Oral Argument in the appeal of Judge Koh’s FTC v. Qualcomm decision is schedule to take place February 13, 2020 before the 9th Circuit Court of Appeals in San Francisco to consider whether and to what extent competition law should apply to licensing standard essential patents (SEPs). This appears to be the most important and impactful U.S. case so far on the issue and could have far reaching impact on domestic and foreign SEP licensing.
The Court will hear from Qualcomm and the U.S. Federal Trade Commission (FTC) and has also allotted the U.S. Department of Justice (DOJ) five minutes to present as amicus curiae during the argument. In addition to the parties-at-interest and DOJ, twenty-two amicus briefs have been lodged in the case by other companies, licensors, industry groups, academics, and interested parties. In fact, due to public interest in the case, the Ninth Circuit has created a separate website dedicate to the appeal, “to notify the media and public of procedures and rules for admission to proceedings, as well as access to case information.” The FTC also maintains its own website on the litigation that includes all the FTC’s filings and public statements regarding the proceedings.
In anticipation of the upcoming hearing, we’re provide this summary of the appeal issues and topics raised by the amicus briefs. As usual, we provide links to the filings and encourage you to read through them yourself.
In January 2017, the FTC sued Qualcomm alleging anticompetitive tactics to maintain a monopoly in the supply of CDMA and premium LTE chips used in cell phones and other consumer products. Among other things, the FTC claimed that Qualcomm used a dominant market position to impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers and to weaken competitors. The FTC alleged Qualcomm violated the FTC Act by: (1) maintaining a “no license, no chips” policy under which the supply of baseband processors was conditioned upon the cell phone maker agreeing to Qualcomm’s licensing terms; (2) refusing to license SEPs to competitors; and (3) extracting exclusivity from Apple in exchange for reduced royalties. The case was heard by Judge Koh at a bench trial in January 2019 (see our February 7, 2019 post discussing some of the background SEP issues and the FTC’s stance in the litigation).
The DOJ on May 3, 2019 lodged a Statement of Interest in the trial court, informing the trial 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.” The FTCvresponded to the DOJ’s statement, arguing that additional briefing and a hearing was misplaced and disagreeing with the DOJ’s view of the law.
Judge Koh on May 21, 2019 issued her Findings of Fact and Conclusions of Law that Qualcomm violated the FTC Act and issued an injunction against Qualcomm (see our May 22, 2019 post summarizing the filing). Qualcomm appealed and moved to stay the injunction pending that appeal. DOJ supported Qualcom’s request to bring more directly to the forefront escalating public disagreement between the DOJ and FTC on whether and to what extent competition law applies to licensing SEPs. In addition to DOJ, Ericsson and former Federal Circuit Chief Judge Paul Michel (retired), lodged amicus briefs in support of Qualcomm’s motion to stay the injunction. In contrast, ACT | The App Association and MediaTek filed amicus briefs opposing a stay and requesting that the injunction stay in place. The Ninth Circuit stayed Judge Koh’s injunction on August 23, 2019 in order to maintain the status quo while the appeal is pending based on, among other things, “serious questions on the merits” of the trial court’s decision that required the Ninth Circuit to decide whether Judge Koh’s decision “represent[s] a trailblazing application of the antitrust laws, or instead an improper excursion beyond the outer limits of the Sherman Act.”
Summary of Qualcomm’s Arguments on Appeal
Qualcomm filedits Opening Brief on August 23, 2020 framing five issues on appeal as follows:
- Did the District Court err in holding that Qualcomm is subject to an antitrust duty to deal that requires Qualcomm to provide its chip manufacturing rivals with exhaustive licenses to Qualcomm’s standard essential patents?
- Did the District Court err in holding that Qualcomm’s patent licenses to original equipment manufacturers are anti-competitive because they impose an “unreasonable” “surcharge” on the chips sold by Qualcomm’s rivals and thereby substantially foreclose competition in certain chip markets?
- Did the District Court err in holding that volume discounts that Qualcomm offered to chip customers were anti-competitive exclusive dealing arrangements?
