Today the U.S. Supreme Court declined the Federal Trade Commission's petition to reinstate its 2007 orders against California memory-developer Rambus Inc. For the past seven years, the FTC has labelled Rambus a “patent abuser” over its alleged “deception” of JEDEC, an industry standard-setting organization, more then a decade ago. Last year, the U.S. Court of Appeals in Washington, DC, rejected the FTC's legal theory that Section 2 of the Sherman Act – which outlaws “monopolization” and “attempted monopolization” – applied to Rambus' alleged failure to disclose certain patent applications before JEDEC. Since the Supreme Court refused to review this decision, the case returns to the FTC, which might continue its crusade against Rambus under the Commission's “consumer protection” authority.

Rambus develops, patents and licenses technology to existing memory manufacturers. This business model upsets many folks – including some libertarians – who view patents as contrary to free-market principles. The FTC has exploited the fear of “patent trolls” to smear Rambus as an anti-consumer monopolist. But in truth, the real patent troll here is the FTC, not Rambus. Whatever one thinks about Rambus' business model, the company worked within the existing legal system to assert its rights and defend its invention portfolio. It is the FTC that claimed a theoretically unlimited patent power to overrule the decisions of other courts and even re-write the terms of private contracts.

In the early stages of the FTC case, a federal court cleared Rambus of wrongdoing in connection with its JEDEC participation. The court said that Rambus' failure to make certain disclosures neither violated written JEDEC rules nor constituted fraud under the common law. The FTC's own administrative law judge made similar findings. But the FTC overruled its own judge and usurped the federal court by holding that Rambus committed an antitrust violation.

In other words, the FTC suddenly – and without precedent – claimed powers beyond the scope of its written authority and demanded judicial acquiescence. This is the textbook definition of a patent troll. Even if you're a Rambus opponent, you must concede that there was no way the company could have known, while it was a JEDEC member, that its actions violated Section 2 of the Sherman Act – because it wasn't until the FTC decided so after the fact.

So the question now becomes, where does the Supreme Court's non-intervention leave Rambus and the FTC? For Rambus, the short-term legal landscape is much clearer. The FTC proceeding has, unfortunately, slowed the disposition of patent litigation before the legitimate, Article III courts. Hopefully those cases still pending can be resolved this year.

In the longer term, the FTC threat isn't quite dead, though it is struggling for life. Under the terms of the court of appeals decision, the FTC could attempt to find Rambus liable for violations of the FTC Act, a catchall statute that bans any business act the Commission deems “unfair” to competition. The court of appeals warned, however, that it would be skeptical of any future FTC order based on the evidentiary record compiled during the original proceeding. The FTC might try to negotiate a face-saving “consent order” with Rambus, but given the company's aggressive (and successful) litigation posture, that seems unlikely. Ultimately, the FTC's best option is to simply shut down the case.

For the general public, the lessons of the Rambus case go far beyond a patent dispute. Rambus is one of a handful of companies that successfully defeated the FTC. It was a costly victory – nearly seven years of litigation – that was possible largely because Rambus' survival and business model depended on an outright win. Most businesses are content to surrender a large piece of their economic freedom to the FTC simply to avoid this type of epic litigation. It's too early to say if there will be a “Rambus effect” that leads other companies to stand up to the Commission's bullying, but there's certainly cause for optimism today.

That said, the FTC will likely become even stronger following the Rambus debacle. Like the Borg of “Star Trek,” the FTC will assimilate, adapt and amass more power over American business. The Rambus case helped expose the fault lines in the antitrust community. The relatively moderate faction that was in charge of the FTC and DOJ antitrust shops in the 1980s and early 1990s has given way to a radical group (sometimes called the “post-Chicago school”) that views antitrust as the organizing principle of the entire economy. The Rambus case was merely a first strike to test the market's defenses.