{"id":1508,"date":"2020-08-18T14:35:53","date_gmt":"2020-08-18T14:35:53","guid":{"rendered":"https:\/\/www.tantraanalyst.com\/insights\/?p=1508"},"modified":"2023-01-06T05:38:35","modified_gmt":"2023-01-06T05:38:35","slug":"ftc-vs-qualcomm-more-than-meets-the-eye-in-ninth-circuit-decision","status":"publish","type":"post","link":"https:\/\/www.tantraanalyst.com\/ta\/ftc-vs-qualcomm-more-than-meets-the-eye-in-ninth-circuit-decision\/","title":{"rendered":"FTC vs. Qualcomm \u2013 More than meets the eye in Ninth Circuit decision"},"content":{"rendered":"
\"Qualcomm,<\/a>
RCR Wireless News, August 18, 2020<\/figcaption><\/figure>\n
The United States Court of Appeals for the Ninth Circuit (Ninth Circuit) gave a landmark decision<\/a><\/span> in favor of Qualcomm, on Aug 11th 2020, in the long running antitrust case brought about by FTC. This was a highly anticipated outcome in the multi-year saga, which saw fortunes go back and forth between the parties. The detailed opinion written by Judge Callahan, representing the panel of three judges, is a tell-a-tale of how FTC mischaracterized Qualcomm\u2019s business model, and how the United States District Court for the Northern District of California (lower court) misjudged the case. The ruling vacated all the decisions of the lower court, including the partial summary judgement. I spoke to Don Rosenberg<\/a><\/span>, EVP, and General Counsel of Qualcomm, who of course was quite pleased with the outcome. He said, \u201cwe felt vindicated by the appeals court\u2019s ruling and are looking forward to continue bringing path-breaking innovation like 5G to life.\u201d <\/span><\/h6>\n
Ninth Circuit\u2019s decision was not just relevant for this case, but clarifies a whole slew of long-standing issues, and will set a defining precedent for IPR licensing in the future, especially from an antitrust point of view. <\/span><\/h6>\n
Side note: If you would like to know the full background of the case, refer to my earlier articles in the FTC vs. Qualcomm article series.<\/a><\/span><\/strong><\/em><\/span><\/h6>\n
Well expected outcome<\/b><\/span><\/h6>\n
The recent developments in the case had made me predict such ruling<\/a><\/span>. The Ninth Circuit\u2019s stay of the lower court\u2019s decision, and the language used in that order, the tone of the in-person hearing, and the deep skepticism the panel showed in their questioning made it amply clear the direction the panel was tilting. <\/span><\/h6>\n
The case indeed had a lot of unusual and rather interesting turn of events from beginning to end. It was filed in the last days of the last administration with only a few FTC commissioners in the office. One of those commissioners who was opposed to this move wrote a scathing opinion<\/a><\/span> in The Wall Street Journal, publicly disparaging the case. The new incoming chair of FTC recused himself from the case, which left the case on autopilot with FTC staff taking charge. The instigators, major supporters and witnesses moved away from the case midway\u2014Apple and Huawei settled their licensing disputes with Qualcomm, Intel exited the modem market. The US Department of Justice, which shares the antitrust responsibility with FTC, went strongly against FTC, it even became a party to the hearing and pleaded against the case. But the biggest surprise for me was the ferocity with which the Ninth Circuit tore down and reversed every decision of the lower court, including the summary judgement.<\/span><\/h6>\n
Highlights of the ruling<\/b><\/span><\/h6>\n
This indeed was a complex technical case, where the judges had to quickly develop full understanding of the industry. Rosenberg highlighted the challenges of appellate court judges \u201cThey have to work on the record that somebody else has created for them, including lots of documentary evidence, witness testimony, lower court\u2019s assertions and more\u201d he added \u201cconsidering that, the judges did an amazing job, cutting through the noise and really getting to the core issues and opine on them.\u201d The interesting thing I found reading through more than 50-page ruling is, how it summarized and reduced the case into five key questions: <\/span><\/h6>\n