- Should this Court vacate all or portions of the District Court’s injunction?
- Did the District Court err in granting summary judgment that Qualcomm’s commitments to two standards development organizations require Qualcomm to provide chip manufacturers with exhaustive licenses to Qualcomm’s standard essential patents?
On the first issue, Qualcomm argues the District Court erred in holding the Sherman Act imposes a “duty to deal” that requires Qualcomm to grant exhaustive licenses to its chip rivals, pointing out that the FTC never advanced such a claim in its complaint and that the DOJ “has explained that no such duty exists.” Qualcomm argues that it is afforded virtually complete discretion to determine with whom it will do business and that it violated neither of the two prohibitions that give rise to antitrust liability: (1) that it never abandoned a profitable course of dealing with a rival and (2) that its purpose for licensing at the OEM level is geared to maximize licensing revenue commensurate with the value of its IP rather than to damage competition.
Second, Qualcomm argues the District Court’s holding that royalties paid by OEMs serve as an unreasonable surcharge on chip sales is erroneous for three reasons: (1) Qualcomm conduct that merely raises a rival’s costs is not exclusionary and does not undermine the competitive process; (2) the District Court relied on unsupported speculation to conclude Qualcomm’s OEM royalties undermine competition in modem chip markets; and (3) Qualcomm’s rates are not unreasonable because they have been established and accepted in arm’s length transactions involving other standards — instances where Qualcomm is not alleged to hold monopoly power.
Third, Qualcomm argues that the District Court erred in holding that an array of Qualcomm’s actual and proposed chip discounting agreements are exclusive dealing arrangements, prohibited because they substantially foreclose competition. Qualcomm points out that it does not enter into exclusive dealing arrangements and that substantial foreclosure exists only where competitors lose access to at least 40% of the market — which the District Court failed to find in this case.
The fourth issue raised by Qualcomm is that the District Court’s injunction should be vacated for three reasons: (1) the District Court did not find Qualcomm possessed monopoly power in any market at the time of trial or would have monopoly power in the future, as required by the FTC Act; (2) the finding of a Sherman Act violation does not require an automatic injunction and an injunction here undermines the public interest by hindering U.S. leadership in 5G; and (3) the District Court erred in adopting a categorical, worldwide injunction where U.S. antitrust law does not apply wholly to foreign commerce.
Finally, Qualcomm argues that the District Court erred in granting partial summary judgment that Qualcomm’s agreements with standards development organizations require the company to grant exhaustive license to chipmakers. Qualcomm argues that the agreements and industry practices allow cellular SEPs to be licensed at the device level.
The Federal Trade Commission’s Response
FTC’s Opposition Brief argues that the “case is about Qualcomm’s long-running suppression of competition in the global markets for modem chips, the semiconductors that cellphones and a growing array of other products use to connect to cellular networks.” In essence, the FTC’s brief rebuts the arguments raised by Qualcomm, advocating that the District Court ruling was correct and should remain in tact.
The FTC argues that Qualcomm’s appeal “attacks a caricature of the district court’s careful analysis and studiously ignores what transpired at trial” ultimately concluding that “Qualcomm cannot show any abuse of discretion in the district court’s decision to permanently enjoin its ongoing anticompetitive conduct.”
FTC made four primary arguments. First, FTC argued that the district court correctly found that Qualcomm harmed competition by imposing a surcharge on chips made by competitors. Second, FTC argued that the district court correctly found that Qualcomm breaching its FRAND commitment to license competitors was anticompetitive and subject to traditional antitrust laws. Third, FTC argued that the district court correctly found that Qualcomm’s dealing with Apple was def facto exclusive dealing commitments and anticompetitive. Fourth, FTC argued that the district court properly entered an injunction to stop on-going and likely to recur anticompetitive conduct, and the district court did not need to hold a second evidentiary hearing before determining its injunction remedy.
