9th Circuit Panel Sides With Qualcomm in Chip Monopoly Case Against FTC

The 9th U.S. Circuit Court of Appeals sided with Qualcomm Tuesday in an FTC antitrust lawsuit against the company. In the minutes after the ruling, Qualcomm's stock rose, closing 2.3% higher at $108.83. The FTC is reviewing its options.

Judge Consuelo Callahan issued an opinion vacating U.S. District Judge Lucy Koh’s judgment that Qualcomm engaged in monopolistic pricing. Callahan’s 56-page opinion reversed the district court’s “permanent, worldwide injunction prohibiting several” of Qualcomm’s IP licensing practices. This means Qualcomm won’t have to renegotiate agreements worth billions of dollars with smartphone manufacturers like Apple and Samsung. The FTC alleged a mobile chip monopoly in its lawsuit against Qualcomm (see 2002130058 and 2002140026).

Anticompetitive behavior is illegal under federal antitrust law, but hypercompetitive behavior isn’t, the appeals court said: Qualcomm dominated the 3G and 4G modem chip markets for several years, and “its business practices have played a powerful and disruptive role in those markets, as well as in the broader cellular services and technology markets.” The three-judge panel included Johnnie Rawlinson and Stephen Murphy.

“The court’s ruling is disappointing,” said FTC Competition Bureau Director Ian Conner in a statement. “We will be considering our options.” The agency can request review by the full appeals court up to 14 days after judgment is entered.

The unanimous reversal, “entirely vacating the District Court decision, validates our business model and patent licensing program and underscores the tremendous contributions that Qualcomm has made to the industry,” said Qualcomm Executive Vice President Don Rosenberg in a statement.

The 9th Circuit ignored Koh's opinion detailing how Qualcomm’s “anticompetitive business practices have driven its competitors out of the modem business and raised prices in the cellular industry,” said Computer & Communications Industry Association Patent Counsel Joshua Landau. He urged the FTC to request an en banc review of the panel’s “numerous errors.”

“This is a terrible decision,” Public Knowledge Legal Director John Bergmayer tweeted. “Qualcomm's pattern of behavior and abuse and outright monopolization was egregious.” The court reached the “appropriate” decision, tweeted International Center for Law & Economics President Geoffrey Manne: “No surprise to those of us who filed amicus briefs and weighed in against the district court's poor decision.” Open Markets Institute Legal Director Sandeep Vaheesan called it a “big loss” for the FTC, criticizing the court for failing to define basic terms and citing “Qualcomm-funded scholars as credible sources.”

The decision lacks understanding of the “critical role standards play in the digital economy and the result is a decision that threatens the future of competition, innovation and entrepreneurship, said ACT|The App Association President Morgan Reed: “Huawei and ZTE as well as other foreign standard-essential patent holders are now emboldened to discriminate against American companies by thwarting their ability to compete across the globe.”

The FTC didn’t offer evidence that Qualcomm “engaged in predatory pricing,” Callahan wrote. The 9th Circuit agreed with Qualcomm that the company engaged in “garden-variety price competition that the law encourages.” The district court faulted Qualcomm for “lowering its prices only when other companies introduced CDMA modem chips to the market to effectively compete,” the opinion said.

The FTC failed to show how Qualcomm’s “alleged breach” of contractual commitments impairs the “opportunities of rivals,” the court said. Neither the Sherman Act nor other antitrust laws prohibit companies from licensing standard essential patents (SEPs) “independently from their chip sales and collecting royalties” or “limiting their chip customer base to licensed” original equipment manufacturers, Callahan wrote. The court said Qualcomm’s 2011 and 2013 agreements with Apple haven’t “had the actual or practical effect of substantially foreclosing competition in the CDMA modem chip market.” DOJ sided with Qualcomm in the case, while rival Intel and automakers backed the commission.