[Federal Register Volume 60, Number 225 (Wednesday, November 22, 1995)]
[Notices]
[Pages 57870-57873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28459]
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FEDERAL TRADE COMMISSION
[File No. 931-0097]
Dell Computer Corp.; Consent Agreement With Analysis To Aid
Public Comment
AGENCY: Federal Trade Commission.
ACTION: Consent agreement.
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SUMMARY: In settlement of alleged violations of federal law prohibiting
unfair acts and practices and unfair methods of competition, this
consent agreement, accepted subject to final Commission approval, would
require Dell not to enforce patent rights against computer
manufacturers using the VL-bus, a mechanism to transfer instructions
between a computer's central processing unit and peripherals such as a
video monitor, which had been accepted by the Video Electronics
Standards Association (VESA) as the industry standard. The Commission
had alleged that Dell, as a member of the VESA, did not disclose to
other VESA members that it held patent rights to the VL-bus technology
at the time the VESA standard for such technology was adopted and then
later attempted to enforce those patent rights against certain VESA
members, in an effort to unilaterally impose costs on its rivals.
DATES: Comments must be received on or before January 22, 1996.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th Street and Pennsylvania Avenue NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT:
William J. Baer, Bureau of Competition, Federal Trade Commission, H-
374, 6th Street and Pennsylvania Avenue NW., Washington, DC 20580.
(202) 326-2932.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the
Commission's rules of practice (16 CFR 2.34), notice is hereby given
that the following consent agreement containing a consent order to
cease and desist, having been filed with and accepted, subject to final
approval, by the Commission, has been placed on the public record for a
period of sixty (60) days. Public comment is invited. Such comments or
views will be considered by the Commission and will be available for
inspection and copying at its principal office in accordance with
Sec. 4.9(b)(6)(ii) of the Commission's rules of practice (16 CFR
4.9(b)(6)(ii)).
Agreement Containing Consent Order To Cease and Desist
The Federal Trade Commission (``Commission'') having initiated an
investigation of certain acts and practices of the Dell Computer
Corporation (``Dell''), and it now appearing that Dell Computer
Corporation, hereinafter sometimes referred to as proposed respondent,
is willing to enter into an agreement containing an order to cease and
desist from engaging in the acts and practices being investigated, and
providing for other relief,
It is hereby agreed by and between the proposed respondent, by its
duly authorized officer and its attorney and counsel for the Commission
that:
1. Proposed respondent Dell is a corporation organized, existing
and doing business under and by virtue of the laws of the State of
Delaware, with its offices and principal place of business located at
2214 West Braker Lane, Austin, Texas 78758.
2. Proposed respondent admits all the jurisdictional facts set
forth in the draft of complaint.
3. Proposed respondent waives:
(a) Any further procedural steps;
(b) The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
(c) All rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement;
and
(d) Any claim under the Equal Access to Justice Act.
4. Proposed respondent shall submit with this agreement an initial
report signed by the proposed respondent setting forth in precise
detail the manner in which the proposed respondent will comply with
Paragraph IV of the order when and if entered. Such report will not
become part of the public record unless and until the accompanying
agreement and order are accepted by the Commission. At the time such
report is submitted, proposed respondent may request confidentiality
for any portion thereof with a precise showing of justification
therefor.
5. This agreement shall not become part of the public record of the
proceeding unless and until it is accepted by the Commission. If this
agreement is accepted by the Commission it, together with the draft of
complaint contemplated thereby, will be placed on the public record for
a period of sixty (60) days and information in respect thereto publicly
released. The Commission thereafter may either withdraw its acceptance
of this agreement and so notify the proposed respondent, in which event
it will take such action as it may consider appropriate, or issue and
serve its complaint (in such form as the circumstances may require) and
decision, in disposition of the proceeding.
6. This agreement is for settlement purposes only and does not
constitute an admission by proposed respondent that the law has been
violated as alleged in the draft of complaint, or that the facts as
alleged in the draft complaint, other than jurisdictional facts, are
true.
7. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Sec. 2.34 of the Commission's
rules of practice, the Commission may, without further notice to the
proposed respondent, (1) issue its complaint corresponding in form and
substance with the draft complaint and its decision containing the
following order to cease and desist in disposition of the proceeding,
and (2) make information public in respect thereto. When so entered,
the order to cease and desist shall have the same force and effect and
may be altered, modified, or set aside in the same manner and within
the same time provided by statute for other orders. The order shall
become final upon service. Delivery by the U.S.
[[Page 57871]]
Postal Service of the complaint and decision containing the agreed-to
order to proposed respondent's address as stated in this agreement
shall constitute service. Proposed respondent waives any right it may
have to any other manner of service. The complaint may be used in
construing the terms of the order, and no agreement, understanding,
representation, or interpretation not contained in the order or
agreement may be used to vary or contradict the terms of the order.
8. Proposed respondent has read the proposed complaint and order
contemplated hereby. Proposed respondent understands that once the
order has been issued, it will be required to file one or more
compliance reports showing that it has fully complied with the order.
Proposed respondent further understands that it may be liable for civil
penalties in the amount provided by law for each violation of the order
after it becomes final.
Order
I
It is ordered that, as used in this order, the following
definitions shall apply:
A. ``Respondent'' or ``Dell'' means Dell Computer Corporation, its
predecessors, subsidiaries, divisions, groups, and affiliates
controlled by Dell Computer Corporation, their successors and assigns,
and their directors, officers, employees, agents and representatives.
B. ``Designated representative'' means the person appointed by Dell
to the standard-setting organization who communicates respondent's
position regarding respondent's patent rights related to any standard
under consideration by the standard-setting organization.
C. ``VESA'' means the Video Electronics Standards Association,
located at 2150 North First Street, Suite 440, San Jose, California,
95131.
D. ``VL-bus'' means the computer local bus design standard VESA
established in August 1992 for the transmission of computer information
between a computer's central processing unit and certain computer
peripheral devices.
E. ``'481 patent'' means United States patent number 5,036,481.
F. ``Commission'' means the Federal Trade Commission.
II
It is further ordered that, within thirty (30) days after the date
of this order becomes final, and until July 31, 2008, respondent shall
cease and desist all efforts it has undertaken by any means, including
without limitation the threat, prosecution or defense of any suits or
other actions, whether legal, equitable, or administrative, as well as
any arbitrations, mediations, or any other form of private dispute
resolution, through or in which respondent has asserted that any person
or entity, by using or applying VL-bus in its manufacture of computer
equipment, has infringed the '481 patent.
III
It is further ordered that, until July 31, 2008, respondent shall
not undertake any new efforts to enforce the '481 patent by
threatening, prosecuting or defending any suit or other action, whether
legal, equitable, or administrative, as well as any arbitration,
mediation, or other form of private dispute resolution, through or in
which respondent claims that any person or entity, by using or applying
VL-bus in its manufacture of computer equipment, has infringed the '481
patent.
IV
It is further ordered that, for a period of ten (10) years after
the date this order becomes final, respondent shall cease and desist
from enforcing or threatening to enforce any patent rights by asserting
or alleging that any person's or entity's use or implementation of an
industry design standard infringes such patent rights, if, in response
to a written inquiry from the standard-setting organization to
respondent's designated representative, respondent intentionally failed
to disclose such patent rights while such industry standard was under
consideration.
V
It is further ordered that, for a period of ten (10) years after
this order becomes final, respondent shall maintain the procedure for
assuring compliance with Paragraph IV of this order, as accepted by the
Commission pursuant to Paragraph 4 of the Agreement Containing Consent
Order to Cease and Desist.
VI
It is further ordered that respondent shall:
A. Within thirty (30) days after the date this order becomes final,
distribute a copy of this order, complaint and the announcement shown
in Appendix A to this order to VESA, to those members of VESA that Dell
contacted regarding possible infringement of the '481 patent, and to
any other person or entity to whom respondent has sent notice regarding
its claim that the implementation of the VL-bus standard conflicts with
or infringes the '481 patent.
