[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]



=======================================================================
-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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