Fed. Trade Comm'n v. Qualcomm Inc.

411 F.Supp.3d 658

FEDERAL TRADE COMMISSION, Plaintiff,

v.QUALCOMM INCORPORATED, Defendant.

Case No. 17-CV-00220-LHK

United States District Court, N.D. California, San Jose Division.

Signed May 21, 2019

Geoffrey M. Green, Jennifer Milici, Daniel J. Matheson, Elizabeth Ann Gillen, J. Alexander Ansaldo, Kenneth Hugh Merber, Mika Ikeda, Philip Joseph Kehl, Rajesh S. James, Wesley Glen Carson, Federal Trade Commission, Charles Earl Dickinson, Dana Abrahamsen, Kent Eugene Cox, Nathaniel Mark Hopkin, Federal Trade Commission Bureau of Competition, Joseph Raymond Baker, United States Federal Trade Commission Bureau of Competition, Emily Bowne, Mark J. Woodward, Washington, DC, Lin Wang Kahn, Federal Trade Commission, Steven Noel Williams, Joseph Saveri Law Firm, San Francisco, CA, Connor Shively, Federal Trade Commission, Seattle, WA, Adam J. Zapala, Mark Francis Ram, Cotchett Pitre & McCarthy LLP, Burlngame, CA, for Plaintiff.

Richard J. Stark, Antony L. Ryan, Pro Hac Vice, Evan R. Chesler, Gary Andrew Bornstein, Pro Hac Vice, James W. Carlson, Pro Hac Vice, Joe Wesley Earnhardt, Pro Hac Vice, Jordan D. Peterson, Pro Hac Vice, Michael Brent Byars, Pro Hac Vice, Nicole Peles, Pro Hac Vice, Roger G. Brooks, Pro Hac Vice, Vanessa A. Lavely, Pro Hac Vice, Yonatan Even, Pro Hac Vice, Cravath, Swaine and Moore LLP, Richard S. Taffet, Pro Hac Vice, Morgan, Lewis & Bockius LLP, New York, NY, Robert Addy Van Nest, Bryn Anderson Williams, Cody Shawn Harris, Eugene Morris Paige, Justina Kahn Sessions, Kristin Elizabeth Hucek, Matan Shacham, Keker, Van Nest & Peters LLP, Attorney: Asim M. Bhansali, Firm Name: Kwun Bhansali Lazarus LLP, Donn P. Pickett, Geoffrey T. Holtz, Nitin Jindal, Rachael Catherine Chan, Rishi Pankaj Satia, Morgan, Lewis & Bockius LLP, Sean Sang-Chul Pak, Quinn Emanuel Urquhart & Sullivan, LLP, San Francisco, CA, Daniel Scott Leventhal, Richard Stephen Zembek, Pro Hac Vice, Fulbright & Jaworski L.L.P., Eric Brinn Hall, Pro Hac Vice, Norton Rose Fulbright US LLP, Houston, TX, Marc Brian Collier, Pro Hac Vice, Fulbright and Jaworski, Stephanie Nicole DeBrow, Pro Hac Vice, Talbot Richard Hansum, Pro Hac Vice, Norton Rose Fulbright US LLP, Austin, TX, Walter Scott Tester, Morgan, Lewis & Bockius LLP, Palo Alto, CA, Willard K Tom, Pro Hac Vice, Morgan, Lewis & Bockius LLP, Washington, DC, Joseph Caldwell Sarles, Scott Liscom Watson, Quinn Emanuel Urquhart Oliver & Hedges LLP, Yury Kapgan, Quinn Emanuel Urquhart & Sullivan, LLP, William Hobbes Forman, Scheper, Kim and Harris LLP, Los Angeles, CA, Stephen A. Swedlow, Quinn Emanuel Urquhart & Sullivan, Chicago, IL, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

LUCY H. KOH, United States District Judge Plaintiff Federal Trade Commission ("FTC") brings suit against Defendant Qualcomm Incorporated ("Qualcomm") for allegedly violating Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and seeks permanent injunctive relief. Specifically, the FTC claims that Qualcomm has harmed competition in two markets for baseband processors, also called modem chips, through a set of interrelated Qualcomm practices. The FTC Act prohibits "[u]nfair methods of competition," which include violations of the Sherman Act. The FTC asserts that Qualcomm's conduct violates (1) Section 1 of the Sherman Act, 15 U.S.C. § 1 ; (2) Section 2 of the Sherman Act, 15 U.S.C. § 2 ; and (3) Section 5 of the FTC Act, 15 U.S.C. § 45(a). ECF No. 966.

On April 3, 2017, Qualcomm moved to dismiss the FTC's Complaint. ECF No. 69. On June 26, 2017, the Court denied Qualcomm's motion to dismiss. ECF No. 134.

On August 30, 2018, the FTC moved for partial summary judgment on the question of whether Qualcomm's commitments to two standard setting organizations ("SSOs"), the Alliance for Telecommunications Industry Solutions ("ATIS") and the Telecommunications Industry Association ("TIA"), require Qualcomm to license to other modem chip suppliers on fair, reasonable, and nondiscriminatory terms Qualcomm's patents that are essential to practicing the ATIS and TIA standards. ECF No. 792. On November 6, 2018, the Court granted the FTC's motion for partial summary judgment. ECF No. 931.

The Court held a 10-day bench trial in this matter beginning on January 4, 2019. The parties gave closing arguments on January 29, 2019. Having considered the evidence and arguments of counsel, the relevant law, and the record in this case, the Court hereby enters the following findings of fact and conclusions of law.

