Qualcomm Decision Could Strengthen Huawei’s 5G Position, Stakeholders Say

Qualcomm’s victory before the 9th U.S. Circuit Court of Appeals strengthens the hand of patent holders like Huawei, which could create national security risks, tech industry officials and antitrust attorneys said in interviews. A Qualcomm proponent said the FTC shouldn’t seek an appeal in a case that would put “more bad law on the books against” the agency (see 2008110065).

If the decision stands, it greatly reduces the risk that a patent licenser might face a successful antitrust claim based on an alleged breach of fair, reasonable and non-discriminatory commitments, said Freshfields’ Andrew Ewalt. The FTC can appeal the case to the full 9th Circuit or the Supreme Court. The agency didn't comment.

The decision directly contributes to the “weaponization of the standards system,” said ACT|The App Association Senior Global Policy Counsel Brian Scarpelli: That’s concerning because companies like Huawei own a large amount of standard essential patents (SEPs) and emerging standards for 5G technology. ACT President Morgan Reed asked what this could mean for hardware suppliers like Juniper Networks or anyone else who wants to deal: “Does this turn into a new business model, whereby SEP holders get to decide who gets a license and at what level?”

Other companies with big portfolios, like Nokia, were already engaging in behavior similar to Qualcomm -- licensing at the device level rather than the chip competitor level -- said Ballard Spahr’s Tom Hazlett: The decision “certainly removes the risk from companies that choose to go down that road.”

Huawei makes network hardware, so it creates national security risk in addition to competition issues, said Computer & Communications Industry Association Patent Counsel Joshua Landau: “I can always try and not buy a Qualcomm phone, but I don’t have much choice in what my cellular provider uses on their network.” Qualcomm’s tactics have effectively eliminated competitors and forced handset manufacturers to deal with Qualcomm, he added. The same could be true on the network side with Huawei, making it financially unfeasible not to use Huawei parts.

The FTC’s case is a loser that should be dropped, said International Center for Law and Economics Associate Director Kristian Stout, whose organization filed in support of Qualcomm, noting the case was brought in the waning days of the Obama administration: “The FTC picked up this case because it was filed, and there was institutional obligation to do a good job. If I was in there, I would not want to continue this case because it really seems like a loser to me, and it’s just going to put more bad law on the books against the FTC.”

This wasn’t a competition case but a contract dispute, so the FTC had no business being involved, Stout argued. The FTC was trying to construe Qualcomm’s SEP patent licensing and chip business in a “such a way that it had obligations to license and sell chips under certain conditions,” he said. The agency was trying to use patent law and policy as a hook, saying if a company violates its contractual obligations, the SEP requirements, it’s an unfair practice that can be used in an antitrust case, he said: “They had to build a really complicated, convoluted case to get to that point, and even then” it was still resolved on a duty to deal theory, which isn’t particularly strong in the U.S., compared with the EU.

The 9th Circuit panel said Qualcomm wasn’t harming competition at the chipmaker level. It decided “you couldn’t pull any alleged competitive harm from the device maker level of the distribution chain level up to the chip manufacturer level,” Hazlett said. It’s not clear whether the FTC will appeal, but it appears Chairman Joe Simons could be the deciding vote now that his recusal ended (see 2008140039), Hazlett added.

Landau disagreed the FTC has a losing hand, citing “253 pages” of evidence U.S. District Judge Lucy Koh found showing Qualcomm abused its position and the market harms. The 9th Circuit panel said Qualcomm harmed original equipment manufacturers but not consumers, which is a legally incorrect statement, he said.

The panel judges weren’t the most liberal of the 9th Circuit, but there’s no guarantee an en banc review would overturn the decision, Reed said. The fairly conservative set of judges took a more “IT maximalist viewpoint,” but the FTC will need to strengthen its arguments, he said.

The FTC will need to think “very carefully” about appealing because this is a “very unsettled” area of the law, and DOJ opposed the agency’s stance, said Ewalt. The election, and the potential for a new administration, could have implications for DOJ’s stance in the case, Ewalt added: “It depends how quickly an appeal would come. It could be different decision makers at DOJ by the time they would have to express an opinion on the merits.” It’s an interesting question that the FTC will have to think hard about when deciding whether to appeal, he said.