Summary of Amicus Briefs
Ahead of the February 13, 2020 oral argument, more than twenty amicus briefs have been filed on top of those submitted by Qualcomm and the FTC. In addition to the DOJ, Qualcomm is supported by Action Institute; Alliance of U.S. Startups & Inventors for Jobs; the International Center for Law & Economics and Scholars of Law and Economics; a group of 20 Antitrust and Patent Law Professors, Economists, and Scholars that includes Richard Epstein and former Federal Circuit Chief Judge Randall Rader; and former Federal Circuit Chief Judge Paul Michel. Dolby Labs, InterDigital and Nokia Technologies have submitted amicus briefs expressly in support of neither party, thought the positions taken are generally align with Qualcomm’s.
Amici supporting the FTC include ACT | The App Association; the Alliance of Automobile Manufacturers, Inc.; the American Antitrust Institute and Public Knowledge; Association of Global Automakers; the Computer and Communications Industry Association; Continental Automotive Systems, Inc.; Jorge L Contreras; Denso Corporation; the Fair Standards Alliance; the High Tech Inventors Alliance (which is coalition of companies that advocates on legal and policy issues and includes Adobe, Cisco, Dell, Google, Intel, MSFT, Oracle, Salesforce); Intel; a group of roughly forty Law and Economics Scholars; MediaTek; Open Markets Institute; prior FTC chair Prof. Timothy J. Muris; and R Street Institute.
Arguments Supporting Qualcomm
Below is a summary of amicus briefs that expressly support Qualcomm.
As discussed in our August 12, 2019 post, the DOJ Antitrust Division’s policy positions on the application of competition law to technical standard setting activity is at odds with the FTC’s positions in the Qualcomm litigation. The disagreement has escalated over the course of the litigation, culminating in outright opposition at this stage of the case. Thus, DOJ previously filed an amicus brief supporting Qualcomm’s request that the Ninth Circuit stay the injunction entered by Judge Koh. (See our Aug. 12, 2019 post).
On August 30, 2019, DOJ filed its Amicus Brief on behalf of the United States (unlike FTC, DOJ speaks on behalf of the United States government in legal filings). On January 9, 2020, DOJ filed a Motion to Participate in Oral Argument as amicus curiae in the upcoming argument, asking for five minutes of argument time. In support, the request states that DOJ “enforces the federal antitrust laws and has a significant interest in their correct application in both public and private antitrust enforcement actions in order to protect competition and innovation in a way that is consistent with national security,” arguing that the “district court’s erroneous reasoning and overly broad remedy threaten to stifle competition for innovation in next-generation telecommunications technology and to compromise national security.” The Ninth Circuit granted the request on January 16, 2020.
DOJ’s brief asserts three core arguments in support of Qualcomm. First, DOJ argues that the District Court erred in analyzing Qualcomm’s “no license, no chips” practice, asserting that the court’s faulty analysis fails to establish harm to competition. Second, DOJ argues that the District Court abandoned precedent in concluding Qualcomm violated the Sherman Act by refusing to deal with rivals. Here DOJ argues that the District Court mischaracterizes mere profit-maximizing behavior as anticompetitive malice based on faulty legal analysis. Finally, DOJ argues that the District Court “imposed a sweeping remedy without a hearing and adequate explanation” and that the injunction “improperly polices Qualcomm’s conduct across the globe and extends beyond markets in which the FTC alleged harm.
Alliance of U.S. Startups & Inventors for Jobs (USIJ)
The USIJ identifies itself as “a coalition of 30 startup companies and their affiliated executives, inventors and investors that depend on stable and reliable patent protection as an essential foundation for their businesses.” The USIJ’s amicus brief argues that Judge Koh’s decision misinterprets both antitrust and patent law in ways that “will diminish significantly the incentives of entrepreneurs, startups, inventors and their investors to pursue risky new ventures and unproven technologies.”
The brief argues that “[d]isputes over the terms and conditions of licenses required by participation in the development of interoperability standards are essentially contract disputes, not antitrust issues,” and that aggrieved individual companies could pursue breach of contract claims in order to protect their interests. The brief also argues that “excessive royalties” cannot give rise to monopolization under the Sherman Act and that insisting that users take licenses to patents is not “coercion” if Qualcomm has refused to sell modem chips to an unlicensed OEM.
