Oliva-foiaappeal-rambus

UNITED STATES OF AMERICA BEFORE FEDERAL TRADE COMMISSION Office of the General Counsel ) ) ) CITIZENS FOR VOLUNTARY TRADE ) dba THE VOLUNTARY TRADE COUNCIL, ) ) a corporation. ) )

In the Matter of

FOIA-2005-00267 (Rambus Case)

MEMORANDUM IN SUPPORT OF THE VOLUNTARY TRADE COUNCIL’S APPEAL OF PARTIAL DENIAL OF FREEDOM OF INFORMATION ACT REQUEST S.M. Oliva President & CEO The Voluntary Trade Council Post Office Box 100073 Arlington, Virginia 22210 (703) 740-8309 [email protected] Dated: April 14, 2005

The Voluntary Trade Council, acting under 5 U.S.C. § 552(a)(6)(A) and 16 C.F.R. § 4.11(a)(2), respectfully appeals the decision of Federal Trade Commission attorney Joan E. Fina partially denying a Freedom of Information Act (FOIA) request filed by VTC on November 17, 2004. VTC seeks the disclosure of records identified by Ms. Fina in her response dated March 15, 2005, notwithstanding her claims that the records are exempt from disclosure under 15 U.S.C. § 552(b)(3 & 7(a)) (hereinafter “Exemption 3” and “Exemption 7(A)). In addition, because this request involves a large quantity of documents in a case currently before the Commission on appeal, VTC respectfully requests that the General Counsel exercise his discretion and refer this appeal to the Commission for determination under 16 C.F.R. § 4.11(a)(1)(iii)(A). Introduction On June 18, 2002, the Federal Trade Commission issued an administrative complaint against Rambus Incorporated, alleging three violations of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.1 The charges arose from Rambus’s business practices within the synchronous DRAM industry, and particularly the alleged “anticompetitive” effects of Rambus’s actions on DRAM manufacturers. Three of those manufacturers—Micron Technology, Inc., Hynix Semiconductor, Inc., and Infineon Technologies AG—cooperated with the Commission’s investigation of Rambus and various officials of the three companies testified at an administrative hearing against 1 FTC Docket No. 9302.

-1-

Rambus. After a 54-day hearing that included 59 witnesses and more than 1,900 exhibits, Administrative Law Judge Stephen J. McGuire dismissed the complaint against Rambus on February 17, 2004. Counsel supporting the complaint appealed, and the Commission heard oral arguments on that appeal on September 21 and December 9, 2004. The appeal remains pending before the Commission. In early 2004, VTC opened an investigation into the facts and circumstances surrounding the Commission’s prosecution of Rambus. VTC is a nonprofit research and education organization that analyzes federal antitrust cases according to freemarket economic principles. VTC filed an amicus brief with the Commission on June 2, 2004, in support of affirming Judge McGuire’s decision. VTC has filed several FOIA requests with the Commission related to the Rambus case. The first request, dated March 17, 2004, sought information on the Bureau of Competition’s expenditures on several Commission cases, including Rambus. A followup request was filed on July 12, 2004, seeking additional budget information specific to the Rambus case. Both of these requests were answered to VTC’s satisfaction. VTC’s third FOIA request related to Rambus was initially filed on November 17, 2004. The request had three parts. First, VTC requested any “[c]ommunications dated on or before June 26, 2002, by and between FTC staff and any officer, employee, agent, or counsel” of Micron, Hynix, or Infineon. Second, VTC requested any communications -2-

between FTC staff and Congressman C.L. “Butch” Otter regarding Rambus.2 Finally, VTC requested additional details of the Bureau of Competition’s spending on consultants in the case. When the Commission did not respond to this third FOIA request within the statutory period, VTC sent a followup letter to the General Counsel on January 21, 2005. VTC finally received a reply on March 15, 2005, when Joan Fina granted the request for disclosure of additional spending information but denied access to “about 27 boxes of responsive records” regarding Commission staff’s communications with the DRAM manufacturers. Ms. Fina based her denial on two statutory exemptions within FOIA: Exemption 3, which covers any material exempt from disclosure by another federal statute; and Exemption 7(A), which exempts certain records compiled for law enforcement purposes. Ms. Fina applied Exemption 3 on the grounds that under Section 21(f) of the Federal Trade Commission Act, 15 U.S.C. § 57b-2, “the FTC may not disclose information it obtains in a law enforcement investigation pursuant voluntarily in lieu of compulsory process.” Ms. Fina then applied Exemption 7(A) by broadly asserting that disclosure “could reasonably be expected to interfere with the conduct of the Commission’s law enforcement activities.”