B. Within thirty (30) days after the date this order becomes final,
distribute a copy of this order, complaint and the announcement shown
in Appendix A to this order to every officer and director of
respondent, and to every employee of respondent whose responsibilities
include acting as respondent's designated representative to any
standard-setting organization, group or similar body of which
respondent is a member.
C. For a period of five (5) years after the date this order becomes
final, furnish a copy of this order and complaint to each new officer
and director of respondent and to every new employee of respondent
whose responsibilities will or do include acting as respondent's
designated representative to any standard-setting organization, group
or similar body of which respondent is a member. Such copies must be
furnished within thirty (30) days after any such persons assume their
position as an officer, director or employee. For purposes of this
paragraph VI.C., ``new employee'' shall include without limitation any
of respondent's employees whose duties change during their employment
to include acting as respondent's designated representative to any
standards-setting organization, group or similar body of which
respondent is a member.
D. For a period of ten (10) years after the date this order becomes
final, respondent shall furnish each standard-setting organization of
which it is a member and which it joins a copy of the order and
respondent shall identify to each such organization the name of the
person who will serve as respondent's designated representative to the
standard-setting organization.
VII
It is further ordered that respondent shall:
A. Within ninety (90) days after the date this order becomes final,
and annually thereafter for five (5) years on the anniversary of the
date this order becomes final, and at such other times as the
Commission may, by written notice to the respondent, require, file a
verified written report with the Commission setting forth in detail the
manner and form in which the respondent has complied and is complying
with this order.
B. For a period of ten (10) years after the date this order becomes
final, maintain and make available to
[[Page 57872]]
Commission staff, for inspection and copying upon reasonable notice,
records adequate to describe in detail any action taken in connection
with the activities covered by Paragraphs V and VI of this order.
C. Notify the Commission at least thirty (30) days prior to any
proposed change in respondent such as dissolution, assignment or sale
resulting in the emergence of a successor corporation, the creation or
dissolution of subsidiaries, or any other change in respondent that may
affect compliance obligations arising out of this order.
Appendix A
Announcement
Dell Computer Corporation has entered into a consent agreement
with the Federal Trade Commission. Pursuant to this consent
agreement, the Commission issued an order on [Date] that prohibits
Dell from enforcing its United States patent number 5,036,481
against any company for such company's use of the Video Electronics
Standards Association's VL-bus standard.
For more specific information, please refer to the FTC order
itself, a copy of which is attached for your information.
General Counsel,
Dell Computer Corporation.
Dell Computer Corporation, Analysis of Proposed Consent Order To Aid
Public Comment
The Federal Trade Commission has accepted an agreement to a
proposed consent order from Dell Computer Corporation (``Dell''),
which is located in Austin, Texas. The agreement would settle
charges by the Commission that the proposed respondent violated
Section 5 of the Federal Trade Commission Act by engaging in
practices that restricted competition related to VL-bus design
standards for personal computing systems.
The proposed consent order has been placed on the public record
for sixty (60) days for reception of comments by interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
agreement and decide whether it should withdraw from the agreement
or make final the agreement's proposed order.
The Complaint
The complaint prepared for issuance by the Commission along with
the proposed order alleged that Dell has engaged in acts and
practices that have unreasonably restrained competition to use the
VL-bus design for personal computers. The complaint alleges that in
February 1992 Dell became a member of the Video Electronics
Standards Association (``VESA''), a non-profit standards-setting
association composed of virtually all major U.S. computer hardware
and software manufacturers. At or about the same time, VESA began
the process of setting a design standard for a computer bus design,
later to be known as the VESA Local Bus or ``VL-bus''. Like all
computer buses, the VL-bus carries information or instructions
between the computer's central processing unit and the computer's
peripheral devices such as a hard disk drive, a video display
terminal, or a modem.
