In Memory Of The Law: The Memory Industry's Legal Problems
by Ryan Smith on October 25, 2007 3:00 AM EST- Posted in
- Memory
A New Investigation and Closing Thoughts
With the total damages levied against the various memory manufacturers in the DRAM case, we would hope and expect that it would discourage any such future foul play - certainly that's much of the reason for the fines in the first place. However, hot on the heels of the DRAM investigation (and a more minor ongoing SRAM investigation) the Justice Department believes it has found new examples of anti-competitive behavior. Many of the players are the same but it's a different market: NAND flash memory.
NAND flash memory (not to be confused with the NOR type) has been a particularly hot industry over the last few years as the capacity for NAND has been growing at a faster rate than any other type of storage, allowing device manufacturers to use NAND on products that previously required other forms of mass storage. Cell phones, MP3 players, PDAs, and even SSD hard drives have made for rapid growth in the NAND flash memory market. Markets ripe for growth however can also be ripe for anti-competitive actions, which is why the Justice Department is taking a look.
Because this investigation is just beginning, the details are relatively sparse compared to what we know about the DRAM case. Many of the companies involved in the DRAM case also make NAND flash memory, and the Justice Department believes they may have been acting in anti-competitive ways similar to what occurred in the DRAM case. The Justice Department has now subpoenaed many of the manufacturers and purchasers of NAND flash memory in order to start building a case; so far everyone subpoenaed has cooperated with the investigation.
Prior to the start of their investigation, the price of NAND had been increasing the past couple of quarters (between 5% and 10% a quarter). Some business analysts and members of the Justice Department find this unusual enough to indicate that something may be amiss. Furthermore, in a separate case that started a month prior to the Justice Department's case, a group of NAND purchasers sued nearly two dozen companies involved in NAND production, accusing them of engaging in price-fixing. Finally, there is concern that the corruption uncovered in the DRAM cartel may have spread into other memory markets.
With that said, at this point it's far too early to make any serious accusations on what is being investigated. The Justice Department started a similar probe of SRAM in 2006 which so far has not turned up anything notable, so it's entirely possible that this is the Justice Department being overly paranoid and there is nothing to find. We have heard rational explanations that would account for the price increases without illegal practices such as price fixing. On the other hand, this is a market that from past experience is clearly vulnerable to collusion, so it's too soon to dismiss any claims about collusion or price fixing until more investigating is done and we have more facts. One thing is certain: if there is something foul going on, you can count on it taking most of the next decade before everything is sorted out.
Closing Thoughts
The fact that we are writing this article is in and of itself an indication of our disappointment with the memory market. Although it's not the end-users that will be seeing the restitution from the DRAM case, it was ultimately the end-users who paid the extra cost. In colluding to raise prices, the DRAM cartel has effectively ripped off virtually every one of us. Even though "justice" has been done, few of those who were truly wronged will be getting restitution for what has happened.
There's a fundamental belief in the market that if prices are high, there is a good reason for it. Perhaps something costs a lot to make, there's little supply, or someone along the way was smart enough to build a better product and command a premium for what they can offer. However, even in the cold hard world of capitalism there's a certain breach of trust when the participants in the market are colluding to rip the consumer off, and that has happened at least once.
This article is admittedly late. What's done is done and other than the class action suit the rest of the punishment has been served and most everyone has moved on. At the same time, the computing industry in spite of its size has a very small feeling much of the time; this is what drives things such as brand loyalty and fanboyism for companies and products. It's an unusual but functional relationship that keeps things going, but situations like this sour that relationship. The computing industry already has its villains; do we really need more of them?
At this point we're waiting for the result of the Justice Department's investigation into the possibility of similar price fixing for NAND flash memory; we hope these accusations aren't true, but it's far too early to know the truth. For this kind of problem to occur once, it's a disappointment but redemption is a possibility. For it to occur again may very well mean constant suspicion of bad behavior and overcharging will be the new modus operandi for the memory buyer. We would much rather have heroes to praise than villains to fear and avoid.
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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.
http://query.nytimes.com/gst/fullpage.html?res=950...">1998: memory makers are accused of selling too cheaply “dumping”
http://query.nytimes.com/gst/fullpage.html?res=9B0...">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
http://www.polyconomics.com/searchbase/06-12-98.ht...">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
http://www.dailytech.com/article.aspx?newsid=9410">SanDisk Sues 25 Flash Drive ManufacturersSunrise089 - 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.