2 VTC believes that the Commission is not withholding any communications from Congressman Otter relevant to the Rambus case. Accordingly, this appeal only deals with documents from Hynix, Micron, and Infineon.

-3-

Summary of Argument Neither Exemption 3 nor Exemption 7(A) preclude disclosure of the documents requested by VTC. Ms. Fina interpreted Exemption 3 to cover a broader range of documents than the courts have recognized. As for Exemption 7(A), it is inapplicable even under the case law cited by Ms. Fina, because VTC’s request is not an attempt to circumvent civil discovery rules for its own gain and there can be no reasonable claim of interference with a “law enforcement” proceeding that ended more than 18 months ago. Accordingly, the Commission (or the General Counsel) should order disclosure of the 27 boxes of responsive records identified in Ms. Fina’s March 15, 2005, reply to VTC. Argument 1. Exemption 3 does not apply to documents voluntarily disclosed by third parties who lobby the Commission to open an investigation or issue an administrative complaint. Ms. Fina cited a single case from the Second Circuit, A. Michael’s Piano, Inc. v. Federal Trade Commission3, in support of categorically applying Exemption 3 to the 27 boxes of documents that respond to VTC’s request. Michael’s Piano, however, does not exempt from FOIA disclosure all documents that are voluntarily submitted to the Commission during an investigation. The Second Circuit said that in enacting Section 21(f) of the FTC Act—the statute that allows the Commission to invoke Exemption 3 in the first place—Congress “did not intend to create a broad exemption that would effectively eliminate the FTC’s

3 18 F.3d 138 (2d Cir. 1994).

-4-

accountability to the public.”4 To the contrary, Section 21(f) was a response to the Commission's abuse of power, which one senator described as “an arrogance that seemed unparalleled among independent regulatory agencies.”5 Section 21(f) exempts from FOIA disclosure all materials “provided pursuant to compulsory process” under the FTC Act and those that are “provided voluntarily in place of such compulsory processes.” Ms. Fina’s reply to VTC only advanced the latter claim—information obtained “in lieu of compulsory processes.” The Commission has thus conceded that the 27 boxes of responsive records were not obtained under subpoena or similar order, but rather they were provided voluntarily by Hynix, Infineon, and Micron. Michael’s Piano established a three-part test for determining whether information provided voluntarily to the Commission is exempt from public disclosure under Section 21(f): First, the Commission itself must request the documents; second, the requested documents must be “relevant to an ongoing investigation” within the Commission’s jurisdiction; and finally, the requested documents could have been subpoenaed if the party did not comply with the Commission’s initial request.6 The Commission cannot satisfy the first part of the test, because it is unlikely that all of the documents provided by the memory manufacturers were provided at the Commission’s own request. The public record strongly suggests that the Commission

4 Id. at 145. 5 Id. 6 Id. at 145-146.

-5-

only opened its investigation of Rambus and brought its subsequent complaint after a coordinated campaign by Hynix, Infineon, and Micron to influence Commission officials. Information provided by self-interested parties seeking political intervention by the government cannot find safe harbor from public disclosure under Exemption 3 and Section 21(f). On July 17, 2000, reporter Jack Robertson wrote that Hynix7, Micron, and Infineon, along with Intel Corp. and several other companies, “held talks . . . to consider whether to ask the Federal Trade Commission to investigate Rambus Inc. on antitrust grounds.”8 Less than one month later, the memory manufacturers signed a “joint defense agreement” to coordinate civil and regulatory litigation against Rambus. Several lawsuits were filed in August 2000—Rambus sued Infineon (who countersued Rambus), and Hynix and Micron separately sued Rambus. In October 2000, according to Jack Robertson, Micron and Hynix officially “leveled antitrust charges against Rambus Inc. at the Federal Trade Commission.” Robertson said that officials of the two companies “met quietly with FTC representatives” in an effort to “escalate the dispute [with Rambus] by trying to get the FTC to launch its own investigation of Rambus.”9 Robertson then reported in February 2001 that the FTC had in fact opened an 7 In 2000, Hynix was known as Hyundai. For simplicity’s sake, we will refer to the company as Hynix throughout this memorandum. 8 Jack Robertson, “Rambus ties strained as Intel, DRAM makers ponder FTC antitrust suit,” (July 17, 2000) . 9 Jack Robertson, “Micron, Hyundai ask FTC to charge Rambus on antitrust violations,” (November 22, 2000) .

