Antitrust Law Daily Ninth Circuit declines to rehear FTC’s loss in Qualcomm modem chip dispute
News
Thursday, October 29, 2020

Ninth Circuit declines to rehear FTC’s loss in Qualcomm modem chip dispute

By Jody Coultas, J.D.

The FTC Commissioners were divided on whether to request rehearing.

A full panel of the U.S. Court of Appeals in San Francisco will not reconsider an en banc holding that the FTC failed to show that cellular modem chip maker Qualcomm Inc.’s business practices violated antitrust law. The Ninth Circuit held that the FTC failed to meet its burden of proving that Qualcomm’s business practices caused anticompetitive harm, and ruled that "exclusive deals" between Qualcomm and Apple Inc. did not warrant the issuance of an injunction. Noting that antitrust law, like patent law, is "aimed at encouraging innovation, industry and competition," the appellate court vacated a worldwide injunction prohibiting some of Qualcomm’s core business practices. The original panel voted to deny the petition, and no other Ninth Circuit judge requested a vote on whether to rehear the case en banc (FTC v. Qualcomm Inc., October 28, 2020, Rawlinson, J.).

Qualcomm holds standard essential patents (SEPs) related to code division multiple access (CDMA) and premium long-term evolution (LTE) technologies. The company also manufactures and sells cellular modem chips, the hardware that enables cellular devices to practice those technologies and communicate across cellular networks. Qualcomm licenses its patent portfolios exclusively to original equipment manufacturers (OEMs), such as cell phone makers Apple and Samsung. In addition, Qualcomm follows a so-called "no license, no chips" policy, under which Qualcomm refuses to sell modem chips to OEMs that do not take licenses to practice Qualcomm’s SEPs.

The FTC brought suit in January 2017 alleging that Qualcomm’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.

The Ninth Circuit panel reversed the district court’s holding. The appellate court rejected the FTC’s theory attacking OEM-level licensing under Section 2 based on Qualcomm’s purported breach of contractual standard setting organization commitments to license SEPs to rival chipmakers on FRAND terms. Also, the appellate court rejected the district court’s primary theory of anticompetitive harm based on Qualcomm’s imposition of an "anticompetitive surcharge" on rival chip suppliers via its licensing royalty rates. Citing the U.S. Supreme Court’s 2018 decision in Ohio v. Am. Express Co., the appellate court noted that this appeared to be another case where "a company’s novel business practice at first appeared to be anticompetitive, but in fact was disruptive in a manner that was beneficial to consumers in the long run because it forced rival credit card companies to adapt and innovate."

The FTC decided by a vote of 3-2 to petition for rehearing of the Ninth Circuit’s decision, with Republican Commissioner Noah Joshua Phillips and Christine S. Wilson voting no. The agency argued that the 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. 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 OEMs—including higher prices passed on to retail customers—on the ground that OEMs were outside the relevant markets.

This case is No. 19-16122.

Attorneys: Jennifer Milici for the FTC. Gary Bornstein (Cravath, Swaine & Moore LLP) and David Charles Frederick (Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C.) for Qualcomm Inc.

Companies: Qualcomm Inc.

MainStory: TopStory Antitrust FederalTradeCommissionNews AlaskaNews ArizonaNews CaliforniaNews HawaiiNews IdahoNews MontanaNews NevadaNews OregonNews WashingtonNews GCNNews

Back to Top

Interested in submitting an article?

Submit your information to us today!

Learn More

Antitrust Law Daily: Breaking legal news at your fingertips

Sign up today for your free trial to this daily reporting service created by attorneys, for attorneys. Stay up to date on antitrust legal matters with same-day coverage of breaking news, court decisions, legislation, and regulatory activity with easy access through email or mobile app.