{"id":1513,"date":"2020-03-03T14:59:49","date_gmt":"2020-03-03T14:59:49","guid":{"rendered":"https:\/\/www.tantraanalyst.com\/insights\/?p=1513"},"modified":"2023-01-17T09:27:18","modified_gmt":"2023-01-17T09:27:18","slug":"ftc-vs-qualcomm-what-do-skeptical-appeals-panel-defiant-defendants-and-dwindling-arguments-mean","status":"publish","type":"post","link":"https:\/\/www.tantraanalyst.com\/ta\/ftc-vs-qualcomm-what-do-skeptical-appeals-panel-defiant-defendants-and-dwindling-arguments-mean\/","title":{"rendered":"FTC vs. Qualcomm: What do skeptical appeals panel, defiant defendants, and dwindling arguments mean?"},"content":{"rendered":"
\"Qualcomm\"<\/a>
RCR Wireless News, March 3, 2020<\/figcaption><\/figure>\n
The title best describes the current situation after the recent hearing in the more-than-yearlong saga between FTC and Qualcomm. On Feb 13th, 2020, a three-judge panel of the US Court of Appeals for the Ninth Circuit (Ninth Circuit) heard Qualcomm\u2019s appeal to reverse the ruling of the US District Court of Northern California (lower court). During the hearing, the panel asked a lot of skeptical questions to FTC regarding its position, arguments, and precedents, probed Qualcomm\u2019s stance, and almost snubbed the US Department of Justice (DoJ). Although the judges appeared confused in the beginning, they seemed to have gotten the main points toward the end. Based on the verbal and non-verbal communications of the judges, Qualcomm definitely had a more positive day than FTC.<\/span><\/h6>\n
<<Side note: If you would like to understand the history of the case, please refer to the article series \u201cFTC vs. Qualcomm Antitrust Trial<\/a><\/span>\u201d>><\/span><\/h6>\n
I was fortunate enough to be in the court to witness the hearing. The appeals panel consisted of three judges: Judge Callahan, Judge Rawlinson, and Judge Murphy III.\u00a0 Being in front of them, I was able to observe lots of their non-verbal cues, such as subtle changes in mood and facial expressions, inaudible grunts, how keenly were they listening to whose arguments, etc., which many people watching\u00a0online<\/a><\/span>\u00a0might have missed.\u00a0<\/span><\/h6>\n
With only about 50 minutes allocated to the hearing, both parties only focused on the main points. What caught my eye was that during Qualcomm\u2019s arguments, judges were more in the listening mode and only prodding Qualcomm for clarifications. But during FTC\u2019s time, they were more skeptical, often questioning and challenging FTC counsel\u2019s assertions, and mostly in the \u201cso what\u201d mode. This is unlike other appeals cases, where usually appellants (Qualcomm in this case) face more scrutiny.\u00a0<\/span><\/h6>\n
<<Side note: Please refer to my articles\u00a0here<\/a><\/span>\u00a0and\u00a0here<\/a><\/span>\u00a0for more details on the arguments at play in the case>>\u00a0<\/span><\/h6>\n
Duty to deal\u00a0<\/strong><\/span><\/h6>\n
FTC massively hurt their case by conceding that Judge Koh had erred in citing the Aspen Skiing case as the precedent for \u201cDuty to Deal,\u201d i.e. the ruling that Qualcomm has the duty to license its patents to competitors. Judge Callahan even went to the extent of saying that the house of cards, i.e. FTC\u2019s case, starts to fall if the card of Aspen case is pulled out. Qualcomm obviously made a field day with it, quoting lower court\u2019s argument that \u201cDuty to Deal\u201d was one leg of the three-legged stool, and with that gone, the case couldn\u2019t stand (literally and figuratively). FTC\u2019s alternate precedents of Caldera and United Shoe Company cases, or argument about Qualcomm\u00a0breaching FRAND commitments<\/a><\/span>\u00a0to Standards Setting Organizations (SSOs) didn\u2019t seem to impress the panel. So, I am positive that this ruling will be reversed.<\/span><\/h6>\n
\u00a0\u201cNo license no chips\u201d policy<\/b><\/span><\/h6>\n