-6-

investigation of Rambus at Hynix and Micron’s urging. This same report said that Hynix was “seeking to declassify documents submitted by Rambus to the U.S. District Court in San Jose in the hope that the FTC can use the files in a formal investigation.“ It was not until August 2001, according to Robertson, that the Commission had “subpoenaed records and interviewed officials” from Hynix and Micron.10 The timeline reported by Robertson demonstrates the central role played by Hynix and Micron—and Infineon, given its participation in the joint defense agreement—in encouraging the Commission’s investigation and subsequent prosecution of Rambus. The manufacturers’ efforts can only be described as lobbying given their preexisting litigation against Rambus and the substantial benefits that could be obtained if the Commission could “escalate” matters by entering the fray. Documents that are voluntarily provided to the Commission by parties seeking regulatory action against a third party do not fall within the scope of Exemption 3, because lobbying activity is not subject to the Commission’s compulsory processes. Hynix, Micron, and Infineon approached the Commission in 2000 as part of a coordinated political campaign to enlist the government’s support for their patent and antitrust causes against Rambus. Any Commission records that provide the details of this campaign are properly subject to FOIA disclosure.11 Exemption 3, even as 10 Jack Robertson, “Chip makers questioned by FTC about Rambus actions,” (August 31, 2001) . 11 Of course, it is possible that not all 27 boxes of documents cited in Ms. Fina’s reply fall within the “lobbying” argument discussed above. However, since Ms. Fina provided no specific information about the contents of the 27 boxes, it is the Commission’s burden to provide additional information demonstrating which materials may in fact fall under a proper reading of Exemption 3.

-7-

interpreted by a single appellate court in Michael’s Piano, does not provide otherwise. 2. Exemption 7(A) does not apply when documents are requested by a non-party after a law enforcement proceeding has concluded. As with Exemption 3, Ms. Fina only cited a single case—this time Robbins Tire & Rubber Co. v. NLRB12—to justify the blanket application of Exemption 7(A). Robbins Tire, however, is even less applicable to VTC’s request than Michael’s Piano. The facts and circumstances are easily distinguished, and the Supreme Court’s holdings in Robbins Tire in fact pose no barrier to disclosure of the requested documents. In Robbins Tire an employer that was the respondent in a National Labor Relations Board proceeding filed a FOIA request—before the scheduled administrative hearing— seeking copies of all potential witness statements gathered by the NLRB during its investigation. The NLRB denied this request, placing “particular reliance on Exemption 7(A)”.13 The Supreme Court upheld the NLRB’s decision. In so doing, the Court said that “FOIA was not intended to function as a private discovery tool,” which was the employer admitted was the sole purpose of its FOIA request.14 Robbins Tire established a clear nexus of probable interference between the employer’s FOIA request and the NLRB proceeding: “The most obvious risk of ‘interference’ with [NLRB] enforcement proceedings in this context is that employers or, in some cases, unions will coerce or intimidate employees and others who have given

12 437 U.S. 214 (1978). 13 437 U.S. at 216-217. 14 Id. at 242.

-8-

statements, in an effort to make them change their testimony or not testify at all.”15 The court said that “prehearing disclosure of witnesses’ statements” under FOIA was precisely the type of situation that Congress sought to prevent when enacting Exemption 7(A).16 VTC’s request for documents related to the Rambus case is clearly distinguishable from the situation described in Robbins Tire. First, unlike the employer in that case, VTC is not the subject of the underlying prosecution. VTC is an uninterested third-party that seeks disclosure to further its mission of providing public oversight of the Commission and its activities. Second, Robbins Tire is limited to prehearing disclosure of investigation materials. Exemption 7(A) is designed to prevent a litigant in a government proceeding from obtaining greater access to investigation files than what is available through normal discovery. Congress enacted Exemption 7(A) in 1974 as an amendment to the original Exemption 7 after the District of Columbia Circuit held, in several cases, that any record compiled for law enforcement purposes was exempt from disclosure indefinitely. Senator Gary Hart, the principal sponsor of the current Exemption 7(A) language, said the courts had misconstrued the intent of the original Exemption 7: “Material cannot be and ought not be exempt merely because it can be categorized as an investigatory file compiled for law enforcement purposes.”17

