Antitrust Law Daily FTC seeks en banc rehearing in Qualcomm antitrust loss
Monday, September 28, 2020

FTC seeks en banc rehearing in Qualcomm antitrust loss

By Jeffrey May, J.D.

A divided Commission contends that the Ninth Circuit panel decision conflicts with U.S. Supreme Court precedent.

The FTC has filed a petition with the U.S. Court of Appeals in San Francisco requesting rehearing en banc of an August 11 panel decision overturning the agency's antitrust win against computer chip maker Qualcomm, Inc. The Commission vote authorizing staff to file the petition was 3-2, with Commissioner Noah Joshua Phillips and Christine S. Wilson voting no (FTC v. Qualcomm, Inc., Case No. 19-16122).

Last month, the Ninth Circuit panel concluded that the FTC failed to meet its burden of proving that Qualcomm’s various business practices caused anticompetitive harm in certain modem chip markets to support its antitrust claims. Noting that antitrust law, like patent law, is "aimed at encouraging innovation, industry and competition," the appellate court reversed the district court’s decision in favor of the FTC and vacated a worldwide injunction prohibiting some of Qualcomm’s core business practices.

The FTC suit was brought in January 2017. The FTC sued Qualcomm alleging that the company’s business practices excluded competitors and harmed competition in the modem chip markets in violation Section 5(a) of the FTC Act based on theories under Sections 1 and 2 of the Sherman Act. Following a 10-day bench trial, the district court in 2019 concluded that Qualcomm’s patent licensing practices violated both Sections 1 and 2 of the Sherman Act. The district court ordered a permanent, worldwide injunction prohibiting Qualcomm’s core business practices. Qualcomm appealed.

In the September 25 brief, the agency argues that panel decision disregarded precedent by: (1) elevating patent-law labels over economic substance; (2) holding that facially "neutral" fees cannot violate the antitrust laws; and (3) holding that harms to Qualcomm's customers are "beyond the scope of antitrust law" and demanding a showing of "direct" harm to competitors. "The panel’s errors have cast doubt on fundamental matters of antitrust principles and will encourage monopolists to cloak anticompetitive practices beneath false invocations of patent law and the appearance of neutrality," it was argued. For instance, monopolists might use the decision as a "roadmap" to manipulate patent-law labels in order to "thwart effective antitrust enforcement.

As for the anticompetitive harm caused by Qualcomm’s practices, the agency said that the panel seriously erred when it rejected the district court determination of harm to original equipment manufacturers or OEMs—including higher prices passed on to retail customers—on the ground that OEMs were outside the relevant markets. The FTC contends that the OEMs were purchasers and consumers in the relevant markets. Moreover, the brief suggests that the panel "applied a novel standard for competitive harm, apparently demanding a showing that Qualcomm’s practices had a ‘direct’ impact on competitors, unmediated through other market participants." It was argued that Qualcomm’s "no license, no chips" policy harmed competition by punishing customers who deal with Qualcomm’s competitors in the same way Microsoft’s conduct was found to have harmed competition in the Justice Department’s antitrust action two decades ago.

The FTC does not seek rehearing on the panel’s reversal of the district court’s conclusion that Qualcomm’s refusal to license its patents to rival chip makers violated Sec. 2 of the Sherman Act.

The case is No. 19-16122.

Attorneys: Brian H. Fletcher for the FTC. Gary Bornstein (Cravath, Swaine & Moore LLP) for Qualcomm Inc.

Companies: Qualcomm Inc.

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