I. STIPULATED FACTS

The parties stipulated to the following facts:

1. Qualcomm is headquartered in San Diego, California. ECF No. 1326 at 1.

2. Since at least 1989, Qualcomm has been, and is now, a corporation. Id.

3. Since at least 1989, Qualcomm has been, and is now, engaged in interstate and international commerce. Id.

4. Qualcomm's operating segment relating to its chip and software business is called Qualcomm CDMA Technologies ("QCT"). Qualcomm's operating segment relating to the licensing of its patents is called Qualcomm Technology Licensing ("QTL"). Id.

5. In 2012, Qualcomm created Qualcomm Technologies, Inc. ("QTI"), a wholly owned subsidiary of Qualcomm. QTI operates substantially all of Qualcomm's products and services business, including QCT, as well as substantially all of Qualcomm's engineering, research, and development functions. Qualcomm continues to operate QTL. Id.

6. Qualcomm CDMA Technologies Asia-Pacific Pte. Ltd. ("QCTAP"), a Singapore company, is a wholly owned indirect subsidiary of Qualcomm. Id.

7. Cellular communications depend on widely distributed networks that implement cellular communications standards. Id.

8. Some original equipment manufacturers ("OEMs") have purchased multimode modem chips for use in Cellular Handsets intended for operation on the major U.S. wireless networks. Id. at 2.

9. Cellular Handsets are designed, marketed, and sold by OEMs such as Samsung, Huawei, Apple, Xiaomi, OPPO, VIVO, Google, Lenovo/Motorola Mobility, and LGE. Id.

10. Consumers purchase Cellular Handsets for a variety of reasons, including for (a) their ability to transmit and receive data at high speeds over cellular networks, such as those implementing Long Term Evolution ("LTE"), the highest-speed cellular standard which has widely commercialized to date, and (b) their ability to perform voice calls. Id.

11. The Third Generation Partnership Project ("3GPP") and the Third Generation Partnership Project 2 ("3GPP2") are global collaborative partnerships of standards development/standards-setting organizations ("SDOs" or "SSOs")¹ and other industry participants that develop technical specifications for cellular standards. Id.

12. The current "organizational partners" of 3GPP are seven regional SSOs, specifically: the European Telecommunications Standards Institute ("ETSI"), the Alliance for Telecommunications Industry Solutions ("ATIS"), the Association of Radio Industries and Businesses, Japan ("ARIB"), the Telecommunication Technology Committee, Japan ("TTC"), the China Communications Standards Association ("CCSA"), the Telecommunications Standards Development Society, India ("TSDSI"), and the Telecommunications Technology Association, Korea ("TTA"). Id.

13. The current organizational partners of 3GPP2 are five regional SSOs, specifically: the Telecommunications Industry Association ("TIA"), ARIB, TTC, CCSA, and TTA. Id.

14. Cellular communications standards have evolved over "generations," including second-generation ("2G"), third-generation ("3G"), and fourth-generation ("4G") standards. Id.

15. 2G cellular standards include the Global System for Mobile ("GSM") and cdmaOne (also sometimes called "TIA/EIA/IS-95" or "IS-95"). Id.

16. ETSI adopted GSM as a cellular standard. ETSI also adopted General Packet Radio Service ("GPRS") and Enhanced Data Global Evolution ("EDGE") as improvements to GSM. These are considered 2G standards. Id. at 2–3.

17. GSM uses time division multiple access ("TDMA") technology. Id. at 3.

18. TIA adopted cdmaOne as a cellular standard. TIA also adopted IS-95A and IS-95B as improvements to cdmaOne. These are considered 2G standards. Id.

19. cdmaOne uses code division multiple access ("CDMA") technology. Id.

20. 3G cellular standards include the Universal Mobile Telecommunications System ("UMTS") and CDMA2000. Id.

21. UMTS is an umbrella term for three 3G cellular air interfaces standardized within 3GPP: UTRA-FDD, commonly called Wideband CDMA ("WCDMA"), used worldwide; UTRA-TDD High Chip Rate, having little deployment; and UTRA-TDD Low Chip Rate, commonly called Time Division-Synchronous CDMA ("TD-SCDMA"), used primarily in China. Id.

22. Included within the CDMA2000 family of standards are CDMA2000 1x, often called 1xRTT, and High Rate Packet Data, often called 1xEV-DO or EV-DO. Id.

23. CDMA2000 was standardized by 3GPP2. Id.

24. In the United States, AT&T and T-Mobile have operated WCDMA networks. Verizon and Sprint have operated CDMA2000 networks. Id.

25. All four major U.S. carriers (Verizon, AT&T, T-Mobile, and Sprint) have deployed LTE, which also encompasses the LTE Advanced, or "LTE-A" standard, as their 4G standard. Id.

26. LTE uses orthogonal frequency division multiple access ("OFDMA") technology for downlink transmissions and single-carrier frequency division multiple access ("SC-FDMA") technology for uplink transmissions. Id.

27. LTE was standardized by 3GPP. Id. at 4.

II. BACKGROUND

The Court discusses cellular standard setting organizations ("SSOs"), Qualcomm's license agreements, Qualcomm's modem chip business, antitrust investigations into Qualcomm's licensing practices, and the credibility of many Qualcomm witnesses.

A. SSOs and FRAND

Standing setting organizations ("SSOs") are global collaborations of industry participants that develop technical specifications for cellular standards. ECF No. 1326 at 2. These specifications ensure that cellular industry participants—including modem chip suppliers, handset original equipment manufacturers ("OEMs"), infrastructure companies, and carriers—develop...