15 Id. at 239. 16 Id. at 241. 17 Id. at 227.

-9-

The Supreme Court adopted Senator Hart’s view that Exemption 7(A) applied to “a concrete prospective law enforcement proceeding [that] would be harmed by the premature release of evidence or information.”18 By this standard, Exemption 7(A) does not apply to VTC’s request, because the law enforcement proceeding against Rambus has already taken place, and thus the release of information would not be premature or harm a prospective hearing. The administrative hearing against Rambus ended on October 8, 2003, when Judge McGuire ordered the record closed. Although the case remains pending on appeal before the Commission, briefing and oral arguments have already taken place, and there is no reason to believe that any post-hearing disclosure would interfere with the Commission’s ability to issue a final decision and order.19 In contrast, Robbins Tire dealt with a FOIA request that would “change the substantive discovery rules” and “cause substantial delays” in the adjudication of the government’s case.20 Exemption 7(A) protects the government from FOIA requests that present a conflict between the duty of public disclose and the power to pursue investigation and trial of defendants without undue interference. This conflict is no longer present with respect to the Rambus case, and accordingly, the Commission’s duty to disclose is unhampered by Exemption 7(A) as applied in Robbins Tire. 18 Id. at 232. 19 If the Commission reverses Judge McGuire and upholds the complaint, Rambus may seek review in an appropriate U.S. court of appeals. The possibility of such additional proceedings, however, does not alter the status of the requested documents under Exemption 7(A). The Supreme Court’s holdings in Robbins Tire do not extend to appellate proceedings subsequent to the initial administrative hearing. 20 437 U.S. at 237.

- 10 -

3. Even if the requested documents are exempt, it is in the public interest for the Commission to disclose them because of the exceptional circumstances of the Rambus case. The Rambus prosecution is one of the largest regulatory cases in Commission history. Several million dollars and thousands of man-hours have been spent by the Commission in an effort to effectively cripple Rambus’s business. The public has the right to know the events that led to the opening of the Rambus investigation and the Commission’s decision to issue a complaint. This public interest outweighs the Commission’s interest in maintaining what the Second Circuit in Michael’s Piano called “a cloak of gratuitous secrecy.”21 Two factors unique to this case support disclosure of the requested documents beyond what FOIA may exempt. First there is the “revolving door” of lawyers between the Commission and law firms representing the DRAM manufacturers. M. Sean Royall, who served as chief Complaint Counsel during the Rambus trial, left the Commission shortly after the case was presented to Judge McGuire and became co-chairman of the antitrust group at Gibson, Dunn & Crutcher, a firm that represents Micron in antitrust matters. Then there is Timothy Muris, the Commission chairman who authorized the Rambus investigation and voted to issue the subsequent complaint. After leaving the Commission in 2004, Muris became co-chairman of the antitrust group at O’Melveny & Myers, which represents Hynix before the Commission in the Rambus case. The presence of two former senior Commission officials on law firms representing Rambus opponents creates an impression that the Rambus case was brought, at least in 21 18. F3d at 145.

- 11 -

part, to further the professional interests of these officials upon their planned return to the private sector. Not only did Messrs. Royall and Muris have a an interest in advancing the interests of the clients of their future law firms, they also had an incentive to create the novel theory of law at the heart of the Rambus case—antitrust liability arising from participation in a standard-setting organization—to market themselves as experts in possible future litigation. Disclosure of the documents requested by VTC would likely shed some light on the actual roles played by Royall and Muris during the pre-complaint stage of the Rambus case. The documents may exonerate them, or they may raise further questions about their conduct. In either case, the known facts create an apparent conflict-of-interest that can be addressed by disclosure of the requested documents. The Commission has a clear interest in maintaining public confidence in its proceedings that outweigh any embarrassment or infamy that may arise from disclosure. A second “public interest” factor in support of disclosure is the exceptional nature of the Commission’s jurisdictional claims in the Rambus case. The Commission took the unprecedented step of interfering with the exclusive jurisdiction of the U.S. Court of Appeals for the Federal Circuit over patent law. The Federal Circuit’s January 2003 decision in Rambus v. Infineon addressed the same set of facts as the Commission’s 2002 complaint against Rambus, and while the Federal Circuit analyzed those facts under Virginia’s laws governing fraud, the Commission nevertheless insisted on reexamining the facts in an attempt to find Rambus guilty of an FTC Act violation. Judge McGuire - 12 -

ultimately rebuffed the Commission’s efforts, and relied heavily on the Federal Circuit’s existing findings in doing so. The public has a strong interest in maintaining judicial independence from political interference by the executive branch, which includes the Commission. If cases that are litigated in the Article III courts can be retried before a political agency with no regard for decided questions of fact and law, the result will be an increased likelihood that private parties will resort to political lobbying over the judicial system, and that in turn will undermine public confidence in both the Commission and the Article III courts. For this reason, it is important that the Commission disclose any information that sets forth the origins of the Rambus case so that the public will know whether the Commission deliberately acted to usurp the Federal Circuit’s statutory authority.

- 13 -

Conclusion For the foregoing reasons, the decision of Joan Fina partially denying VTC’s Freedom of Information Act request should be reversed, and the 27 boxes of documents identified should be disclosed. Respectfully Submitted,

S.M. Oliva President & CEO THE VOLUNTARILY TRADE COUNCIL Post Office Box 100073 Arlington, Virginia 22210 Telephone: (703) 740-8309 Dated: April 14, 2005

- 14 -