In 1890 the United States government passed the Sherman Antitrust Act, a law that formed the bedrock of the United States' policy against monopolies and other unfair forms of competition. In the many years since then, further acts have been passed to amend the law, and the Government has in time made the correction of anti-competitive actions one of its more important roles. What started with the breaking up of truly gigantic corporations like Standard Oil and AT&T has moved on to include dealing with cartels that while not of a single corporation, act at times in manners similar that result in anti-competitive actions taking place.

If we were to take a cursory glance at the computing industry as a whole and try to pinpoint the areas where anti-competitive legal issues were likely to occur, we'd look at areas like CPUs and GPUs, where only a couple of serious competitors exist in each, or operating systems, where Microsoft has and continues to have a de facto monopoly. While these areas do in fact have issues, we would be missing an area that has shown some of the worst behavior. It turns out that the memory industry is one of the greatest offenders.

Generally speaking, it's counter-intuitive to see the memory industry as being a hotbed of legal woes due to the highly competitive nature of the market. With the JEDEC association setting very rigorous standards for RAM, products are quite literally perfectly competitive (from a non-overclocker's point of view): a part specified to meet a certain JEDEC RAM standard should be just as good as any other part that adheres to the same specification. As a result, OEMs can and do switch RAM on a regular basis depending on who can supply it at the lowest cost, and as a result we usually see the memory market operate as it is: a highly competitive market in which multiple companies supply the same good.

But didn't we just say that the memory market is one of the greatest antitrust offenders? Yes, for in spite of the memory market being very cutthroat, it's also an industry that is subject to highly volatile demand. It can be extremely profitable as a result when demand is far outstripping supply and it takes years to bring new fabs online to produce additional memory. It's the profitability of these periods that keeps nearly a dozen major companies in the business. With such volatility however, it also opens the window for manipulation of this volatility - if now is not a boom year, why not make it one?

Over just the last decade, the memory industry has been through no less than three major shakeups. The first is the infamous and now settled Rambus patent case, started in 2000 when Rambus asserted that it held patents on technology used in DDR RAM and wanted royalties as such, only to be found guilty of breaking antitrust and deception laws in acquiring these patents and covertly trying to influence the memory market. The second case involves the "Big 10" memory manufacturers colluding to keep RAM prices artificially high between 1998 and 2002, to which they were found guilty. Finally, a new investigation has opened up as of this year into the flash memory market, where the Justice Department is trying to figure out if there is evidence of collusion and price-fixing there too.

Today we'll be taking a look at the latter two actions, one just wrapping up while another begins. What exactly went on in these cases? How are or potentially were consumers hurt by all of this? What has been done to punish the offenders and to correct the market? Let's find out.

DRAM Price Fixing
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  • Bullettrap - Sunday, October 28, 2007 - link

    So, how is the price of DDR3 coming along. It's seems a we bit high does'nt it. Should I be Suspicious. Lets hope this milking stops soon!
  • Nighteye2 - Saturday, October 27, 2007 - link

    The fines may have been given in the name of justice, but along with all the extra costs, the companies will now have to make up for the loss - by further raising of memory prices. Thus, consumers pay too much twice - and the justice department reaps all the profits.
  • Locutus465 - Friday, October 26, 2007 - link

    While what was done does seriously suck, I'm actually very glad R-DRAM is gone... In this case I think Memory OEM's saw Rambus trying to muscle them into a propriatary technology they would have to pay royalties for via the U.S. court system and decided to fight back. In the end, I'm glad this was done.
  • Zoomer - Saturday, October 27, 2007 - link

    Yup. A very positive side effect indeed.
  • magreen - Thursday, October 25, 2007 - link

    Ok, I have a slick idea. The OEMs and memory manufacturers get together. The memory manufacturers price-fix to overcharge. By a billion $$. The OEMs pass that cost onto the consumers who foot the $1 billion bill. The OEMs cry foul to the DOJ who fines the memory manufacturers $d00 million and force them to pay $1 billion to the OEMs. But together, the OEMs and memory manufacturers are still up $500 million. They split the pot and call it a day.
  • NanoTec - Thursday, October 25, 2007 - link

    I was expecting a “review”, every other memory article states the known facts about the product then goes on to try to test those claims with benchmarks providing more information.

    Were these manufacturers stealing? Were they breaking laws?
    They were not forcing the consumer to buy memory or even charging one customer an exorbitant premium over another for the same product. They’re guilty of selling at the same price as their competitors.">1998: memory makers are accused of selling too cheaply “dumping”">2003: government decides you should pay 44% more
    These are just two convenient examples, there is much more to this issue.

    If one seeks an authoritative interpretation of the Sherman Antitrust act they need only see this paper by Alan Greenspan">HERE
  • Ryan Smith - Thursday, October 25, 2007 - link

    They were found and pled guilty to operating a cartel to artificially fix memory prices, which is a very anticompetitive action. This is a crime in the United States, and most other capitalistic nations for that matter, regardless of if customers are being "forced" to buy the product or not.
  • Ryan Smith - Thursday, October 25, 2007 - link">SanDisk Sues 25 Flash Drive Manufacturers
  • Sunrise089 - Thursday, October 25, 2007 - link

    Supposedly price fixing forced the OEMs to pay more, which they passed on to consumers. But then "end-users having purchased memory from [Crucial] are in a unique position of being one of the few (if not the only) groups of end-users that will see a dime out of this settlement." - So which is it? Do companies pass their costs and profits to consumers or not? There is no logical reason to assume a company that raises prices on its products to make up for increased costs won't also lower prices when it receives a windfall. Even if you believe all companies are inherently out to screw the customer, they still need to move product, and lowering prices while keeping profit levels the same (due to revenue from the suit) would be too good of an opportunity to pass up.
  • RBBrittain - Saturday, October 27, 2007 - link

    U.S. Federal antitrust law only permits "direct purchasers" to recover in price-fixing situations. In this case, this means most of the money goes to the OEMs that purchased DRAM chips from cartel members.

    OEMs aren't legally required to return that money to the end users, though in a business sense it improves their profitability and thus allows them more leeway in cutting future prices to compete. In the mechanics of business, a price increase (like what the cartel did) is almost certain to reach the consumer "bottom line" (i.e., end-user prices) very quickly; but price decreases (like ending the cartel and the legal settlements) take much longer to "trickle down". You see it in gas prices all the time, though stronger day-to-day competition tends to make the "trickle down" happen faster in that market.

    Crucial is different because it's a direct-sales division of Micron, a member of the cartel. Unlike most end users, Crucial customers are "direct purchasers" from the cartel, so they're basically the only end users entitled to a recovery.

    In a few cases, end-user recoveries can be forced if the right people act, especially state attorneys general. (Yes, that IS correct grammar; in that case "general" is an adjective, so the noun "attorney" gets the "s".) Though a Federal court decision (known as the "Illinois Brick obstacle") limits state AG recoveries under Federal law to direct purchasers, a growing number of states have their own laws overruling that and allowing their AGs to recover on behalf of indirect purchasers as well.

    In a case involving the record industry (which used "minimum advertised price" policies to indirectly overcharge consumers for CDs in the late 1990s), enough AGs were able to sue that they forced a nationwide settlement which waived the "Illinois Brick obstacle" and reimbursed consumers in all 50 states. (There was also a related class action settlement with Columbia House and BMG record clubs--before BMG bought Columbia House--which was the legal equivalent of the Crucial settlement.)

    Finally, don't assume DOJ made money off the DRAM case (as one commenter did); those fines went to the U.S. Treasury and merely reduced the Federal deficit. DOJ has to get its money from Congress just like any other Federal agency.

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