Today, the U.S. Department of Justice (DOJ) filed a Statement of Interest of the United States of America in the Federal Trade Commission’s (FTC) antitrust lawsuit against Qualcomm about standard essential patent licensing. DOJ does not currently take a position on the merits of the FTC’s liability claim against Qualcomm that is awaiting decision by the district court following a January trial, but is making the court aware that there should be separate briefing and an evidentiary hearing on remedy if the court finds that Qualcomm is liable. This is a very interesting development with implications beyond the instant case with much reading between the lines–and the good stuff buried in footnotes–as to what is to come. Somewhat like the first 10 minutes of last week’s Game of Thrones episode “The Long Night” where warriors lined-up for some kind of battle to happen but it was not clear what exactly that would be.
The Stated Interest
DOJ filed its Statement of Interest under a federal statute that provides a means for DOJ to “attend to the interests of the United States in a suit pending in any court of the United States.” 28 USC § 517. The Statement of Interest is fairly basic in that it takes no position on liability or remedy, but is informing the Court that there should be an evidentiary hearing on remedy if liability is found and any resulting remedy should be very carefully tailored so that it does “not interfere with the defendant’s innovation incentives going forward”, stating:
If the Court finds that Qualcomm has violated the FTC Act, it should permit additional briefing and schedule an evidentiary hearing to resolve any disputes regarding the scope and impact of injunctive relief. …
Holding a hearing on the appropriate remedy is vital in monopolization cases because the obligations courts impose often have far-reaching effects and can re-shape entire industries. As one previous head of the Antitrust Division put it, “Section 2 remedies should not crush a tiger’s spirit; they should train, not tame. Among other things, this means that equitable remedies should not interfere with the defendant’s innovation incentives going forward. The effects of an antitrust remedy, however, are not always intended; if overly broad, a remedy ultimately may cause harm to competition and consumers.
Indeed, there is a plausible prospect that an overly broad remedy in this case could reduce competition and innovation in markets for 5G technology and downstream applications that rely on that technology. Such an outcome could exceed the appropriate scope of an equitable antitrust remedy. Moreover, it has the distinct potential to harm rather than help competition.
Because an overly broad remedy could result in reduced innovation, with the potential to harm American consumers, this Court should hold a hearing and order additional briefing to determine a proper remedy that protects competition while working minimal harm to public and private interests. [Statement of Interest at 3-5, 6]
So, on its face, the Statement of Interest is DOJ informing the court that an evidentiary hearing and briefing should be held to carefully craft a remedy if liability is found.
Between the Lines and Footnotes
DOJ Clear Policy/FTC Muddy Policy. With the change of administration, Assistant Attorney General (AAG) for the Antitrust Division Makan Delrahim has made a significant course correction on DOJ policies concerning competition law as applied to standard essential patents. (see, e.g., Feb. 22, 2018 post) The prior administration used competition law to address alleged patent holdup concerns by those who owned standard essential patents (SEPs) subject to FRAND commitments. The new policy pulls back on the use of competition law to enforce SEP policy given concerns that it could be an over-used blunt tool that may not be needed for FRAND-committed patents where remedies already exist under traditional contract law. The new policy also raises concerns that those who need to obtain a license to FRAND-committed SEPs may improperly “hold-out” from taking a license or collude in standard-setting bodies to set one-sided FRAND licensing terms that devalue SEPs. DOJ has made an intentional effort to provide a clear statement of its SEP policy views and to educate the public about it. So the DOJ’s Statement of Interest here indicates that DOJ also is taking proactive measures to implement its policy, and could be expected to at least file amicus briefs in the remedy phase of this case to provide guidance on SEP issues as a matter of United States policy.
The FTC, on the other hand, appears in a state of limbo on SEP issues. As discussed in a prior post, the FTC filed the instant case in 2017 just days before the new administration took office in a 2-1 split decision of an incomplete Commission (usually 5 Commissioners) with a rare and cogent dissent in which the deciding vote was from a Commissioner who resigned a few weeks later and the FTC Staff apparently is following its last received marching orders from the 2-1 split decision instituting the case notwithstanding significant events since then and without policy guidance from the appointed Commissioners because they have been evenly split about the case since it was filed (currently split 2-2 with the remaining Commissioner recused). (See Feb. 2, 2019 post). That was an intentional run-on sentence to make the point that its not really clear where the FTC’s head is at on SEP policy. There appears to be no clear current FTC policy of the appointed Commissioners and the FTC Staff appears to be following its last received communication from the Commissioners (the 2017 2-1 split decision) to launch the nuclear missiles notwithstanding changed events that require reassessment (see the Crimson Tide reference and movie clip in our prior Feb. 2, 2019 post).