Looking ahead, the brief closes with arguments that allowing antitrust defenses to patent enforcement will erode the incentives that patents are intended to provide and that the decision, if left unaltered, will have an adverse impact on standard setting by discouraging companies from contributing proprietary technology to SDOs.
Antitrust and Patent Law Professors, Economists, and Scholars
The amicus brief filed by a group of 20 antitrust and patent law professors, economists, and scholars identifies the group as having an “interest in promoting continuity in these interrelated doctrines [of antitrust law and patent law], ensuring progress in new patented inventions that benefit consumer welfare through innovation markets,” arguing the Ninth Circuit should reverse the district court’s decision. The group argues that the district court’s analysis reflects an outdated approach to antitrust enforcement that relies on “per se rules with only generalized evidence and theoretical support.” The group advocates for an approach that applies specific market-based data and economic analysis, arguing “the district court’s constrained findings of fact do not present economic evidence or rigorous empirical analysis proving harm to the competitive process or to consumers.”
Cause of Action Institute
The amicus brief submitted by the Cause of Action Institute argues that the FTC’s antitrust claims fail for the reasons set forth in Qualcomm’s opening brief and argues that the FTC “exceeded its statutory authority in at least four ways.” First, the Institute argues “an unprecedented, highly controversial antitrust enforcement action of international importance is not a ‘proper case'” as required by the FTC Act. Second, the Institute argues that the FTC lacks antitrust authority over Qualcomm’s patent licensing practices. Third, the Institute argues that the FTC Act “does not authorize the mandatory injunctive relief the Order granted, including its edict that Qualcomm must renegotiate its existing licensing contracts and license its SEPs to rival chipset makers.” Finally, the Institute argues that Qualcomm’s past conduct cannot be used to justify a permanent injunction.
International Center for Law & Economics and Scholars of Law and Economics
The amicus brief submitted by the International Center for Law & Economics along with a number of individuals argues that the district court decision “is disconnected from the underlying economics of the case” and “improperly applied antitrust doctrine to the facts.” The brief argues that the district court decision “subverts the economic rationale guiding monopolization jurisprudence” and threatens to “undercut the competitive values antitrust law was designed to protect.”
The Center’s brief focuses on three errors that it identifies as “inconsistent with both Supreme Court precedent and its underlying economic framework”: First, the court failed to require proof of the anticompetitive harm allegedly caused by Qualcomm’s conduct. Second, the court erred in finding Qualcomm had an antitrust duty to deal with rivals. The evidence adduced could sustain the district court’s ruling through only one theory: an illegal unilateral refusal to deal.2 See Aspen Skiing Co. v. Aspen Highland Skiing Corp., 472 U.S. 585 (1985)). But this narrow exception—“at or near the outer boundary of § 2 liability,” Trinko, 540 U.S. at 409—is subject to strict limitations. Finally, because the court didn’t perform a competitive effects analysis, it failed to demonstrate the “substantial” foreclosure of competition required to sustain a claim of anticompetitive exclusion. To avoid the costs of mistaken condemnation, the Court placed tight guardrails around finding exclusionary conduct anticompetitive, requiring foreclosure of “a substantial share of the relevant market.”
The Honorable Paul R. Michel (Ret.)
Former Federal Circuit Chief Judge Paul Michel (now retired) lodged an amicus brief in support of Qualcomm, arguing that the FTC’s theory of antitrust liability and the district court’s opinion “include several erroneous legal conclusions” stemming from incorrect applications of federal patent law that “have contributed to what is a deeply troubling holding that Qualcomm’s licensing conduct was anticompetitive and in violation of the antitrust laws.”
The brief itself focuses on errors in the application of federal patent law. First, Judge Michel argues that “the court’s decision incorrectly imposed a rigid application of the ‘smallest saleable patent practicing unit'” in order to conclude that Qualcomm’s established royalty rate was unreasonably high. Judge Michel argues the SSPPU concept “was and has been used as a tool to avoid jury confusion and has no real applicability in the current case.” Next, Judge Michel argues that “the district court misapplied established precedent on ‘reasonable royalty’ in the context of patented inventions” and “seemingly disregarded the evidence of Qualcomm’s ‘established royalty’ when concluding that the royalty was ‘unreasonably high.'”