This argument confused the heck out of judges. Multiple times Judge Callahan asked and confirmed that Qualcomm was not accused of the \u201cNo chips No license\u201d policy, which obviously is antitrust conduct. She even suggested that probably Judge Koh of the lower court was confused about that as well! In other words, she didn\u2019t think \u201cNo License No Chips\u201d was anti-competitive. There was a clear difference of opinion between FTC\u2019s and Qualcomm\u2019s counsels on how OEMs expressed their views on the policy. FTC said that many witnesses from smartphone OEMs had given testimonies about paying higher royalties because of the risk of not getting chips. On the other hand, Qualcomm said that there was only one witness, from one OEM, in a non-monopoly market. To my recollection attending those hearings, mostly OEM expressed that they felt such policy existed, but never showed any evidence of Qualcomm practicing it. So, obviously, the panel will have look at the actual testimonies to make their determination. There was no discussion on whether this policy itself was illegal or not. but using this policy for creating the alleged surcharge on competitors.<\/span><\/h6>\n
Surcharge on competitors<\/b><\/span><\/h6>\n
If no license no chips discussion was confusing, this torturous surcharge claim hypothesis knocked the wind out of judges! Judge Murphy even said that he was having a hard time keeping up with all these things! I don\u2019t blame them. Most of FTC\u2019s time was spent on making the judges understand what FTC calls a surcharge, how it affects competition in their view etc. As expected, the panel challenged this claim from multiple angles\u2014precedence, market evidence, harm to competition not competitors, etc. and tried to poke holes in FTC\u2019s position.<\/span><\/h6>\n
Here are the notable questions and challenges. Judge Rawlinson asked \u201c\u2026 what would be wrong with that (higher royalty fees), doesn\u2019t the Supreme court say that patent holders have the right to price their patents, what would be anticompetitive about that?\u201d and \u201c..What case says that it is anti-competitive to move (cost) from chip to patent?\u201d Judge Callahan asked, \u201cWhy did the OEMs say it\u2019s unfair because they have to buy a license anyway?\u201d; \u201c..who is a Goliath here, Apple is more of a Goliath than Qualcomm\u201d; \u201c..your argument that Qualcomm\u2019s licensing fees increase rival\u2019s cost doesn\u2019t make sense to me\u2026\u201d ; \u201cThere seems to be\u2026.. a conflation of profitable and anti-competitive (one means the other).\u201d; \u201c\u2026 weren\u2019t there multiple competitors enter the \u2026market successfully beginning around 2015, leading to a precipitous decline in Qualcomm\u2019s market (share)? Judge Murphy III asked, \u201c\u2026why don\u2019t we let OEMs exercise their right in patent law to file (cases for) predatory pricing, abuse of monopoly, etc. (instead of antitrust law)?\u201d These were mere samples.<\/span><\/h6>\n
The panel was unconvinced and most likely will still be even after looking at the documents.<\/span><\/h6>\n
Chip volume incentives or royalty discount<\/b><\/span><\/h6>\n
This issue was not discussed as much as others but was used as a basis for other arguments. FTC claims that Qualcomm\u2019s volume discount to Apple is exclusionary and anti-competitive. Qualcomm, during its rebuttal, argued that licensing and chipset are two separate contracts and it doesn\u2019t make sense to combine them. Again, this is another issue where the judges will have to look at the documentation and\u00a0decide.<\/span><\/h6>\n
Is the \u201cThreat to national security\u201d argument justified?<\/b><\/span><\/h6>\n
This is the first time that DoJ and FTC are on opposite sides of a case. Qualcomm ceded five minutes of their time to DoJ. DoJ\u2019s major claim is that the lower court\u2019s global and expansive remedy harms national security. Judge Murphy seemed hostile against DoJ and asked whether they have any market analysis or financial evidence to prove the claim. DoJ counsel, although startled by the question, came back with a reasonable explanation that the basis for the case was 3G and 4G, but applying the remedy to 5G will negatively affect the country\u2019s standing in 5G. 5G being such a crucial technology for many aspects of the country, DoJ and other government departments (Department of Defense and Department of Energy) are convinced that implementing the ruling will harm the country.\u00a0 FTC counsel was quick to capitalize on Judge Murphy\u2019s assertion and discount the security concern as a simple abstraction without any supporting studies.\u00a0<\/span><\/h6>\n
I am not sure whether the panel will consider the security question seriously.\u00a0<\/span><\/h6>\n
What does all this mean?<\/b><\/span><\/h6>\n
