Qualcomm Faces Tough Legal Challenges Beyond Uncertain FTC Case, Lawyers Say

Qualcomm is likely to still face multiple tough legal challenges to the company’s licensing of its patents for baseband processors used in cellphones and other products, even if a new forthcoming Republican majority FTC chooses to reverse course on its antitrust complaint, said industry and public interest lawyers in interviews. The FTC claimed in a complaint filed this month that Qualcomm “engaged in exclusionary conduct that taxes its competitors' baseband processor sales, reduces competitors' ability and incentive to innovate, and raises prices paid by consumers for cell phones and tablets” (see 1701170065). Apple filed a lawsuit last Monday seeking $1 billion in damages on claims Qualcomm overcharged the smartphone manufacturer “billions of dollars” for patent licenses (see 1701230067).

Patent stakeholders are watching closely to see whether the FTC chooses to call off its antitrust against Qualcomm once the commission becomes majority GOP, several lawyers said. The FTC will only have two members once Democratic Commissioner Edith Ramirez resigns Feb. 10 -- Republican acting Chairwoman Maureen Ohlhausen and Democratic Commissioner Terrell McSweeny (see 1701200002 and 1701250036). Ohlhausen said last week she wouldn’t initially move to rescind the FTC’s pursuit of the case while the commission remains a two-member commission because that would require support from both commissioners (see 1701230043). McSweeny voted in favor of pursuing the Qualcomm case, while Ohlhausen dissented.

Pressure for the FTC to backpedal in the case grew Thursday, when Americans for Tax Reform’s Digital Liberty Executive Director Katie McAuliffe and 16 other conservative leaders and groups jointly pushed for President Donald Trump to take “immediate steps to terminate” the case by naming Ohlhausen the FTC’s permanent chairwoman and quickly appointing two additional Republican commissioners. The commission's Qualcomm complaint “is legally baseless, lacking in economic and evidentiary support and sets a precedent that will cause real harm to our economy and U.S. intellectual property rights worldwide,” the groups said in a letter. “The complaint signals to foreign antitrust authorities that U.S. companies are fair game for similarly damaging, and equally frivolous, enforcement actions overseas -- often in naked attempts to steal U.S. patented technology or eliminate U.S. competition from their domestic markets.”

It’s unclear whether the FTC would actually move to back off the Qualcomm complaint when the GOP gains a majority since there are still “questions about the Trump administration’s positions on patent policy,” said Public Knowledge Patent Reform Project Director Charles Duan. “There’s no easy way to predict how Trump will side on these issues.” The FTC’s future moves on the Qualcomm complaint could aid in framing its future approach to handling patent-related issues, which is “something of an open question at this point,” Duan said. The FTC made a mistake by bringing the Qualcomm case during the switchover between former President Barack Obama’s administration and the Trump administration because conservatives can now strongly oppose it on the grounds of it being an instance of “midnight regulation,” a tech sector lobbyist said.

Qualcomm would still face the prospect of not only the Apple lawsuit in U.S. District Court in San Diego, but also several international cases involving its patent licensing practices if the FTC drops its case, said Duan and others. Qualcomm will still face “mounting” pressure from Apple’s U.S. case, two suits brought by Apple’s China subsidiaries (see 1701250082) and its appeal of a $853 million fine from South Korea’s Fair Trade Commission. The FTC said in its complaint Qualcomm’s actions precluded Apple from getting processors from Qualcomm competitors from 2011 to 2016. “If what Apple says is true, then Qualcomm’s behavior is clearly anticompetitive and certainly something needs to be done about it,” said Computer & Communications Industry Association Patent Counsel Matt Levy.

Neither the FTC nor the Apple case is likely to be precedential because Qualcomm’s licensing practices are nearly unique in the patent market, Duan and others said. “Qualcomm is really an outlier in engaging in its licensing activities,” Duan said. The best-case scenario if Qualcomm lost would be that the company’s licensing practices would conform to the precedent the Supreme Court set when it established the current patent exhaustion doctrine in the 2008 Quanta Computer v. LG Electronics decision, Duan said. It’s interesting to see Qualcomm facing its current legal troubles given the company’s longstanding opposition to legislation aimed at revamping patent litigation rules, Levy said.

The cases’ outcome also probably won’t change the economics of patent licensing because Qualcomm’s model is unique, said patent lawyer Philip Swain of Foley Hoag. Swain doesn’t represent any parties in the Qualcomm cases but Foley Hoag does represent Apple on unrelated matters. “This is essentially a battle over market share and the specifics of how these patent licenses have been negotiated,” Swain said: The FTC case involves “good arguments on both sides,” which makes it “hard to know how it will turn out.” It will be interesting to see if Qualcomm chooses to seek an “exit strategy” to resolve the cases rather than spend years fighting in courts, a tech sector lobbyist said.