Experts Weigh Coming 9th Circuit Chip Monopoly Decision

SAN FRANCISCO -- Observers are split on whether the 9th U.S. Circuit Court of Appeals will side with the FTC or Qualcomm in a key tech antitrust decision expected in the coming months (see 2002130058). Qualcomm, Intel, Ericsson and Samsung didn’t comment Friday, after the previous day's oral argument. We interviewed experts following oral argument.

Public Knowledge backed the FTC, while an analyst said two of the three judges appeared highly skeptical of the agency’s case. An R Street Institute expert said if the court sides with Qualcomm, it offers a road map for monopolists to overcharge consumers by using questionable patent licensing practices.

Based on Qualcomm’s licensing structure, Apple must pay Qualcomm to use chips from a rival like Intel, said Public Knowledge Legal Director John Bergmayer. That “obviously means Qualcomm can always make it so Intel is not truly competitive,” Bergmayer said. This echoes the heart of the FTC’s argument, said Constantine Cannon antitrust attorney Ankur Kapoor.

The three-judge panel questioned whether the case would be best resolved through antitrust, patent or contract law. Judge Consuelo Callahan seemed most skeptical of the FTC’s argument, said Financial Research CEO Michael Cohen. Judge Stephen Murphy was tougher to read, Cohen said, but Judge Johnnie Rawlinson also seemed skeptical of FTC arguments.

Rawlinson asked FTC counsel what case law the agency has to defend itself if the 9th Circuit disagrees with its assertions about Caldera v. Microsoft, a case Microsoft settled after being accused of exclusionary licensing. The FTC argued Qualcomm is requiring a similar surcharge. “Qualcomm’s effort to camouflage its surcharge as a patent royalty does not materially alter the straightforward antitrust analysis,” the FTC argued in November.

Rawlinson noted the Supreme Court asked the 9th Circuit to focus on competition, not competitors. The nature of business is to make it more difficult for your competitors, Rawlinson said.

Qualcomm made its patent essential through standard setting and made a commitment to license its patent to anyone through fair, reasonable and nondiscriminatory (FRAND) terms, said Bergmayer. But Qualcomm has selectively chosen not to license its patent, most notably for competitors like Intel, he said: “You can’t just say we’re not going to license it to our competitor. That’s a flat antitrust violation, and the FTC agreed, and the district court agreed.”

The FTC offered a concession Thursday. U.S. District Judge Lucy Koh’s assertion that Qualcomm has a duty to deal was incorrect, said FTC attorney Brian Fletcher. That was the most vulnerable aspect of Koh’s opinion, said University of Minnesota Law School professor Thomas Cotter, but the FTC claims its argument can stand without the duty to deal.

In antitrust, duty to deal only applies in narrow circumstances. But Kapoor said he was surprised the FTC offered the concession, which wasn’t included in the agency’s brief.

The panel seemed to lean toward Qualcomm for the first 40 minutes, but then it questioned why original equipment manufacturers like Apple have to pay Qualcomm no matter what, given Qualcomm’s licensing, Kapoor said: “That seemed to give the panel some pause.” It will come down to whether the panel recognizes case law outside the 9th Circuit, he said. There’s case law that says if a monopolist violates contractual obligations, that can form the basis of an antitrust claim. The decision will hinge on whether the panel believes a FRAND commitment breach can give rise to a competition violation, he said.

Charging a royalty that exceeds the FRAND commitment potentially enables Qualcomm to put its rivals at a disadvantage, said Cotter. Callahan seemed more skeptical of the FTC’s argument, but the other two jurists were more difficult to read, said Cotter. Discussing Murphy’s question about whether this is more a contract issue, Cotter said a contract violation can be a pattern of conduct that amounts to an antitrust violation.

The R Street Institute filed a brief in favor of the FTC. The court rightly seemed to dismiss DOJ’s argument Thursday that antitrust enforcement could harm national security, since Qualcomm is competing with China for 5G, said R Street Director-Technology and Innovation Charles Duan, who helped write the brief. The U.S. protecting individual companies in the name of national security is contrary to capitalism, he said: Having more competition leads to more innovation and greater security.