FTC Authority at Stake in Qualcomm Antitrust Case Before 9th Circuit

The FTC’s lawsuit against Qualcomm has observers debating whether the agency is properly applying antitrust authority in a case with major implications for the tech industry (see 1908230057). The 9th U.S. Circuit Court of Appeals is considering oral argument in early 2020.

U.S. District Judge Lucy Koh ruled against the company in May, saying Qualcomm abused its mobile chip dominance. The decision forced the company to license to competitors, but Qualcomm won a partial reversal from the 9th Circuit in August. The company, for now, can continue conditioning chip sales on the purchase of patent licenses. Qualcomm claims the reversal allows the company to make critical 5G investment.

Ericsson's amicus brief favored Qualcomm’s motion for stay, saying it would prevent harm to third parties like Ericsson and advance the public interest. The FTC’s approach on the merits was controversial, the company said, citing Commissioner Maureen Ohlhausen’s dissent. Forcing Qualcomm to renegotiate existing licenses would create significant uncertainty and disruption, Ericsson said: “Billions of dollars in investment and countless hours have been committed across all sectors of the cellular industry based on an assumed timeline for the rollout of 5G technology.”

Samsung also argued for a stay, saying contract and patent law are “better suited” for settling disputes about fair, reasonable and nondiscriminatory (FRAND) terms. A patent’s exclusive right is “an important and vital means for promoting innovation,” and exercising that right “generally cannot lead to antitrust liability,” Samsung said.

ACT|The App Association argued against a stay, saying the harm to the market from a stay “substantially outweighs the dubious allegations of harm to one competitor.” The stay would “harm opportunities for small businesses in the app and internet of things (IoT) marketplace and would encourage further abusive behavior in [standard essential patent] licensing widely,” it argued. Intel argued in 2017 that Qualcomm’s practices illegally force phone manufacturers to exclusively buy Qualcomm chipsets. These antitrust violations harm competition and innovation, Intel said.

DOJ filed an amicus brief in support of Qualcomm against the FTC. DOJ Antitrust Division Chief Makan Delrahim said in June that antitrust law generally shouldn’t be used to settle patent disputes (see 1906060052). Qualcomm is a former client of Delrahim and his former employer Brownstein Hyatt, according to the Lobbying Disclosure Act database.

Qualcomm maintains its chip monopoly with its royalty payment structure, which results in the exclusion of rival chipmakers, said Yale economics professor Fiona Scott Morton in an interview. Qualcomm’s tactics led Apple to forgo use of Intel components in its iPhone because it would cost Apple (see 1904160056) billions of dollars, she noted. Qualcomm uses gag clauses to preserve its market power in the standard essential patent markets, as well, she said: “It links the two by saying you can’t have chips unless you agree to a license.”

The FTC exceeded what Congress authorized and pursued this case despite DOJ opposition, said Nichole Van Valkenburg, chief strategy officer at Cause of Action, which filed an amicus brief in favor of Qualcomm. The agency’s antitrust authority can’t be properly applied to address patent and licensing issues, the group argued, saying the FTC’s argument is unsupported by evidence of actual harm. The outcome could signal a fundamental shift in patent valuation and regulation, said Van Valkenburg.

The district court’s decision relies on inferences to demonstrate anticompetitive behavior, the International Center for Law & Economics argued in favor of Qualcomm. If the decision stands, it could make a wide range of pro-competitive behavior illegal, ICLE said. It would make for a good case for the Supreme Court because antitrust questions remain unanswered, said President Geoff Manne. If the FTC loses, there’s a reasonable chance the agency will appeal to the high court, he said.

Qualcomm’s tactics create barriers to chip competition and allow the company to maintain a monopoly in violation of Section 2 of the Sherman Act, emailed Stanford law professor Doug Melamed. The FTC has a very sound case, he said: It’s tasked with preventing such violations. “Those who defend Qualcomm’s conduct overlook fundamental antitrust principles and would give holders of patents freedom to disadvantage rivals and users of patented technology in ways that not only violate the antitrust laws, but also undermine the purposes of the patent laws,” he wrote.