Judge Michel then argues that “FRAND disputes are better resolved by contract and patent law than antitrust law” stating that “[i]n this case, the FTC wields the antitrust hammer to punish Qualcomm in what is a dispute between fiercely competitive, very sophisticated companies at the leading edge of innovation.” In closing, Judge Michel argues that “the present unprecedented application of antitrust law risks a foundational abrogation of the U.S. patent system and its incentives to innovate” which are drawn from the Constitution itself.
“Neutral” Amici: Patent Licensing Entities Weigh In
Three amici — Dolby, InterDigital, and Nokia Technologies — submitted briefs in support of neither party, though the positions taken are generally consistent with those taken by Qualcomm. Both Dolby and InterDigital generate most of their respective revenues from licensing and Nokia Technologies serves as Nokia’s technology licensing branch. While none of the neutral amici expressly support Qualcomm or address the merits of the FTC’s case against Qualcomm specifically, their positions seek to protect the interests of patent licensing entities whose core technologies are contributed to standard setting organizations and licensed to those implementing the respective standards.
Dolby Labs: FRAND Doesn’t Require Chip-Level Licensing
Dolby Labs’ amicus brief [LINK DI 84] focuses primarily on “the district court’s improper holding that Qualcomm’s assurances pursuant to the intellectual property rights (‘IPR’) policies of two SDOs… require Qualcomm to license its SEPs to chipset manufacturers.” Dolby Labs’ argues that the district court’s reading of the IPR policies “misconstrues the contractual language at issue and thereby incorrectly limits the ability of licensors and licensees to determine how to best structure their licensing arrangements to bring new technologies and products to market.” From a business perspective, Dolby has over the years made significant contributions to standard setting efforts and its business model relies on its ability to license the underlying intellectual property. In fiscal 2019, Dolby reported just over $1.24 billion in total revenue, roughly 89% attributable to licensing revenues and the remainder to sales of products and services.
Dolby first argues that the district court erred by concluding FRAND commitments impose an obligation to license at the chip-level, asserting that such a requirement runs contrary to the plain language of the underlying agreements and industry practice. Dolby notes “SEP licensing is normally done in many industries at the end-product level” because “SEP licensors seek to obtain a royalty for the use of its SEPs at only one point in the product manufacturing chain rather than from multiple portions or components of a product that use or incorporate the patented technology.”
Dolby closes its brief arguing that forcing SEP owners to license component suppliers would “interfere with historical precedents and established practices, and produce significant inefficiencies and lack of transparency regarding whether products in the stream of commerce are in fact licensed.”
InterDigital: U.S. Public Interest in 5G and Antitrust Limitations
InterDigital’s amicus brief focuses on two issues: leadership by American companies in cellular technologies and 5G and SEP licensing commitments as an improper basis for antitrust liability. As one of the top publicly traded intellectual property companies worldwide, both issues are important to InterDitigal’s business. The company reports its full fiscal 2019 results later this month, but has previously reported patent licensing royalties contributed 96% of total revenues from Q1-Q3 2019 ($208 million of its $216.8 million total). Patent royalties in 2018 contributed $302 million of $307.4 million in total revenue.
On the issue of U.S. leadership in cellular technologies, InterDigital argues “[p]ermitting antitrust theories with inadequate foundations to undermine intellectual property rights would not only decrease innovation, but has the potential to disable innovative US companies from effectively competing on a global scale.” InterDigital points out that the U.S. has “traditionally provided strong protection for intellectual property rights, with the goal of encouraging innovation” and urges the court to “take into account the potential consequences for FRAND licensing regimes and the industries that rely on them.” InterDigital argues that contractual SEP licensing commitments shouldn’t give rise to antitrust liability and that “incentives for US companies to innovate would be drastically reduced if an appropriate balance between antitrust law and intellectual property is not carefully preserved.” Finally, the amicus brief argues that “obtaining relatively high royalties is not sufficient to demonstrate harm to the competitive process” so as to give rise to antitrust liability under the Sherman Act.