Importantly, statements by DOJ’s AAG Delrahim–whether made in court or in public speeches–are considered the official policy position of the United States. Statements by FTC Commissioners are not, but just represent their personal views and not FTC policy. And its not really clear what to make of FTC Staff positions in the case against Qualcomm–good folks being good soldiers following marching orders to win the case they filed as all of us attorneys are charged to do for our clients, but whose policy (if any) does their litigation positions represent?
So the DOJ’s Statement of Interest here may provide the first clear and intentional U.S. governmental guidance on SEP policy issues in this case. DOJ has been very careful so far to not step on FTC toes concerning their potential disagreement on SEP policy issues, and that’s to be expected and respected. But DOJ is now poised to dutifully weigh-in here following a decision on liability by the district court that is expected any day now (though a decision also could be weeks or months away–no telling).
Settlement Overture? Footnote 2 of the Statement of Interest indicates that DOJ may not weigh-in if FTC and Qualcomm reach some settlement agreement, stating:
Nothing in this Statement of Interest is intended to apply to a case where a defendant does not dispute the appropriate remedy and agrees to a proposed consent judgment with the government.
There are many ways to read between the lines here. Is DOJ signalling that it does not want to derail any settlement discussions or lead FTC or Qualcomm to believe they must get DOJ sign-off to settle? Is DOJ signalling that FTC should settle this matter to avoid the uncomfortable reality that FTC and DOJ may have a conflicting and very public dispute on SEP policy issues if the case proceeds?
Whose Turf? Footnote 3 of the Statement of Interest indicates that the scope of FTC’s competition law enforcement capabilities might not be clear in this case where it “is largely premised on legal standards incorporated from Section 2 of the Sherman Act,” which Section 2 falls under DOJ’s jurisdiction, stating:
Even though the FTC does not directly enforce the Sherman Act, courts have held that a violation of the Sherman Act constitutes an unlawful “unfair method of competition” under Section 5 of the FTC Act. The United States takes no position on the contours of the FTC Act’s prohibition.
Is DOJ signalling that the SEP competition law claims at issue here fall more within DOJ’s bailiwick than FTC’s?
Was FTC Played By Apple? Footnote 6 of the Statement of Interest indicates that Apple may have raised antitrust claims against Qualcomm as leverage to obtain a better business deal on SEP licenses, stating:
Internal Apple documents that recently became public describe how, in an effort to “[r]educe Apple’s net royalty to Qualcomm,” Apple planned to “[h]urt Qualcomm financially” and “[p]ut Qualcomm’s licensing model at risk,” including by filing lawsuits raising claims similar to the FTC’s claims in this case. Reed Albergotti, Apple Said Qualcomm’s Tech Was No Good. But in Private Communications, I Was ‘the Best.‘, Wash. Post., Apr. 19, 2019. One Commentator has observed that these documents “potentially reveal that Apple was engaging in a bad faith argument both in front of antitrust enforcers as well as the legal courts about the actual value and nature of Qualcomm’s patented innovation.” Id.
The article cited by FTC is very concerning and worth reading (click link in quote above).
As discussed in our prior post, FTC and Apple were known to have a Common Interest agreement that allowed them to secretly share information and coordinate their strategy toward a common goal in this case and a similar case that Apple filed against Qualcomm. Apple and Qualcomm recently settled that case. Is DOJ signalling in its footnote 6 concern that Apple may have used the actions against Qualcomm to gain a business advantage and FTC may have relied on incorrect information in enforcing this case?
Further, footnote 6 is for a sentence where DOJ expresses concern that the case could harm 5G innovation, stating: “Indeed, there is a plausible prospect that an overly broad remedy in this case could reduce competition and innovation in markets for 5G technology and downstream applications that rely on that technology.” Is DOJ signalling concern that the prospect of unreliable information underlying the FTC case makes it particularly important to have briefing and an evidentiary hearing to ensure that the court uses reliable information to fashion a remedy that could have significant consequences for 5G innovation?