    \n
  1. \n
    Whether Qualcomm\u2019s \u201cno license, no chips\u201d policy amounts to \u201canticompetitive conduct against OEMs\u201d and an \u201canticompetitive practice in patent license negotiations\u201d<\/span><\/h6>\n<\/li>\n
  2. \n
    Whether Qualcomm\u2019s refusal to license rival chipmakers violates both its FRAND commitments and an antitrust duty to deal under \u00a7 2 of the Sherman Act<\/span><\/h6>\n<\/li>\n
  3. \n
    Whether Qualcomm\u2019s \u201cexclusive deals\u201d with Apple \u201cforeclosed a \u2018substantial share\u2019 of the modem chip market\u201d in violation of both Sherman Act provisions<\/span><\/h6>\n<\/li>\n
  4. \n
    Whether Qualcomm\u2019s royalty rates are \u201cunreasonably high\u201d because they are improperly based on its market share and handset price instead of the value of its patents <\/span><\/h6>\n<\/li>\n
  5. \n
    Whether Qualcomm\u2019s royalties, in conjunction with its \u201cno license, no chips\u201d policy, \u201cimpose an artificial and anticompetitive surcharge\u201d on its rivals\u2019 sales, \u201cincreasing the effective price of rivals\u2019 modem chips\u201d and resulting in anticompetitive exclusivity<\/span><\/h6>\n<\/li>\n<\/ol>\n
    The panel decided that FTC and lower courts were wrong on all counts. Rosenberg said that the opinion gave very logical, persuasive and point to point arguments with obviously relevant citations to refute all those assertions. Here are some of the excerpts from the opinion:<\/span><\/h6>\n
    \u201c\u2026OEM-level licensing policy,  .. was not an anticompetitive violation of the Sherman Act.\u201d<\/i><\/span><\/h6>\n
    \u201c\u2026to the extent Qualcomm breached any of its #FRAND commitments, the remedy for such a breach was in contract or tort law\u2026\u201d <\/i><\/span><\/h6>\n
    \u201c\u2026\u201dno license, no chips\u201d policy did not impose an anticompetitive surcharge on rivals\u2026\u201d=<\/i><\/span><\/h6>\n
    \u201c\u2026We now hold that the district court went beyond the scope of the Sherman Act\u2026\u201d<\/i><\/span><\/h6>\n
    \u201d Thus, it [Qualcomm] does not \u201ccompete\u201d\u2014in the antitrust sense\u2014against OEMs like Apple and Samsung in these product markets. Instead, these OEMs are @Qualcomm\u2019s customers\u2026\u201d <\/i><\/span><\/h6>\n
    \u201c\u2026OEM level licensing was not \u201cto sacrifice short-term benefits in order to obtain higher profits in the long run from the exclusion of competition,\u201d <\/i><\/span><\/h6>\n
    \u201c\u2026while Qualcomm\u2019s policy toward OEMs is \u201cno license, no chips,\u201d its policy toward rival chipmakers could be characterized as \u201cno license, no problem\u2026\u201d<\/i><\/span><\/h6>\n
    \u201c\u2026even if we were to accept the district court\u2019s conclusion that Qualcomm royalty rates are unreasonable, we conclude that the district court\u2019s surcharging theory still fails as a matter of law and <\/i>logic.\u201d<\/i><\/span><\/h6>\n
    \u201c\u2026neither the Sherman Act nor any other law prohibits companies from (1) licensing their SEPs independently from their chip sales; (2) limiting their chip customer base to licensed OEMs\u2026\u201d<\/i><\/span><\/h6>\n
    \u201c\u2026Our job is not to condone or punish Qualcomm for its success, but rather to assess whether the FTC has met its burden under the rule of reason \u2026 We conclude that the FTC has not met its burden\u2026\u201d<\/i><\/span><\/h6>\n
    What this means for the industry<\/b><\/span><\/h6>\n
    This indeed was a landmark decision with long ranging consequences. It surely clears the clouds of uncertainty that were hanging over Qualcomm\u2019s licensing business for a long time. It will also be a welcome decision for many other patent holders and licensors. The precedent this case has set will be used for resolving patent related antitrust issues for a long time to come. Here are some of the specific things I think are relevant: <\/span><\/h6>\n