Nokia Technologies: Debunking the SSPPU and Component-Level SEP Licensing
Nokia Technologies’ amicus brief takes no view on the ultimate merits of the claims against Qualcomm, but serves to “address certain legal issues that arose in the district court’s rulings below that are of interest to SEP owners in future cases.” The importance of protecting these interests is reflected in Nokia’s business model and recent performance. Nokia reported its Nokia Technologies segment contributed EUR 376 to the company’s EUR 6.9 billion total revenue in the fourth quarter of 2019, with operating margin of 85.1% (compared with a company-wide operating margin of 16.4%). Put into perspective, Nokia Technologies made up only 5% of Nokia’s total revenues in 4Q 2019, while contributing 40% of the company’s entire net operating profit.
Nokia Technologies’ amicus brief makes two high-level arguments: First, patent royalty rates should not be set based on the smallest saleable patent practicing unit (“SSPPU”), as chipsets fail to reflect the value of SEPs. Second, standard setting organizations policies relevant to this dispute (specifically the 3GPP and 3GPP2) have not required SEP owners to license cellular SEPs at the component level.
As to the first issue, Nokia argues “requiring an SSPPU approach to be used in evaluating global portfolio rates is contrary to established and prevailing industry practice.” Nokia asserts chipset-level licensing seeks to reflect the value of standard-essential technologies and insisting on an SSPPU approach to licensing results in an undervaluing of SEP portfolios and inadequate compensation to incentivize future contributions to standard setting efforts.
As for component-level licensing, Nokia argues that IPR policies related to the 3GPP and 3GPP2 have not required SEP licensing at the component level. To do so would contravene industry norms, lead to inconsistent policies across international standards bodies and could result in unintended consequences for other SEP holders.
Amicus Briefs Supporting the FTC
On the other side of the dispute, the FTC has received support from numerous amici that we summarize below.
ACT | The App Association
The Amicus Brief states that the organization “represents more than 5,000 small technology-development companies that create leading software and hardware solutions” and “is particularly concerned with protecting our members’ ability (and legal right) to obtained standardized components that are fully licensed and readily usable, including for incorporation into downstream products, without further individualized transaction costs.”
Supporting the FTC, the Association’s brief argues that Qualcomm’s refusal to license other chipmakers is anathema to FRAND commitments and that a violation of FRAND licensing obligations implicates competition law rather than contract law.
Alliance of Automobile Manufacturers and Association of Global Automakers
Supporting the FTC, the Amicus Brief submitted by the Alliance of Automobile Manufacturers and Association of Global Automakers seeks to protect the interests of the automotive industry amid growing demand for interconnected cars and the SEP licensing issues that accompany incorporating modem chips and new technologies into vehicles. The Alliance represents twelve automakers including BMW, Ford, GM, Jaguar Land Rover, Mazda, Mercedes-Benz, Mitsubishi, Porsche, Toyota, VW and Volvo — that together account for roughly seventy percent of all car and light truck sales in the U.S. The Association represents U.S. manufacturing and distribution subsidiaries of thirteen international motor vehicle manufacturers, including Honda, Aston Martin, Ferrari, Hyundai, Isuzu, Kia, Maserati, McLaren, Nissan, Subaru, Suzuki, and Toyota.
The joint amicus brief argues Qualcomm’s patent licensing practices — specifically the practice of refusing to exhaustively license SEPs to competitors — deter innovation and injure competition, asserting three main points in support of the FTC. First, the brief argues that Qualcomm’s practice of refusing to sell modem chips exhaustively is anticompetitive and runs contrary to the public interest of widespread licensing. Second, the brief asserts that Qualcomm’s practices have harmed innovation and competition in the auto industry, where a complex supply chain rife with information asymmetries allows Qualcomm to overcharge for patent licenses and opens the door for others to do the same. Finally, the brief argues that “adverse consequences from denying exhaustive licensing to suppliers” will extend to the broader economy as IoT-enabled devices are utilized in new industries.
