Antitrust Law Daily Qualcomm seeks stay, expedited hearing in FTC’s modem-chip market antitrust case
Wednesday, May 29, 2019

Qualcomm seeks stay, expedited hearing in FTC’s modem-chip market antitrust case

By Thomas G. Wolfe, J.D.

In the wake of the FTC having been granted an injunction in its antitrust action against Qualcomm, the company is now asking the court to stay the litigation while it appeals the order to the Ninth Circuit.

In the FTC’s modem-chip market antitrust litigation against defendant Qualcomm, Incorporated, the company has requested the San Jose, California federal district court to stay its May 21, 2019, order granting the Commission an injunction against it while Qualcomm appeals the order to the U.S. Court of Appeals for the Ninth Circuit. In its motion, Qualcomm maintains that the court’s prior grant of injunctive relief to the FTC was not appropriate because: (1) the company will suffer obvious and irreparable harm concerning its "longstanding licensing and sales practices" in the modem chip marketplace; (2) the order raises "serious legal questions" that are complex—including the FTC’s power to obtain injunctive relief, the proper standard of proof, and the proper scope of the injunction; and (3) staying the court’s injunction would not impair the public interest, but a refusal to stay the injunction would impair the public interest because it would interfere with competition in the market for Code Division Multiple Access as well as the market for premium Long-Term Evolution modem chips. Further, in its accompanying "Motion to Shorten Time," Qualcomm asks the trial court to conduct an expedited briefing schedule and hearing in connection with the company’s request to stay the case pending appeal (FTC v. Qualcomm, Inc., Case No. 5:17-cv-00220-LHK).

As part of its May 21, 2019, findings of fact and conclusions of law, the federal district court found that Qualcomm violated the FTC Act by engaging in extensive anticompetitive conduct. Among other things, the court determined that Qualcomm: refused to sell its modem chips to original equipment manufacturers (OEMs) until the OEMs signed a separate patent license agreement; refused to license its cellular standard essential patents (SEPs) to rival modem chip suppliers; engaged in exclusive arrangements for the supply of modem chips: and charged unreasonably high royalty rates. Qualcomm’s licensing practices eliminated a competing standard, suppressed rivals’ sales, prevented rivals from developing new and maintaining ongoing business relationships with OEMs, and harmed rivals’ standing.

According to the court, Qualcomm’s rivals have either exited the market or have been unfairly hobbled in their ability to compete due to Qualcomm’s anticompetitive behavior. Because the unlawful conduct was likely to recur, an injunction was issued. Accordingly, the court’s order prohibits Qualcomm from conditioning the supply of modem chips on a customer’s patent license status; requires the company to make exhaustive SEP licenses available to modem-chip suppliers on fair, reasonable, and non-discriminatory (FRAND) terms; and prohibits Qualcomm from entering into exclusive dealing agreements for the supply of modem chips.

Motion for stay pending appeal. In its Motion for Stay Pending Appeal, Qualcomm contends that if the court does not grant the stay, the company faces irreparable harm, and the injunction will force Qualcomm to "fundamentally change the way it does business." In support of that argument, Qualcomm maintains that these harms include: the disruption of Qualcomm’s business; the undoing of many existing licensing agreements; and forcing Qualcomm to enter into new agreements and make sales of modem chips under a "radically reshaped business model." The company underscores that it "does not license its SEPs exhaustively to chip makers," that "no other major holder of cellular SEPs licenses exhaustively at the chip level outside of the narrow context of cross licenses," and that Qualcomm should be given the opportunity to test the district court’s conclusions on appeal.

Not only will the injunction disrupt many of Qualcomm’s licensing agreements, absent a stay, but also the court’s May 21, 2019, order raises serious legal questions, the company contends. For instance, the order raises serious legal questions about: the proper legal standard for awarding injunctive relief under the FTC Act; the FTC’s "novel and unprecedented ‘tax’ or ‘surcharge’ theory of antitrust liability; the existence of any antitrust duty to "deal in the standards-setting context"; and the correct application of "the rule-of-reason burden-shifting framework."

Moreover, granting Qualcomm’s request for a stay pending an appeal to the Ninth Circuit would not cause any substantial harm to competition, nor would it meaningfully impair the public interest, the company maintains. Indeed, a stay would "greatly benefit the public interest. As the United States’ flagship cellular technology company, Qualcomm is crucial to our nation’s efforts to maintain and advance American leadership in the development of cellular systems and 5G standard-setting, and to protect our national security when it comes to the cellular technology that will permeate and undergird the world’s economic, communications and information systems," the company asserts.

With these arguments in mind, Qualcomm has asked the court to stay its May 21, 2019, order pending appeal. In the event the court is not inclined to grant a stay of its order, Qualcomm alternatively requests that the court stay its order pending the Ninth Circuit’s ruling on a motion for stay pending appeal. In keeping with federal appellate rules, the company would then seek a stay from the Ninth Circuit within seven days of the district court’s ruling on the motion.

Attorneys: Geoffrey M. Green for the FTC. Richard J. Stark (Cravath, Swaine and Moore LLP) for Qualcomm Incorporated.

Companies: Qualcomm Incorporated.

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