The U.S. Federal Trade Commission (FTC) convinced a California federal district court not only that Qualcomm’s longstanding intellectual property licensing practices and volume-based discounts violated the antitrust laws, but also that its far-reaching requests for injunctive relief — including the renegotiation of existing patent licenses and a seven-year compliance monitoring period — were appropriate. The decision is relevant for all firms, not just high tech, and offers lessons in a number of areas, including whether and when the antitrust laws can impose a duty to deal with rivals, the risks of loyalty discounts, and the proper documentation of business decisions.
After a 10-day bench trial, the FTC v. Qualcomm court handed the FTC a complete victory and consistently rejected Qualcomm’s view of the facts, instead relying primarily on the FTC’s interpretation of ordinary course documents and the testimony of frustrated licensees and competitors. The court appears to have been influenced by unsuccessful attempts by international antitrust agencies to reign in the identical practices challenged by the FTC, while, at the same time, summarily rejecting the U.S. Department of Justice Antitrust Division’s eleventh-hour attempt to intervene in any decision regarding remedies. Although Qualcomm “strongly disagrees with” and has indicated its intent to appeal the decision, the court’s credibility determinations might make reversal more difficult to achieve. Even with the court’s myriad statements regarding credibility, much controversy exists regarding its application of the antitrust laws, and subsequent district and appellate courts will doubtless have much to say on its treatment of issues such as the duty to deal with rivals, de facto exclusive dealing, causation and injunctive relief standards.
Background
On the heels of investigations by government agencies in Japan, Korea, Taiwan, China and the European Union, the FTC sued Qualcomm in 2017 for its alleged use of anticompetitive tactics to maintain its monopoly power in the wireless cellphone chip market. Much of the FTC’s complaint centered on Qualcomm’s ownership of certain standard essential patents (SEPs) that are key to the development and production of compatible devices able to communicate with each other. Because an SEP is critical to other industry participants, SEP holders must commit to licensing their SEPs on fair, reasonable and nondiscriminatory (FRAND) terms.
The FTC claimed that Qualcomm’s refusal to license its SEPs to other chip suppliers violated its FRAND commitment and the antitrust laws, that Qualcomm instead used its monopoly over chip supply and threats to withhold supply to coerce device manufacturers into unfair license arrangements, and that Qualcomm tied up such a large portion of the available business through exclusive dealing arrangements that its rival chip suppliers were unable to enter or thrive in the market.
Court’s Opinion
As an initial matter, the court determined that Qualcomm had market power in two relevant global product markets — CDMA modem chips and premium LTE modem chips — based primarily on ordinary course documents reflecting high market shares and higher royalty rates. Further, the court held...
