Today, the Ninth Circuit issues an Order that stays Judge Koh’s injunction entered in the FTC v. Qualcomm case in order to maintain the status quo so that the Ninth Circuit can decide whether Judge Koh’s “order and injunction represent a trailblazing application of the antitrust laws, or instead an improper excursion beyond the outer limits of the Sherman Act”, which is not decided by this Order but “is a matter for another day.”

We provide a summary of the ruling below and, as always, recommend reading the 7-page Order for yourself (see link in first sentence above).   The Ninth Circuit has not decided the substantive issues–that will be done on “another day”–but did indicate that Qualcomm had raised meritorious arguments that (1) Qualcomm was not required to license its SEPs to rival chip suppliers and (2) Qualcomm could assess royalties on its SEPs on a per-handset basis (rather than based on modem chip component of the handset).

As far as next steps, the parties and interested amicus on all sides of the issue are preparing briefing on an expedited schedule in preparation for a hearing at the Ninth Circuit in January 2020.

The Decision

The Ninth Circuit briefly reviewed the case background and summarized the key antitrust violation findings of the district court under review as follows:

  1. District court’s finding that Qualcomm “has an antitrust duty to license its SEPs to rival chip suppliers.”
  2. District court’s finding that Qualcomm “engaged in anticompetitive conduct by using its royalty rates to effectively impose a surcharge on its competitors’ chips.”

The Ninth Circuit also summarized the provisions of the district court’s injunction that were considered as follows:

  1. District court requiring that “Qualcomm make exhaustive SEP licenses available to its competitors.”
  2. District court “prohibiting Qualcomm from conditioning chip sales on the purchase of patent licenses.”
  3. District court “requiring Qualcomm to negotiate or renegotiate its license agreements in that respect.”

The Ninth Circuit then summarized the four factors it considers in determining whether to stay the district court’s ruling until the Ninth Circuit rules on the merits of the case sometime next year:

  1. “whether the stay applicant has made a strong showing that he is likely to succeed on the merits.”
  2.  “whether the applicant will be irreparably injured absent a stay.”
  3. “whether issuance of the stay will substantially injure the other parties interested in the proceeding.”
  4.  “where the public interest lies.”

Factor 1 — Serious Questions On The Merits

The Ninth Circuit found that “Qualcomm has shown, at minimum, the presence of serious questions on the merits of the district court’s determination that Qualcomm has an antitrust duty to license its SEPs to rival chip suppliers.”  The Ninth Circuit considered the duty to deal Aspen Skiing case on which the district court based its decision to be “at or near the outer boundary of [Sherman Act] liability.”  Further, the competition brawl between the two U.S. competition agencies — Federal Trade Commission (FTC) and Department of Justice (DOJ)–shows a “disagree[ment] as to whether Qualcomm’s conduct implicates the duty to deal.”

The Ninth Circuit also found that “Qualcomm likewise has made the requisite showing that its practice of charging OEMs royalties for its patents on a per-handset basis does not violate the antitrust law.”  The Ninth Circuit cited as support the dissent by then FTC Commissioner Ohlhausen that had strongly objected to the FTC instituting this action in the first instance.

Factor 2 — Probability of Harm To Qualcomm Absent Stay

Next the Ninth Circuit found that “Qualcomm has demonstrated a probability of irreparable harm.”  The requirement that Qualcomm “enter new contractual relationships and renegotiate existing ones on a large scale” is a “fundamental business change[] that … cannot be easily undone should Qualcomm prevail on appeal.”

Factors 3 and 4 — Balance of the Equities Favors Stay

Finally, the Ninth Circuit considered Factor 3 (will others be harmed if the injunction is not left in place, but is stayed) and Factor 4 (the public interest) together and ruled that “the balance of equities also weighs in favor of a stay.”  The Ninth Circuit considered this a unique case on these two Factors 3 and 4 because “the government itself is divided about the propriety of the judgement and its impact on the public interest,” stating:

Although the hardship to the party opposing the stay and the public interest usually merge when the government is the opposing party, this case is unique, as the government itself is divided about the propriety of the judgment and its impact on the public interest.  Indeed, the Department of Defense and Department of Energy aver that the injunction threatens national security, and the DOJ posits that the injunction has the effect of harming rather than benefitting consumers. [emphasis in original]

Stay of District Court’s Injunction

The Ninth Circuit thus found that “the requested stay is warranted” and stayed portions of the district court’s injunction pending resolution of the appeal as follows in order to “maintain[] the status quo ante during this expedited appeal”:

  1.  Stay requirement that “Qualcomm must make exhaustive SEP licenses available to modem-chip suppliers.”
  2. Stay requirement that “Qualcomm must not condition the supply of modem chips on a customer’s patent license status” and “negotiate or renegotiate license terms with its customers in that respect.”