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FTC v. Qualcomm Case Not Quite Done

by Chris Taylor | 9月 11, 2020

Automobile makers Ford, Honda, Daimler AG and Tesla, joined by chip makers Intel and MediaTek, called for a rehearing of the FTC case against Qualcomm in what is called an “en banc hearing.”  According to the companies, the reversal of the FTC case against Qualcomm by the U.S. Ninth District Court in August 2020 would cause car prices to go up.  Automobiles increasingly use cellular chips for communications, and will use 5G chips for V2X in the future.  Qualcomm charges a small fee (about $13) per vehicle for use of its Standards Essential Patent Portfolio (SEPP) and IP related to wireless technologies even if a vehicle uses a competitor’s wireless chips.   

In 2019, FTC judge Lucy Koh found Qualcomm’s licensing methods anti-competitive, ruling that its patent licensing fees applied at the device level to OEMs amounted to a de facto tax on competitors.  Judge Koh found that Qualcomm violated the principal of making its SEPP available at fair and non-discriminatory (FRAND) prices and terms.  The judge argued that refusing to license to competitors violated FRAND, even though Qualcomm promised not to sue competitors for using Qualcomm IP; one sticking point was that Qualcomm was alleged to have made such deals only in exchange for competitors’ sales data, giving Qualcomm an advantage over competitors. 

Regardless of the merits of the complex case against Qualcomm, the FTC’s injunction against charging royalties at the device level went against the common wireless industry practice used by Motorola, Nokia, Interdigital and many other wireless innovators.  Enforcement would have required Qualcomm to keep track of the use of more than 30,000 individual patents by hundreds of OEMs and competitors, and would have destroyed its licensing business through added cost. 

Qualcomm appealed the FTC ruling, and on August 9, 2020, the U.S. Ninth District Court reversed the FTC decision, vacating the injunction against Qualcomm’s licensing model.  The appeals court called Qualcomm’s behavior “hypercompetitive,” but not anticompetitive.  It found that licensing at the OEM level is not a violation of the Sherman Antitrust Act, and that if Qualcomm violated FRAND, the remedy for this was contract and tort law, not antitrust law.

Antitrust proponents and scholars almost universally voiced opposition to the reversal, expressing the opinion that Qualcomm hampered Intel by providing monetary incentives to Apple to use only Qualcomm chips for several years.  In this view, Qualcomm’s exclusive contracts with Apple and other OEMs amounted to more than volume discounts, crossing a line into anti-competitive behavior.

Qualcomm may not be entirely clear of the FTC case yet.  However, an en banc rehearing, as requested by automobile companies, would require a vote by a majority of the judges of the Ninth District Court to proceed, which would seem unlikely given the technical complexity of the case and the time that a rehearing would require.   If the rehearing proceeds and ends without satisfying all sides, the case could end up at the Supreme Court.    

In addition to this, Qualcomm faces a shareholder lawsuit in Delaware Federal Court accusing Qualcomm of withholding information on its alleged anti-competitive licensing practices, thereby causing Qualcomm's stock price to fall when the FTC announced its original finding against Qualcomm.  Qualcomm also faces ongoing litigation in several foreign trade commission cases, although the reversal of the US FTC case should help bolster Qualcomm's position.

The situation at this point is a win for the wireless industry in that it reaffirms the principles of FRAND and charging for SEPP at the device level, which should promote innovation.  Strategy Analytics hopes that Qualcomm and other wireless industry suppliers can in the future avoid complex contractual agreements that have even an appearance of impropriety.

: On October 28, 2020,the U.S. Ninth Circuit Court of Appeals rejected the FTC's request to reconsider the Qualcomm antitrust case.  This appears to be the end of the FTC's case against Qualcomm, and a win for the company.

For more about Qualcomm, SEPP, FRAND, Apple, Intel, and the FTC case, registered subscribers can read FTC v. Qualcomm: Who Wins, Who Loses,  Apple: In with Qualcomm, Out with Intel, and Qualcomm-Apple Legal Battle Threatens Innovation.

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