Judge Grants in Part Qualcomm’s Motion to Dismiss Antitrust Suit

U.S. District Judge Jacqueline Scott Corley for Northern California in San Francisco scheduled a further case management conference Feb. 23 on the surviving portions of the June 10 second amended complaint brought against Qualcomm by four California consumers. The original litigation dates back six years to when the FTC and a group of consumers brought similar, parallel actions alleging Qualcomm uses its position at the confluence between chip manufacturing and patent licensing to stifle competition.

Corley granted in part and denied in part Qualcomm’s Aug. 1 motion to dismiss the plaintiffs’ claims that Qualcomm’s anticompetitive conduct violated California’s Cartwright Act and Unfair Competition Act (UCL), said her order Friday (docket 3:17-md-02773). She said the plaintiffs failed under the Cartwright Act to state a claim that Qualcomm unlawfully engaged in “tying,” the practice of selling one product to a customer on the condition that the buyer buys a second product from the supplier.

But Corley found in the plaintiffs’ favor that Qualcomm “made anticompetitive exclusive dealing agreements with OEMs that foreclosed a substantial share of the chipset market,” said her order. “An exclusive dealing agreement is one in which a seller and a buyer agree the buyer will buy only the seller’s product or agree the buyer will not buy the product of one of the seller’s competitors,” it said.

In California and under federal antitrust law, exclusive dealing arrangements “are not illegal per se but may be illegal if they unreasonably restrict competition in a particular market,” said Corley’s order. To violate the Cartwright Act, an exclusive deal must be one that causes significant “foreclosure” of the market to competitors, it said.

Qualcomm moved to dismiss on grounds that the 9th U.S. Circuit Appeals Court 2020 decision in FTC v. Qualcomm, reversing a lower court’s ruling that Qualcomm violated federal antitrust law, precluded the plaintiffs from making the exclusive dealing claim, but Corley disagreed, said her order. Since the factual record presented at trial in FTC v. Qualcomm “does not bind” the plaintiffs in the current case, “Qualcomm’s sole argument to dismiss the exclusive dealing claim falls short,” it said.

The plaintiffs were not parties to FTC v. Qualcomm, so they “may show substantial market foreclosure where the FTC failed,” said Corley’s order. Their complaint alleges numerous OEMs bought between 85% and 100% of their chipsets from Qualcomm in exchange for incentives, including reduced royalties, it said. They provided testimony from an Intel executive alleging Qualcomm’s exclusive dealing arrangements hindered Intel from effectively competing against Qualcomm for two years, it said.

The plaintiffs also allege Qualcomm’s practices were unlawful, unfair and fraudulent under California’s Unfair Competition Law. As Qualcomm’s motion to dismiss the Cartwright Act exclusive dealing claim fails, the plaintiffs’ claim under the unlawful prong of the UCL “survives to the same extent,” said Corley’s order. “In all other respects,” Qualcomm’s motion to dismiss is granted, it said.

Qualcomm is "pleased" that Corley "granted a portion of our motion to dismiss, yet again rejecting the theory that Qualcomm’s practice of selling baseband chipsets only to licensed customers is anticompetitive," emailed a spokesperson Tuesday. Corley’s ruling "narrows the plaintiffs’ remaining case, leaving only allegations of exclusive dealing, and we are confident we have strong defenses to these allegations," said the spokesperson. "Indeed, we have already successfully defeated similar claims made by the European Commission.”