US Appeals Court Reverses Antitrust Ruling in FTC vs Qualcommby Andrei Frumusanu on August 11, 2020 6:00 PM EST
It’s been over three years since the United States FTC had charged Qualcomm with antitrust violations over cellular modem patents and business practices. That suit ultimately received a ruling in May of 2019 against Qualcomm, resulting in an injunction for Qualcomm to renegotiate its licensing agreements with its customers. Qualcomm had subsequently appealed the ruling, putting the order on hold, and today, a bit over a year later, the Ninth Circuit Court of Appeals has finally issued an opinion, reversing and vacating the injunction, resulting in a win for Qualcomm at this moment in time.
The appeals court’s opinion centres around the FTC’s use of anti-trust law to hold Qualcomm accountable for some of its controversial business practices in how it handles licensing of its patent portfolio and its “no license, no chip” mode of operation. The opinion attacks the original judgment in that the arguments presented do not fall under the umbrella of anti-trust law violations, and instead it being a matter of contract and patent law.
The original charge revolved around Qualcomm’s supposed refusal to license cellular patents to competitor chip vendors, with the company countering this accusation that its patents only apply to OEM products, not the chips of components themselves:
“Qualcomm argues that it has no antitrust duty to deal with its rivals, and in any case OEM-level licensing is consistent with Qualcomm’s SSO commitments because only OEM products (i.e., cellphones, tablets, etc.) “practice” or “implement” the standards embodied in Qualcomm’s SEPs. Furthermore, Qualcomm argues that it substantially complies with the TIA and ATIS requirements by not asserting its patents against rival chipmakers.”
The appeals panel has upheld Qualcomm’s notion and point-of-view of the practice, stating that there is no antitrust law which prohibits the company from applying licensing arrangements in this way.
More precisely, the matter of Qualcomm collecting royalties from OEMs is said to be due a change in patent law, that forced the company to stop giving non-exhaustive licenses to other chip vendors:
“… Qualcomm claims that it never granted exhaustive licenses to rival chip suppliers. Instead, as the 1999 email suggests, it entered into “non-exhaustive, royalty-bearing agreements with chipmakers that explicitly did not grant rights to the chipmaker’s customers.” Appellant’s Opening Br. at 45. According to Qualcomm, it ceased this practice in response to developments in patent law’s exhaustion doctrine, see, e.g., Quanta Comput., 553 U.S. at 625 (noting that “the initial authorized sale of a patented item terminates all patent rights to that item”), which made it harder for Qualcomm to argue that it could provide “non-exhaustive” licenses in the form of royalty agreements.”
Because Qualcomm applies this practice equally between all OEMs, and there is no history of the company ever granting exhaustive licenses to a chip vendor, the appeals panel also failed to determine any anticompetitive behaviour on the part of the company, calling Qualcomm’s business model “chip-supplier neutral”, and does not undermine competition in the antitrust market.
“… Qualcomm’s practice of licensing its SEPs exclusively at the OEM level does not amount to anticompetitive conduct in violation of § 2, as Qualcomm is under no antitrust duty to license rival chip suppliers.”
As Qualcomm is seen as not having performed any anticompetitive behaviour in terms of its willingness to license patents to OEMs, and the fact that it gives a “CDMA ASIC” waiver license to chip vendors for free in order for them to internally exercise the technology before they sell it onto their customers, its refusal to give chip vendors non-exhaustive patent licenses is not seen as a matter of antitrust law, and the original ruling to be void in this regard.
The appeal opinion also addresses the third matter of the alleged exclusivity deal that Qualcomm had entered with Apple in 2011 and 2013, that given the effect of this deals had not stifled the competition (And arguing with the fact that Intel had subsequently won Apple contracts in following years), that it also did not go against antitrust law.
Overall, the opinion of the appeals panel today represents a major blow to the FTC and its original legal tactic and usage of antitrust law. Whilst this is a major win for the company, it’s not completely out of the woods as the company’s practises could still be in violation of contract and patent law:
“To the extent Qualcomm has breached any of its FRAND commitments, a conclusion we need not and do not reach, the remedy for such a breach lies in contract and patent law.”
While currently Qualcomm can continue its business practises licensing model, it’s likely to continue to receive future scrutiny in regards to the amount of the fees it charges.
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