According to the complaint, by June 1992 VESA's Local Bus
Committee, with Dell representatives sitting as members, approved
the VL-bus design standard, which improved upon then-existing
technology by more quickly and efficiently meeting the transmission
needs of new, video-intensive software. One year earlier, in July
1991, Dell had received United States patent number 5,036,481 (the
``'481 patent''), which, according to Dell, gives it ``exclusive
rights to the mechanical slot configuration used on the motherboard
to receive the VL-bus card.''
The complaint states that on July 20, 1992, Dell voted to
approve the preliminary proposal for the VL-bus standard. As part of
this approval, a Dell representative certified in writing that, to
the best of his knowledge, ``this proposal does not infringe on any
trademarks, copyrights, or patents'' that Dell possessed. After
committee approval of the VL-bus design standard, VESA sought the
approval of the VL-bus design standard by all of its voting members.
On August 6, 1992, Dell's representative approved the final VL-bus
design standard. As part of its approval, a Dell representative
again certified in writing that, to the best of his knowledge,
``this proposal does not infringe on any trademarks, copyrights, or
patents'' that Dell possessed. At no time during the standard-
setting process did Dell disclose to VESA's Local Bus Committee the
existence of the '481 patent.
The complaint alleges that after VESA's VL-bus design standard
became very successful, having been included in over 1.4 million
computers sold in the eight months immediately following its
adoption, Dell informed certain VESA members who were manufacturing
computers using the new design standard that their ``implementation
of the VL-bus is a violation of Dell's exclusive rights.'' Dell
demanded that these companies meet with its representatives to
``determine * * * the manner in which Dell's exclusive rights will
be recognized * * *.'' Dell followed up its initial demands by
meeting with several companies, and it has never renounced the
claimed infringement.
The complaint also alleges that the purpose or effects of the
challenged acts or practices have been to restrain competition
unreasonably in the following ways:
(a) Industry acceptance of the VL-bus design standard was
hindered because some computer manufacturers delayed their use of
the design standard until the patent issue was clarified.
(b) Systems utilizing the VL-bus design standard were avoided
due to concerns that patent issues would affect the VL-bus' success
as an industry design standard.
(c) The uncertainty concerning the acceptance of the VL-bus
design standard raised the costs of implementing the VL-bus design
as well as the costs of developing competing bus designs.
(d) Willingness to participate in industry standard-setting
efforts have been chilled.
If a company misrepresents its patent rights to a standard-
setting-organization, thereby leading the organization to adopt a
particular standard that may infringe on the company's patent
rights, the company's later efforts to take advantage of market
power resulting from the standard, rather than from some inherent
value of the patent, constitutes a violation of Section 5. Cf.
Potter Instrument Co. v. Storage Technology Corp., 641 F.2d 190 (4th
Cir.) (court would estop enforcement of patent where patent holder
participated in a standard-setting process, intentionally failed to
disclose the existence of its patent, and waited six years until the
standard was widely adopted before seeking to enforce the patent),
cert. denied 454 U.S. 832 (1981); III P. Areeda, Antitrust Law
para.707h at 141-42 (1978) (negligent misrepresentation to patent
office can constitute exclusionary act for equitable antitrust
purposes).
The Proposed Consent Order
Part I of the order covers definitions. These definitions make
clear that the consent order applies to the directors, officers,
employees, agents and representatives of Dell. The order also
defines the terms VL-bus, VESA, and ``designated representative,''
which means the person appointed by Dell to the standard-setting
organization who communicates Dell's position regarding its patent
rights related to any standard under consideration by the standard-
setting organization.
Part II of the order requires Dell to cease and desist from all
enforcement efforts where it has asserted that any person or entity,
by using or applying VL-bus in its manufacture of computer
equipment, has infringed Dell's '481 patent.
Part III of the order prohibits Dell from undertaking any new
efforts to enforce the '481 patent in which Dell would claim that
any person or entity, by using or applying VL-bus in its manufacture
of computer equipment, has infringed the '481 patent.
