Fed. Trade Comm'n v. Qualcomm Inc.

969 F.3d 974

FEDERAL TRADE COMMISSION, Plaintiff-Appellee,

v.QUALCOMM INCORPORATED, A Delaware corporation, Defendant-Appellant,Samsung Electronics Company, Ltd.; Samsung Semiconductor Inc.; Intel Corporation; Ericsson, Inc.; Samsung Electronics America, Inc.; MediaTek Inc.; Apple Inc., Intervenors,Nokia Technologies Oy ; Interdigital, Inc.; Lenovo (United States), Inc.; Motorola Mobility LLC, Intervenors.

No. 19-16122

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 13, 2020 San Francisco, California

Filed August 11, 2020

Thomas C. Goldstein (argued), Kevin K. Russell, and Eric F. Citron, Goldstein & Russell P.C., Bethesda, Maryland; Gary A. Bornstein, Antony L. Ryan, Yonatan Even, and M. Brent Byars, Cravath Swaine & Moore LLP, New York, New York; Robert A. Van Nest, Eugene M. Paige, Cody S. Harris, and Justina Sessions, Keker Van Nest & Peters LLP, San Francisco, California; Willard K. Tom, Morgan Lewis & Bockius LLP, Washington, D.C.; Geoffrey T. Holtz, Morgan Lewis & Bockius LLP, San Francisco, California; Richard S. Taffet, Morgan Lewis & Bockius LLP, New York, New York; Michael W. McConnell, Wilson Sonsini Goodrich & Rosati, Palo Alto, California; for Defendant-Appellant.

Brian H. Fletcher (argued), Special Counsel; Michele Arington, Assistant General Counsel; Heather Hippsley, Deputy General Counsel; Ian R. Conner, Deputy Director; Daniel Francis, Associate Director; Jennifer Milici, Chief Trial Counsel; Alexander Ansaldo, Joseph Baker, Wesley Carson, Geoffrey Green, Rajesh James, Kenneth Merber, and Mark Woodward, Attorneys, Bureau of Competition; Federal Trade Commission, Washington, D.C.; for Plaintiff-Appellee.

Michael F. Murray (argued), Deputy Assistant Attorney General; William J. Rinner, Chief of Staff and Senior Counsel; Daniel E. Haar, Acting Chief, Competition Policy and Advocacy Section; Jennifer Dixton, Patrick M. Kuhlmann, and Jeffrey D. Negrette, Attorneys; Antitrust Division, United States Department of Justice, Washington, D.C.; for Amicus Curiae United States.

Jonathan S. Massey, Matthew M. Collette, and Kathryn Robinette, Massey & Gail LLP, Washington, D.C., for Amicus Curiae Ericsson, Inc.

Amanda Tessar, Perkins Coie LLP, Denver, Colorado; Sarah E. Fowler, Perkins Coie LLP, Palo Alto, California; for Amicus Curiae Act | The App Association.

Henry C. Su, Ankur Kapoor and David Golden, Constantine Cannon LLP, Washington, D.C., for Amicus Curiae High Tech Inventors Alliance.

Steven C. Holtzman and Gabriel R. Schlabach, Boies Schiller Flexner LLP, San Francisco, California, for Amicus Curiae MediaTek Inc.

John J. Vecchione, Michael Pepson, and Jessica Thompson, Cause of Action Institute, Washington, D.C., for Amicus Curiae Cause of Action Institute.

Garrard R. Beeney and Akash M. Toprani, Sullivan & Cromwell LLP, New York, New York, for Amicus Curiae Dolby Laboratories, Inc.

Erik S. Jaffe, Schaerr Jaffe LLP, Washington, D.C., for Amici Curiae Antitrust and Patent Law Professors, Economists, and Scholars.

Matthew J. Dowd, Dowd Scheffel PLLC, Washington, D.C., for Amicus Curiae The Honorable Paul R. Michel (Ret.).

Andrew G. Isztwan, Interdigital Inc., Wilmington, Delaware, for Amicus Curiae Interdigital Inc.

Robert P. Taylor, RPT Legal Strategies PC, San Francisco, California, for Amicus Curiae Alliance of U.S. Startups & Inventors for Jobs (USIJ).

Jarod M. Bona, Aaron R. Gott, Luis Blanquez, and Luke Hasskamp, Bona Law PC, La Jolla, California; Alexander Shear, Bona Law PC, New York, New York; for Amici Curiae International Center for Law & Economics and Scholars of Law and Economics.

Ryan W. Koppelman, Alston & Bird LLP, Palo Alto, California, for Amicus Curiae Nokia Technologies Oy.

David W. Kesselman, Amy T. Brantly, and Monica M. Castillo Van Panhuys, Kesselman Brantly Stockinger, Manhattan Beach, California, for Amicus Curiae Professor Jorge L. Contreras.

Sandeep Vaheesan, Open Markets Institute, Washington, D.C., for Amicus Curiae Open Markets Institute.

Thomas G. Hungar and Nick Harper, Gibson Dunn & Crutcher LLP, Washington, D.C.; Joshua Landau, Computer & Communications Industry Association, Washington, D.C.; for Amicus Curiae Computer and Communications Industry Association.

Ian Simmons, Benjamin J. Henricks, Brian P. Quinn, and Scott Schaeffer, O'Melveny & Myers LLP, Washington, D.C.,Michael D. Hausfeld and Scott Martin, Hausfeld LLP, New York, New York; for Amici Curiae Law and Economics Scholars.

