying, then, that the patents covering part of that standard are crucial.
Not surprisingly, the owner of these patents, Negotiated Data Solutions (NDS), decided to take advantage of the situation by demanding more money from companies that wanted to build or sell computers capable of Ethernet communication.
"Section 5 sets no limits on what one can and can't do," says Geraldine Alexis, an antitrust litigator at Perkins Coie. "So how can in-house counsel advise their internal clients about what they can and can't do?"
The FTC's action is especially significant to IP owners. It demonstrates that the FTC intends to keep an eye on the way these owners exploit their rights--particularly if the IP affects an industry standard.
The FTC has been active in this area before. The agency has chastised Rambus (in 2006), Dell (in 1996) and other companies for allegedly taking advantage of the process for setting industry standards. These companies have gotten into trouble because they supposedly participated in standard-setting without disclosing that they had patents covering aspects of the proposed new standards.
It is far from clear whether the FTC will reach into these areas. "A lot will depend on the FTC's budget," Handler says. "With the war in Iraq, the budget for enforcement has been drastically cut."
The upcoming election also will be significant. "If the Democrats take the White House, the FTC is likely to be even more active in this area," Handler says.