And the dance has officially begun in the U.S. inter-governmental dispute about applying competition law to the technical standard setting process between the U.S. Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ) and we all have an invitation to the brawl. DOJ filed an Amicus Brief that supports Qualcomm’s request that the Ninth Circuit stay the injunction entered by Judge Koh in the FTC v. Qualcomm case until the Ninth Circuit decides whether the district court’s ruling was correct (see our May 22, 2019 post on Judge Koh’s injunction).
Recall that, from the outset of this case filed three-days before the change in administration, the FTC Commission has been evenly split on whether the case should have been filed and pursued, which has left the FTC Staff to be good soldiers following their original orders from the prior administration without guidance from the appointed commissioners. (see our February 7, 2019 post on background of case). In contrast, DOJ’s Antitrust Division, under the guidance of Assistant Attorney General (AAG) Makin Delrahim in the new administration, has announced clear policy positions on the application of competition law to technical standard setting activity. This has led to escalating public disagreement between DOJ giving leadership in this area and FTC Staff being good soldiers following old orders in the absence of current leadership.
Polite public innuendo of differences has now escalated to outright public disagreement. And two other government agencies now publicly support DOJ’s views in this particular case given U.S. national security concerns: U.S. Department of Defense and U.S. Department of Energy. Yet the FTC Commissioners apparently still remain unable to provide guidance on even the simpler issue of whether the district court’s remedy at least should be stayed until the Ninth Circuit in an expedited schedule decides whether the district court’s decision and remedy are correct and in the public’s interest.
Below is a summary of DOJ’s amicus brief supporting a stay of the district court’s injunction and, as always, we provide a link to DOJ’s amicus brief and encourage you to read it for yourself.
DOJ Amicus Brief Sumary
DOJ’s opening paragraph sets the stage for its position as follows:
The district court’s ruling threatens competition, innovation, and national security. Its liability determination misapplied Supreme Court precedent, and its remedy is unprecedented. Immediate implementation of the remedy could put our nation’s security at risk, potentially undermining U.S. leadership in 5G technology and standard-setting, which is vital to military readiness and other critical national interests. Accordingly, Qualcomm has a likelihood of success on the merits, and the public interest favors a stay.
DOJ provides a short background emphasizing that “Qualcomm is ‘the current leading company in 5G technology'” and that “U.S. leadership in 5G technology and standard-setting is critical to national security.” This includes needing a “trusted supplier” for “new military capabilities” and having “secure and advanced wireless communications” for the U.S. “energy and nuclear infrastructure.” Reducing Qualcomm’s leadership in 5G “even in the short-term” could significantly impact U.S. national security “by enabling foreign-owned firms to expand their influence.” DOJ then took issue with the district court imposing a “broad remedy” without having “a separate remedy hearing.”
Qualcomm Likely to Succeed on Liability on Appeal
DOJ argues that “central aspects of [the district court’s] analysis contradict established antitrust principles.”
First, DOJ argues that the district court “failed to identify a harm to the competitive process as required under Section 2 of the Sherman Act,” because, even if Qualcomm charged “unreasonably high royalty rates” from a “no license, no chips” policy, that does not establish harm to the competitive process: “[c]harging high prices is not anticompetitive.”
Second, DOJ argues that the district court’s imposition of a duty to license other chip suppliers–i.e., a “duty to deal”–was an unsupported extension of the Supreme Court’s Aspen Skiing decision that itself was “at or near the outer boundary” of liability. Unlike Aspen Skiing, Qualcomm’s contractual FRAND commitment was not a “truly voluntary[y]” agreement to license other chip manufacturers: “Qualcomm’s compliance with its legally binding FRAND obligations does not signal a voluntary course of dealing.” DOJ expressed concern that the district court’s ruling “can chill participation in standard-setting activity” that to date has been guided by the principle that “the antitrust laws do not negate the patentee’s right to exclude others from patent property.” Further, Qualcomm’s conduct was not shown to be “irrational but for its anticompetitive effect”, that is, the goal of the refusal to deal was not shown to be for the purpose of “adverse[ly] impact[ing] … a rival.” Rather, Qualcomm’s conduct “increased, rather than forsook, short-term profits,” indicating that its goal was profit and not to adversely impact a rival.
Third, DOJ argues that the district court erroneously held that Qualcomm acted out of anticompetitive malice. Intent is no “substitute for evidence of anticompetitive effects” because “[m]istaking legitimate business goals for anticompetitive ones risks chilling the very competition that antitrust law stands to protect.” Here, the district court “fail[ed] to distinguish between desire for profit and anticompetitive intent.” Further, the district court erroneously viewed Qualcomm’s decision to license at the end device level “as contrary to patent law and driven by the desire to harm competition.” Several SEP holders license only end devices and another district court recently held that licensing end products complies with a FRAND commitment. (see our May 25, 2019 post on HTC v. Ericsson).
Qualcomm Likely To Succeed On Remedy On Appeal
DOJ also argues that the district court’s remedy was overbroad and should be vacated because it is “not justified by antitrust law.”
First, the district court’s remedy “mistakenly converted a potential contractual breach [of a FRAND commitment] into a Sherman Act violation” that “[c]onvert[ed] contractual commitments into compulsory licenses, policed by treble-damages lawsuits” that will “undermin[e] important incentives for innovation by reducing the expected rewards below those that FRAND licensing permits.” Basically the threat of antitrust lawsuits and trebled damages may give undue leverage to prospective licensees that will cause patent owners to accept royalty rates below what they otherwise would be entitled under their FRAND commitment.
Second, the district court’s remedy was “unbounded” in scope without having the benefit of an evidentiary hearing and without considering “potential adverse impacts on competition and innovation.” For example, “other SEP owners license their patents in a similar manner to Qualcomm” so the order “will influence the behavior of many participants in 5G” and “impact competition and innovation therein.” Further, the remedy lacks territorial limitations and broadly covers activity outside the U.S. that may be addressed by competition authorities in other countries.
Public Interest Favors A Stay
DOJ argues that the district court’s remedy is “likely broader than necessary” and “risks harming rather than benefitting consumers.” Even near term “it will dramatically change longstanding licensing practices and limit Qualcomm’s ability to invest in R&D and standard-setting.” The district court’s remedy “is intended to deprive, and risks depriving, Qualcomm of substantial licensing revenue that could otherwise fund time-sensitive R&D and that Qualcomm cannot recover later if it prevails.”
Further, the remedy raises significant national security concerns:
In the view of the Executive Branch, diminishment of Qualcomm’s competitiveness in 5G innovation and standard-setting would significantly impact U.S. national security. Qualcomm is a trusted supplier of mission-critical products and services to the Department of Defense and the Department of Energy. Accordingly, the Department of Defense “is seriously concerned that any detrimental impact on Qualcomm’s position as global leader would adversely affect its abiity to support national security.”
The Department of Defense “firmly believes … that any measure that inappropriately limits Qualcomm’s technological leadership, ability to invest in [R&D], and market competitiveness, even in the short-term, could harm national security. The risks to national security include the disruption of [the Department’s] supply chain and unsure U.S. leadership in 5G.”
Thus, a stay of the remedy is prudent until the Ninth Circuit determines whether it was properly entered in the first instance in order to “prevent even a risk to national security.”