Charles Duan, R Street Institute, Washington, D.C., for Amicus Curiae R Street Institute.

Gregory P. Stone, Benjamin J. Horwich, Justin P. Raphael, and Stephanie G. Herrera, Munger Tolles & Olson LLP, San Francisco, California; Donald B. Verrilli Jr., Munger Tolles & Olson LLP, Washington, D.C.; for Amicus Curiae Intel Corporation.

Andrew J. Pincus, Mayer Brown LLP, Washington, D.C., for Amici Curiae Association of Global Automakers and Alliance of Automobile Manufacturers.

John ("Jay") Jurata Jr., Randall C. Smith, Thomas King-Sun Fu, and Emily Luken, Orrick Herrington & Sutcliffe LLP, Washington, D.C., for Amici Curiae Continental Automotive Systems Inc., and Denso Corporation.

Jean-Claude André and David R. Carpenter, Sidley Austin LLP, Los Angeles, California; Raymond A. Atkins and Joseph V. Coniglio, Sidley Austin LLP, Washington, D.C.; for Amicus Curiae Timothy J. Muris.

Randy M. Stutz, American Antitrust Institute, Washington, D.C., for Amici Curiae American Antitrust Institute and Public Knowledge.

David H. Herrington, and Alexandra K. Theobald, Cleary Gottlieb Steen & Hamilton LLP, New York, New York; Daniel P. Culley and Jessica A. Hollis, Cleary Gottlieb Steen & Hamilton LLP, Washington, D.C.; for Amicus Curiae Fair Standards Alliance.

Before: Johnnie B. Rawlinson and Consuelo M. Callahan, Circuit Judges, and Stephen J. Murphy, III,^* District Judge.

CALLAHAN, Circuit Judge:

This case asks us to draw the line between anti competitive behavior, which is illegal under federal antitrust law, and hyper competitive behavior, which is not. The Federal Trade Commission ("FTC") contends that Qualcomm Incorporated ("Qualcomm") violated the Sherman Act, 15 U.S.C. §§ 1, 2, by unreasonably restraining trade in, and unlawfully monopolizing, the code division multiple access ("CDMA") and premium long-term evolution ("LTE") cellular modem chip markets. After a ten-day bench trial, the district court agreed and ordered a permanent, worldwide injunction prohibiting several of Qualcomm's core business practices. We granted Qualcomm's request for a stay of the district court's injunction pending appeal. FTC v. Qualcomm Inc ., 935 F.3d 752 (9th Cir. 2019). At that time, we characterized the district court's order and injunction as either "a trailblazing application of the antitrust laws" or "an improper excursion beyond the outer limits of the Sherman Act." Id. at 757. We now hold that the district court went beyond the scope of the Sherman Act, and we reverse.

I

A

Founded in 1985, Qualcomm dubs itself "the world's leading cellular technology company." Over the past several decades, the company has made significant contributions to the technological innovations underlying modern cellular systems, including third-generation ("3G") CDMA and fourth-generation ("4G") LTE cellular standards—the standards practiced in most modern cellphones and "smartphones." Qualcomm protects and profits from its technological innovations through its patents, which it licenses to original equipment manufacturers ("OEMs") whose products (usually cellphones, but also smart cars and other products with cellular applications) practice one or more of Qualcomm's patented technologies.

Qualcomm's patents include cellular standard essential patents ("SEPs"), non-cellular SEPs, and non-SEPs. Cellular SEPs are patents on technologies that international standard-setting organizations ("SSOs") choose to include in technical standards practiced by each new generation of cellular technology. SSOs—also referred to as standards development organizations ("SDOs")—are global collaborations of industry participants that "establish technical specifications to ensure that products from different manufacturers are compatible with each other." Microsoft Corp. v. Motorola, Inc. , 696 F.3d 872, 875 (9th Cir. 2012) (" Microsoft II ") (citing Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations , 90 Calif. L. Rev. 1889 (2002) ). Cellular SEPs are necessary to practice a particular cellular standard. Because SEP holders could prevent industry participants from implementing a standard by selectively refusing to license, SSOs require patent holders to commit to license their SEPs on fair, reasonable, and nondiscriminatory ("FRAND") terms before their patents are incorporated into standards.¹

Some of Qualcomm's SEPs and other patents relate to CDMA and premium LTE technologies—that is, the way cellular devices communicate with the 3G and 4G cellular networks—while others relate to other cellular and non-cellular applications and technologies, such as multimedia, cameras, location detecting, user interfaces, and more. Rather than license its patents individually, Qualcomm generally offers its customers various "patent portfolio" options, whereby the customer/licensee pays for and receives the right to practice all three types of Qualcomm patents (SEPs, non-cellular SEPs, and non-SEPs).

Qualcomm's patent licensing business is very profitable, representing around two-thirds of the company's value. But Qualcomm is no one-trick pony. The company also manufactures and sells cellular modem chips, the hardware that enables cellular devices to practice CDMA and premium LTE technologies and thereby communicate with each other across cellular networks.² This makes Qualcomm somewhat unique in the broader cellular services industry. Companies such as Nokia, Ericsson, and Interdigital have comparable SEP portfolios but do not compete with Qualcomm in the modem chip markets. On the other hand, Qualcomm's main competitors in the modem...