You have to consider that the hearing is only one part, albeit an extremely important one, in resolving the case. The court will examine all the briefs, and case documentation before making a final decision. One could argue that the cues from the hearing may be overblown, for example, all those questions and challenges could just be the judges probing both parties to completely understand their stance and such. However, specific things such as difficulty in fully grasping the FTC\u2019s argument, and understanding its point of view clearly indicate that the judges don\u2019t believe those arguments and are not taking them at the face value. It also suggests that the FTC\u2019s arguments are not as robust as the lower court thought they were.\u00a0<\/span><\/h6>\n
From Qualcomm\u2019s perspective, after a clear win with the stay, this hearing turned out to be very positive. The FTC had a major initial setback because of the Aspen Skiing reversal, but at least made the panel understand its arguments. Whether the panel agrees with them or not is a separate matter. In my view, Judge Callahan and Judge Rawlinson seem to be aligned with Qualcomm\u2019s arguments and Judge Murphy seems to be neutral or slightly aligned with FTC\u2019s argument. Ultimately, as Judge Murphy III succinctly put it, \u201canticompetitive behavior is illegal\u2026 hyper-competitive behavior is not\u2026 this case asks us to draw the line between the two.\u201d Meaning, the judges have to decide whether Qualcomm\u2019s behavior is anticompetitive or hyper-competitive.<\/span><\/h6>\n
What\u2019s next?<\/b><\/span><\/h6>\n
There is no fixed timing for the Ninth Circuit\u2019s decision. The expectation is six to twelve months. The decision doesn\u2019t have to be unanimous, meaning, only two of the three judges have to agree.\u00a0<\/span><\/h6>\n
In terms of outcome possibilities, the panel could completely knock down all the lower court\u2019s rulings, or fully uphold them, or do anything in between. Meaning, it could agree to some parts of the ruling and reverse the others or make a determination on some and send the others back to the lower court to reconsider. No matter what the panel\u2019s decision is, either party can request a full panel review, which involves all the 20+ judges at the Ninth Circuit, and further knock on the Supreme Court\u2019s door. If Qualcomm loses, especially the claims that affect its licensing policy, I am sure it will go to the Supreme Court. On the other hand, if the FTC loses, it might ask for the full panel review and let it go after that.\u00a0<\/span><\/h6>\n
As it stands today, I think Qualcomm is in a pretty good situation and more likely to win than the FTC.<\/span><\/h6>\n
Please make sure to sign-up for our monthly newsletter at\u00a0TantraAnalyst.com\/Newsletter<\/a><\/span>\u00a0to get updates on this trial as well as the telecom industry at large.<\/span><\/h6>\n","protected":false},"excerpt":{"rendered":"

The title best describes the current situation after the recent hearing in the more-than-yearlong saga between FTC and Qualcomm. On Feb 13th, 2020, a three-judge panel of the US Court of Appeals for the Ninth Circuit (Ninth Circuit) heard Qualcomm\u2019s appeal to reverse the ruling of the US District Court of Northern California (lower court). […]<\/p>\n","protected":false},"author":2,"featured_media":1646,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"image","meta":{"mc4wp_mailchimp_campaign":[],"footnotes":""},"categories":[7],"tags":[],"class_list":["post-1513","post","type-post","status-publish","format-image","has-post-thumbnail","hentry","category-ipr","post_format-post-format-image"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.tantraanalyst.com\/ta\/wp-json\/wp\/v2\/posts\/1513","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.tantraanalyst.com\/ta\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tantraanalyst.com\/ta\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tantraanalyst.com\/ta\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tantraanalyst.com\/ta\/wp-json\/wp\/v2\/comments?post=1513"}],"version-history":[{"count":0,"href":"https:\/\/www.tantraanalyst.com\/ta\/wp-json\/wp\/v2\/posts\/1513\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tantraanalyst.com\/ta\/wp-json\/wp\/v2\/media\/1646"}],"wp:attachment":[{"href":"https:\/\/www.tantraanalyst.com\/ta\/wp-json\/wp\/v2\/media?parent=1513"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tantraanalyst.com\/ta\/wp-json\/wp\/v2\/categories?post=1513"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tantraanalyst.com\/ta\/wp-json\/wp\/v2\/tags?post=1513"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}