Computer and Communications Industry Association
The amicus brief filed by the Computer and Communications Industry Association argues that “the district court correctly enjoined Qualcomm from refusing to license competitors on FRAND terms” and that the Ninth Circuit “should affirm the district court’s judgment and hold that, as a matter of federal antitrust law, Qualcomm must license its SEPs to all industry participants.” The brief argues that making FRAND licenses available to all industry participants safeguards competition and promotes efficiency, avoiding holdup and exclusion of rivals. The brief further argues that TIA and ATIS policies require Qualcomm to offer FRAND licenses to competing modem chip manufacturers and that Qualcomm’s refusal to do so is a violation of antitrust law.
Jorge L. Contreras
Professor Jorge L. Contreras submitted an Amicus Brief in support of the FTC. Professor Contreras’ brief argues: (1) the district court correctly concluded Qualcomm is required to license SEP to all applicants for licenses, including modem chip suppliers; (2) Qualcomm cannot use its own royalty rates to determine the level of a reasonable royalty; (3) the district court’s remedial order will not threaten U.S. national security interests, as Qualcomm’s compliance with the injunction wouldn’t impair its ability to supply products to U.S. government agencies and other companies continue to invest significant resources to R&D in the industry.
As a competitor of Qualcomm, Intel submits and Amicus Brief arguing that “[d]espite Intel’s investment and commitment, competing on Qualcomm’s distorted playing field proved so untenable that, not long after the trial below, Intel exited the market.” Intel’s amicus brief relays that the company is “uniquely positioned” to assist the Ninth Circuit in this dispute by “describing how its experience reinforces the District Court’s conclusion that Qualcomm has maintained its chip monopoly only by frustrating the normal operation of the competitive process.”
Providing an overview of Intel’s exit from the premium modem-chip market, Intel essentially asserts two arguments: (1) that the district court correctly found Qualcomm unlawfully maintains its modem-chip monopoly through its “no license, no chips” policy and (2) other Qualcomm business practices — including refusing to license rival chipmakers, below-cost pricing, and impeding enforcement mechanisms — “cement the anticompetitive effects of ‘no license, no chips'”.
Law and Economics Scholars
The Amicus Brief filed on behalf of 40 law and economics professors with expertise “at the intersection of antitrust law, intellectual property law, and industrial organization economics” focuses on Qualcomm’s “no license, no chips” policy, arguing that the district court correctly determined that the policy violates Section 2 of the Sherman Act. The brief argues the “no license, no chips” policy is anticompetitive because the policy (1) raises the costs of competitors’ chipsets and erects barriers to entry into the chipset markets and (2) harms competitors and competition and enables Qualcomm to maintain its chipset monopoly power.
MediaTek’s Amicus Brief takes aim at Qualcomm’s appeal brief, arguing “Qualcomm repeatedly distorts the record evidence, cherry-picking individual elements of its anticompetitive scheme and erroneously arguing that each isolated element does not amount to an antitrust violation.” MediaTek states that its semiconductor business has “been excluded from CDMA and premium LTE modem chip markets by Qualcomm’s anticompetitive conduct for over a decade” and expresses an interest in having the district court’s decision affirmed in order to “restore competition.” MediaTek previously opposed Qualcomm’s motion to stay the district court injunction while the appeal is pending.
Of the amici supporting the FTC, MediaTek’s brief lays out the most comprehensive argument against Qualcomm’s appeal brief. First, MediaTek argues that Qualcomm’s conduct must be approached holistically and Qualcomm incorrectly compartmentalizes the court’s extensive findings in order to mask its multifaceted anticompetitive conduct. MediaTek then argues that Qualcomm’s argument distorts the district court’s findings regarding harm to competition, highlighting chip pricing, barriers to entry, and refusals to deal among actual harms caused by Qualcomm’s conduct. Next, MediaTek argues the district court was correct in finding a refusal-to-deal violation under the Sherman Act and the remedial requirement that Qualcomm license its competitors is warranted “because such relief is both an important and a particular effective remedy for Qualcomm’s other wide-ranging exclusionary conduct.” MediaTek then argues the district court was correct in finding Qualcomm used unreasonably high royalties to harm competition, as “supra-FRAND royalties… enable Qualcomm to tax competitors’ chips and exclude competition through exclusivity rebates.”