Part IV of the order requires that for a period of ten (10)
years after the date the order becomes final, Dell shall cease and
desist from enforcing or threatening to enforce any patent rights by
asserting or alleging that any person's or entity's use or
implementation of an industry design standard infringes such patent
rights if, in response to a written inquiry from the standard-
setting organization to respondent's designated representative, Dell
intentionally failed to disclose such patent rights while such
industry standard was under consideration.
Part V of the order requires that for a period of ten (10) years
after this order becomes final, Dell shall maintain the procedure
for assuring compliance with Paragraph IV of the order consistent
with a compliance procedure Dell has submitted to the Commission.
Part VI of the order requires Dell to distribute a copy of this
order, complaint and an announcement to VESA, to those members of
VESA that Dell contacted regarding possible infringement of the '481
patent, and to other persons respondent has sent notice regarding
the '481 patent claim.
Part VI also requires that Dell distribute a copy of this order,
complaint and the
[[Page 57873]]
announcement to new officers and directors of Dell; to every employee
of Dell whose responsibilities include acting as Dell's designated
representative to any standard-setting organization, group or
similar body of which respondent is a member; and to each standard-
setting organization of which Dell is a member. Dell must also
identify to each standard-setting organization it joins the name of
the person who will serve as its designated representative to the
standard-setting organization.
Part VII requires Dell to file compliance reports for five
years.
Donald S. Clark,
Secretary.
Dissenting Statement of Commissioner Mary L. Azcuenaga in Deli Computer
Corp.
[File No. 931-0097]
Today, the Commission accepts for public comment a consent order
that prohibits Dell Computer Corp. (``Dell'') from attempting to
enforce its ``'481 patent'' against anyone ``using or applying VL-
bus in its manufacture of computer equipment,'' because Dell failed
to warn the Video Electronics Standards Association (``VESA'') of
Dell's intellectual property rights when VESA adopted its computer
local bus design standard (``VL-bus''). Because the complain does
not allege and the evidence does not support a violation of Section
5 of the FTC Act under any established theory of law, and because
under any novel theory the competitive implications of the conduct
alleged remain unclear, I dissent.
VESA is a private standard-setting association, the members of
which include both computer hardware and software manufacturers. In
early 1992, a VESA committee developed a proposed standard for a
computer bus to carry information between the central processing
unit and the peripheral devices of a computer. In August 1992, VESA
members, including Dell, voted to approve the proposed standard. The
trade association's ballot required each member's authorized
representative to VESA to sign a statement that ``to the best of my
knowledge,'' the proposal did not infringe the member company's
intellectual property rights. Dell subsequently asserted that
implementation of the VL-bus by others infringed Dell's patent
rights.
One antitrust theory might be that Dell intentionally mislead
VESA regarding the scope of its patent rights; that VESA, relying on
Dell's misrepresentations, adopted a standard that conflicted with
Dell's rights; and that as a result of the standard, Dell acquired
market power. No evidence supports a finding of such intentional
conduct, and the allegations in the complaint do not seem sufficient
to support a finding of liability on the basis of this theory. I
welcome comment on the factual showing that would be necessary and
appropriate under this theory.
Another Section 5 theory might be that by participating in a
private trade association's standard-setting activities, a firm
assumes an affirmative duty to identify the boundaries of its
intellectual property rights and to warn the association of any
potential conflicts. Alternatively, the Commission might impose such
a duty only if a firm returns a ballot with a certification like
VESA's, so that a firm could escape antitrust exposure by simply not
voting.
Adoption of this novel theory of liability may affect a range of
standard-setting organizations. In creating a new antitrust-based
duty of care for participants in the voluntary standard setting
process, a host of questions need to be resolved. I welcome public
comment on the appropriate nature and scope of any such duty, and I
look forward to reassessing the case at the end of the comment
period.
[FR Doc. 95-28459 Filed 11-21-95; 8:45 am]
BILLING CODE 6750-01-M