Turning to district court findings that Qualcomm threatened OEMs with loss of chip supply, MediaTek argues Qualcomm again distorts and compartmentalizes the record, asserting that the district court properly relied on evidence that Qualcomm maintained a monopoly position in the market for CDMA and premium LTE chips. MediaTek makes a similar argument regarding exclusivity-based agreements, asserting that these agreements contribute to Qualcomm’s violation of the Sherman Act. Finally, MediaTek argues that Qualcomm’s appeal distorts the record of ongoing harm to competition, including the development of 5G. MediaTek points to Intel’s exit from the 5G market as evidence of market conditions justifying the district court’s injunction.
Open Markets Institute
The Open Markets Institute in its Amicus Brief argues the district court’s decision should be affirmed in its entirety and provides an overview of the Sherman Act’s prohibitions on unfair monopolistic practices. The Institute argues that repudiating a patent licensing pledge to a standard setting body can qualify as deceptive and constitute illegal monopolization and that district courts have an obligation to fashion effective remedies to prevent future monopolization by the offender.
Prof. Timothy J. Muris
Professor Muris, who served as Chairman of the FTC from June 2001-August 2004 and director of the Bureau of Competition and Bureau of Consumer Protection in the early eighties, submitted an Amicus Brief “to provide historical context and perspective regarding why the FTC’s claims against Qualcomm are consistent with traditional antitrust principles” and “to respond specifically to the brief filed in this case by the Antitrust Division, on behalf of the United States, and to explain why the Division’s current position is an historical anomaly that falls well outside the mainstream.”
Professor Muris first argues that the FTC’s case against Qualcomm “fits squarely within traditional antitrust principles” reflecting an appropriate use of antitrust law to prevent Qualcomm from stifling innovation. Addressing the DOJ’s position, Professor Muris argues that the Antitrust Division’s position is a “historical anomaly” abandoning “bipartisan consensus involving patent holdup.” The brief argues “there is nothing wrong with the theory of patent holdup” asserting that the DOJ has erroneously claimed there is no economic or empirical evidence that patent hold-up is a real phenomenon.
R Street Institute
The R Street Institute Amicus Brief in support of the FTC argues national security favors enforcement of competition laws to prevent monopolistic patent licensing. First, the brief argues that robust competition best protects national security interest in strong cybersecurity as monopoly power can foster technical vulnerabilities and “monoculture” from single-firm dominance. The brief continues to provide examples where “aggressive patent licensing has posed multiple grave risks to American national security”, such as dependence on foreign torpedoes, the Wright Brother’s patent litigation leading to German aviation superiority, and drug patent brinksmanship that threatened to deny the public protection from terrorist anthrax attacks. R Street concludes by arguing that the procompetitive effects of antitrust enforcement are in fact necessary to ensure technological superiority against China.
Fair Standards Alliance
Fair Standards Alliance (FSA) submitted an Amicus Brief making four primary arguments. First, FSA argues that FRAND commitments for SEPs are essential to maintain procompetitive benefits of standard setting. Second, FSA argues that a FRAND commitment requires licensing all-comers, including competitors. Third, FSA argues that violating a FRAND commitment can constitute an antitrust violation. Fourth, FSA argues that using antitrust law to enforce FRAND commitments can support standard setting and innovation.
High Tech Inventors Alliance
High Tech Inventors Alliance (HTIA) filed an Amicus Brief making three primary arguments. First, HTIA argues that requiring those who make a FRAND commitment on SEPs to license all comers protects the procompetitive advantages of standard setting. Second, HTIA argues that enforcing FRAND commitments is essential to today’s market given that standards are ubiquitous in the high-tech industry. Third, HTIA argues that Qualcomm refusing to license competitors distorts operation of the chipset market and harms competition.